Colorado Springs Utilities has billions in debt. The city of Colorado Springs, on the other hand, does not.
Why does one entity have more debt, while the other has far less — when essentially the same group of people governs both?
Here’s the debt breakdown.
From 2008 to 2015, CSU’s noncurrent liabilities increased from $1.82 billion to slightly more than $3 billion, an increase of $1.18 billion in six years. Since peaking in 2014, long-term debt has declined to $2.46 billion as the municipally owned utility has stopped spending on the $825 million Southern Delivery System that now provides water from Pueblo Reservoir.
As a municipal utility, the 465,000 residents of Colorado Springs own CSU. Every resident’s share of the debt: $5,290.32
Compare that to the city: Colorado Springs has no outstanding general obligation or sales tax revenue bonds. Its total long- and medium-term debt stands at $64 million. That includes $17 million in airport revenue bonds and $8.8 million in parking system bonds, which are secured only by enterprise revenue. Certificates of Participation issued by the city’s Public Facilities Authority in 2009 to support the U.S. Olympic Committee facilities project amount to another $30.5 million. The remaining debt includes $3.5 million still owing for the Red Rocks Canyon lease/purchase, $2.35 million for the city administration building lease/purchase, $1.9 million for City Hall renovation Certificates of Participation and $965,000 for the Skyview softball complex.
Subtracting city enterprise debt leaves $40 million in long- or medium-term debt. Each resident’s share equals $86 per capita.
The difference in debt between the two entities mostly stems from charter changes and voter oversight.
“When we sit as council, we’re a legislative body, but when we meets the Utilities Board, we’re a corporate board,” said Merv Bennett, president of the Colorado Springs City Council. “That’s a big difference.”
In 1991, city voters passed two far-reaching charter amendments. One, the earliest iteration of the Taxpayer’s Bill of Rights, banned City Council from raising taxes of any kind without voter assent, while the other phased out a dedicated capital improvements tax that Council had put in place several years earlier. These measures put city revenue and spending in the tightest of straitjackets.
The rapidly growing municipality became increasingly unable to execute long-term plans. City voters were reluctant to increase taxes or authorize new debt, and city spending per capita shrunk substantially. Only the most urgent capital improvement needs were funded, while ambitious plans for revitalizing the city core and rebuilding decaying transportation corridors died.
By 2014, fires, floods and long-deferred infrastructure needs led City Council and the Board of County Commissioners to jointly propose a de facto property tax to fund a regional flood control authority. Then-Mayor Steve Bach opposed what came to be known as the stormwater tax, and a majority of voters agreed with him — the “rain tax” was defeated.
In 2015, newly elected Mayor John Suthers, who swept into office with almost a two-to-one margin of victory over runoff opponent Mary Lou Makepeace, quickly persuaded voters to approve a .62 percent sales tax to fix the city’s deteriorating road network.
The stormwater problem also had to be solved. Interestingly, using long-term debt to do so was never under consideration. Instead, the city cobbled together a solution that repurposed the $8 million annual payment on capital improvement bonds that were paid off in 2016.
Utilities’ debt is considerably higher than the city’s. Is it a cause for concern?
“No,” said Utilities CFO Bill Cherrier. “We’ve been through our maximum capital-intensive period during the last several years, and our long-term debt is actually declining.”
Colorado Springs financial adviser Allan Roth, owner of Wealth Logic, mostly agrees with Cherrier.
“Their [debt/equity and debt service] ratios seem to be in line with other utilities,” he said. “They do seem to have a lot of cash and cash equivalents, though. It might make sense to keep less cash and pay down some debt.”
CSU’s bonded indebtedness from 2014 to 2015 dropped by $22 million to $2.4 billion, although noncurrent liabilities increased by $190 million. That’s because new government accounting standards require CSU financial statements to include potential pension liabilities relating to the Colorado Public Employees’ Retirement Association.
When meeting at CSU headquarters as the Utility Board, city councilors have far more power and
latitude than they do at City Hall. The board can authorize long-, medium- and short-term debt without ratepayer approval, set rates for all four services, make and execute long-term strategic decisions and carefully balance future needs against present desires.
“(Being able to issue debt and increase rates) has been beneficial, I think,” Bennett said. “Regarding SDS, I don’t know whether ratepayers would have understood the necessity to raise rates as originality projected to fund a seven-year project of that scale. We’re lucky that (city elected officials) in the ’30s, ’40s and ’50s understood that, or we wouldn’t be the city we are today.”
CSU’s ability to act quickly paid off in 2010, when the utility bought out its equity partner and acquired sole ownership of the 480-megawatt gas-fired combined cycle Front Range Power Plant. The company exercised its soon-to-expire buyout option and acquired Northern Star’s 50 percent interest for $104.5 million.
“It was the bottom of the recession, and these kinds of transactions were taking place for pennies on the dollar,” said Cherrier. “We replaced taxable debt with tax-free bonds and diversified our generation mix. It’s been a really good acquisition — Front Range is a very efficient and reliable generator.”
The nature of the utility business also drives debt levels.
“Utilities are very capital-intensive businesses,” Cherrier said. “You need generating plants, pipelines, distribution systems and so on. You can’t just rent an office and call yourself a utility. And utilities tend to be monopolies — you don’t want four sets of lines running down the street.”
Building, maintaining and operating CSU’s four-service system would not be possible without long-term debt. In the past decade, CSU has spent more than $1.4 billion on crucial capital improvement projects, including the Front Range plant, Southern Delivery System ($825 million) and pollution control systems for the Nixon and Drake plants ($300 million). Total capital spending for the next four years is projected at more than $800 million, funded by a mix of operating revenue, short-term debt and long-term bonds.
CSU’s borrowing costs are low. Southern Delivery System-related bonds have an average rate of less than 4 percent.
“We’re using short-term commercial paper,” said Cherrier. “It really doesn’t make sense for us to do [a long-term debt issue for] less than $100 million. And we keep 125 days of cash reserves to be ready to meet any emergency, like the floods and fires.”
And while debt is short-term, assets are not.
“Our assets are very long-term,” said Cherrier. “If you don’t maintain a road, that’s one thing, but if we didn’t maintain pipelines and reservoirs, the costs [of deferring maintenance or crucial capital expenditures] would be multiple, multiple times.”