BRADENTON, Fla. – Beyond the pressing need to make $1.6 billion in critical repairs to its crumbling water and sewer system to resolve federal Clean Water Act violations, Miami-Dade County also needs to finance $11 billion in other improvements to the system.
The proposed multi-year capital improvement plan to fix the south Florida county’s plumbing system totals $12.6 billion.
In addition to rate increases to fund some of the improvements, the county plans to seek creative ways to finance the massive capital requirements of Florida’s largest utility, including public-private partnerships.
“I’ve probably had five or 10 companies as far away as Israel come to discuss public-private partnerships,” Mayor Carlos Gimenez told county commissioners this week.
Giminez has directed water and sewer department administrators to pursue P3s “to get better results and keep our rates as low as possible,” he said.
The overhaul is the largest infrastructure program ever under taken by the state’s largest county, and it is expected to be supported initially by a $4.245 billion water and sewer revenue bond program.
The system covers 14,000 miles of pipes, enough to stretch halfway around the world if laid end-to-end, and serves more than 440,000 customers.
County commissioners this week, faced with federal penalties up to $37,500 per day, approved a consent decree that took more than a year to negotiate, and promised to do $1.6 billion in specific repairs over the next 14 years.
If the agreement is accepted by a judge in about a month, the work will begin immediately.
The decree, which includes settlement of issues raised by state environmental regulators, also requires the county to pay $15 million for maintenance, $2 million for an environmental project funded with general obligation bonds, $825,000 for a monitoring program, and $978,100 for a civil penalty.
Commissioners also gave preliminary approval this week for the $4.2 billion bond program, which is expected to be secured by rate increases of 8% later this year, 6% in each of the following two years, and another two years of rate hikes at 5% each year.
Bond proceeds will help fund the first five years of repairs required by the consent decree and the CIP.
The bond program and rate increases still must undergo several public hearings, but the county’s finance officials are hoping that the first offering of $350 million in new-money bonds will be sold later this year along with a $170 million refunding.
The problems with Miami-Dade County’s water and sewer system developed over many years.
Since 1994, the county has incurred consent decrees largely over sewage spills into environmentally sensitive waters.
Nearly $2 billion has been spent upgrading the wastewater infrastructure to reduce overflows.
In the past five years, county officials said failing aging pipelines have resulted in numerous sewer overflows, and treatment standards have not been met due to equipment failures.
In December, the Environmental Protection Agency, the Department of Justice, and the Florida Department of Environmental Protection filed a federal complaint against the county for violations of federal and state laws, regulations, and permits.
Though the massive CIP has been discussed for several years, commissioners acknowledged in recent meetings that they kept water and sewer rates artificially low and prevented some projects from being done.
Commissioner Sally Heyman said that rates would remain “incredibly low” among Florida counties even with the proposed increases over the next five years.
“No one in this room hates rate increases more than me,” Gimenez told board members. “It’s what we have to do to repair our system and comply with the federal government.”
The economic downturn and other problems crimped funding available for repairs.
In 2011, commissioners dipped into the water and sewer department budget and took $32 million to support the general fund. Last year, they took out a $25 million “loan.”
Taking money from the department “is something that has kind of destroyed the water infrastructure,” Commissioner José “Pepe” Diaz said, adding that a “complete fix” can no longer be delayed.
The county’s resolve to fund the massive overhaul came too late for Fitch Ratings, which in February downgraded its rating to A-plus from AA-minus on $1.9 billion of outstanding water and sewer revenue bonds.
Declining financial margins, and the lack of rate increases as debt payments escalated the last two years, were primary reasons given for the downgrade, according to Fitch analyst Kathy Masterson.
In 2011, debt service coverage on senior-lien water and sewer bonds fell from 2.06 times to 1.78 times after the $32 million transfer to the general fund.
Last year, coverage fell to 1.59 times after the $25 million loan, and debt-service costs increased 16%, Masterson said.
“Despite very low combined rates of approximately $40 per month, Fitch views rate flexibility of the system as limited, as indicated by no rate increases the last two years while debt service costs were escalating,” she said.
Standard & Poor’s assigns an underlying rating of A-plus to the water and sewer bonds, while Moody’s Investors Service rates the debt Aa2.
Miami-Dade finance officials have said that portions of the proposed water and sewer rate increases are designed to improve coverages.
Commissioners have yet to solidify the exact rate increases.
In addition to bonding and public-private partnerships, Miami-Dade expects to study other potential methods of financing the massive sewer system overhaul.
Commissioner Esteban Bovo, who also chairs the county’s finance committee, said he would like to consider asking state legislators for permission to use a portion of the tourist tax to fund some of the CIP.
Tourists, he said, “use our toilets, they shower.”
Tourist tax revenues in Florida cannot be used for general government services such as police, fire, and infrastructure such as water and sewer systems.
Bovo also suggested that the federal water bill passed by the Senate last week could also help the county pay for the sewer system’s capital plan.
The bill includes a $250 million Water Infrastructure Finance and Innovation Act program that would provide low-interest loans and loan guarantees for water infrastructure projects.
“If we can get that,” Bovo said in a recent meeting on the CIP, “it would help reduce costs.”