By Mark Waite
If Nye County decides to purchase Pahrump Utility Company, there’s a good indication they’ll use Payment Equal to Taxes received from the U.S. Department of Energy for the land value of Yucca Mountain.
The PETT funds, negotiated through five-year settlement agreements with the DOE, pretty much ended when the Yucca Mountain project was killed.
Nye County Treasurer Mike Maher said there’s roughly $35.2 million lying in five different PETT accounts, which the county is required under state statute to invest in mostly U.S. Treasury bonds that are now drawing an average of only 1.12 percent interest, generating $1.09 million in annual yields.
“We’re using the interest to do the debt service on the jail. But as those investments tag off, then I’m looking for better ways to invest that money,” Nye County Manager Pam Webster said. “I’m not committing to anything. I haven’t even applied to USDA yet.”
Even five-year treasury bonds draw an interest rate of only .68 percent, according to the county treasurer.
Webster said she was considering four attorneys to help negotiate with Pahrump Utility Company. She anticipates a county team will be involved in the discussions, making a recommendation to county commissioners on the basic price for the utility and a management fee to manage it for five years.
“It all has to come back before the board once the price is reached and there’s some sort of agreement,” Webster said.
She hopes to have that recommendation ready for commission approval before the end of the year.
“It’s only fair the existing board be the ones that vote on it,” Webster said.
Webster said the county would be able to tap the $8.6 million remaining in the special projects endowment fund or the $8.8 million in the capital projects endowment that are readily available, the other funds have more defined uses. The other PETT funds include $6.1 million in emergency endowment funds, $9.4 million in the educational endowment fund and $2.3 million in health endowment funds, according to Maher’s figures.
“There were some funds that we’re only getting like 1 percent interest on. I thought one of the options might be to use that money and then purchase the utility and we could get 5 percent back on that end, where we would actually gain 4 percent more than we’re getting now,” said Commissioner Butch Borasky, one of the stronger proponents of the utility purchase.
But county commissioners interviewed said they were waiting on recommendations on how to proceed from county officials. Borasky said he hasn’t had all his questions answered yet; he wants to see all the numbers.
Commissioner Gary Hollis said he’s waiting for county staff to tell him where funding is available.
“We haven’t raised that question with USDA yet but staff has been given authority to start working on a contract with the Hafen family,” Hollis said. “If it’s USDA we’ll do it with USDA, if it’s private financing, we’ll see if we can fund it ourselves if we can.”
“My understanding was the county was always going to use PETT money. I thought that’s where the money was coming from,” Commissioner Joni Eastley said.
She voted against authorizing county staff to negotiate the purchase along with Commissioner Lorinda Wichman. Eastley, who lives in Tonopah, had problems with taxpayers county wide paying for a self-contained, public utility that’s only servicing a certain amount of the population in Pahrump.
Accountant Dan McArthur, the county auditor, in an August 2011 report said gross revenues for Pahrump Utility Company in 2009 were $872,600, of which $284,100, or 33 percent, came from standby fees, paid by landowners for plant expansion and utility infrastructure who aren’t yet using utility service. The water system is only operating at 7.5 percent capacity, the sewer system at 18.14 percent.
McArthur said the undeveloped capacity of the system could provide for immediate economic development, eliminating the two year delay time in permitting utility work.
But in his report delivered Aug. 11, 2011 he wrote, “The developers are paying a standby fee to cover the operational costs of the unused plant capacity. The developers are facing economic uncertainty. As this is the case, there exists an uncertainty as to the financial impact on PUCI in future years.”
The replacement cost of the infrastructure has been estimated by the Hafen family at $28.6 million.
McArthur assumed the county would borrow money from the U.S. Department of Agriculture, like they did for projects like the Manhattan water system and Gabbs sewer system.
“Assuming the debt to purchase the utility would be paid over 40 years with an interest rate of 3.76 percent and estimated annual debt and capital reserve requirements would be funded, and that USDA would accept all revenue sources of PUCI, we estimate the maximum purchase price that the utility could support is $5 million,” McArthur’s report states.
Asked to explain that statement, Vicki Hafen Scott, part of the Hafen family that owns the utility, said, “that means there’s 100 percent financing with no money down at those rates and terms and it would break even, or even some positive cash flow.”
Greg Hafen said McArthur’s report showed “it’ll cash flow $5 million and pay for itself at $5 million.”
“How many investments do you get that’s 100 percent financing and cash flow?” Hafen Scott asked.
She said the Hafen family can’t get financing, like grants and low interest loans to build infrastructure for its utility company like the county. Developers had to pay impact fees to build the infrastructure because of the lack of financing.
“If the county or someone else got a grant or low interest loan and extended those facilities, they would extend them and then that whole area would be opened up for development,” Hafen told the Pahrump Valley Times recently.
Pahrump Utility Company took in $855,700 in revenues and had $547,300 in operating expenses, leaving $308,400 available for debt service, according to the 2009 audit.
McArthur said he USDA wants cash flows to exclude standby fees, which accounted for $182,300 in sewer revenues and $102,200 in water fees in 2009.
“USDA officials have indicated they will not accept the standby fees as a revenue source because the fees do not come from users of the utility services. Our contacts at the USDA deemed the standby fees to be non-operating revenues and would not recognize the standby revenue as a source of funding for debt obligations,” McArthur said in his report.
Pahrump Utility Company went to court recently to force one developer, Adaven, to pay standby fees they refused to pay since July 2011.
Pahrump Utility Company has agreed to place $300,000, approximately one year of standby fees, in an escrow account to mitigate the possible impact of unpaid standby fees, McArthur said.
Tonopah Town Manager James Eason, who is a member of the Nye County Water District board, didn’t think the acquisition of Pahrump Utility Company was a good idea.
“Nye County should not be paying for a utility. You don’t buy water companies, you take over water companies that are distressed. At the end of the day it is government’s job to protect the citizens, not to give someone a profit for a utility they no longer want to run because they don’t want the liability. The liabilities associated with water and sewer companies is extremely high and the regulations are changing all the time. Just because they don’t have problems today does not preclude it from having issues five years from now,” Eason said.
If the county pays off the utility purchase over 30 or 40 years at 5 percent, the annual payment could be $248,324, he said.
“At the end of that 40 years we would’ve paid $35 million to buy that utility,” Eason said. “I compare the utility I’m responsible for with the pro forma that was put together, I don’t see how they pencil out.”
Borasky said the utility purchase would take away from north county interests. He said Eason runs an old utility company with not enough population base to upgrade and modernize it.
“I definitely know he’s got a bias against Pahrump. I hate to say it’s a north-south thing, but it definitely smells like it to me,” Borasky said.
A June 2011 study by attorney Mark Fiorentino on water and sewer infrastructure funding sources, mentioned the county could form taxing districts like special improvement districts SIDs or general improvement districts GIDs .
A GID is run by a governing board and has substantial powers to borrow money and levy taxes, he said, county commissioners could serve as the GID board.
The SIDs and tax increment areas closely tie the cost of the project to properties benefitting from it, market conditions may limit the amount of money that can be raised, he said.
Fiorentino said there’s ample flexibility to resolve concerns like standby fees with the USDA.