Powell pipeline tab too steep for Kane County, report shows
By Brian Maffly | The Salt Lake TribuneFirst published Oct 08 2013 01:01AM
For Kane County’s small population to cover its share of the proposed Lake Powell Pipeline, its water conservancy district would have to raise property taxes to the state-allowed maximum, boost water rates by 538 percent and increase impact fees to an average of $28,577 per connection, according to a new analysis.
The report by University of Utah economists, sent Monday to Gov. Gary Herbert and legislative leaders, throws doubt on Kane County’s ability to comply with the 2006 law that requires beneficiaries of the controversial water project to repay all state funding.
"Increasing water rates this much would significantly decrease Kane County residents’ demand for water, making the [pipeline’s] water even more superfluous than the Division of Water Resources currently calculates it to be," states the report’s cover letter, signed by 19 Utah economists including U. department Chairman Thomas Maloney, former U. Academic Senate President Kenneth Jameson and Brigham Young University’s Delworth Gardner.
If rates and fees aren’t hiked, the district’s deficit would accumulate into a swamp of red ink valued at more than half a billion dollars in the next 50 years, the report found.
The county of 7,200 residents, expected to grow by 11,375 by 2060, risks amassing this crushing debt for water that state officials say it won’t need, according to the study’s authors, U. economics professors Gail Blattenberger and Gabriel Lozada.
But Kane won’t be expected to begin repaying until after it starts receiving the water, and that’s 30 to 40 years down the road when it is projected to need bolstered water supplies, according to Eric Millis, deputy director of the Division of Water Resources.
"They [the economists] have based their analysis on a snapshot in time," Millis said. "Details change as you go on with a project. One of the details is the population."
Officials are revising population projections for southern Utah’s Kane and Washington counties as part of the application for a preliminary license to be filed in the next six months with the Federal Energy Regulatory Commission.
The 139-mile pipeline would move 80,000 acre-feet of Colorado River water from Lake Powell each year to fast-growing St. George, funneling off 10,000 acre-feet where the line passes near Kanab. An acre-foot, about 326,000 gallons, is enough water to supply two to four homes.
"The thing runs by their doorstep, so it is an economical source of water, both primary and backup. It gives [Kane County] diversity in their portfolio," Millis said. "They still need to work out the details for their fees and rates for their customers."
Officials always have argued that future growth would cover the $1 billion in pipeline construction costs. But last year, Blattenberger and Lozada reported that Washington County Water Conservancy District would have to raise its revenues by 370 percent to pay for the pipeline, even assuming robust growth.
While Kane County is on the hook for 5.5 percent of the pipeline’s costs, it has a much smaller base of water users. To cover its project tab essentially through water rates alone, it would have to raise those rates by 1,524 percent, coupled with a property tax hike from 0.000621 to 0.001, the maximum water districts may tax.
"When you look at those numbers, it doesn’t seem feasible," Blattenberger said. "Before they get that high, there’s going to be a big reaction. There would be a revolution before that. If the county can’t do it [meet its financial obligations], what happens? Do they say to the rest of us in the state that we should chip in?"
Her study assumes a 50-year loan repayment on $55 million at 4 percent interest and that the water district will begin receiving $1 million a year in 2024 from a proposed nuclear plant. That facility plans to tap water leased from Kane and San Juan counties and pulled from the Green River.
"It’s clear that Kane County residents don’t need the pipeline and can’t afford the price tag," said project critic Sky Chaney, president of the Kane County Taxpayers Association. "It’s shocking to see the millions of dollars of debt that will burden residents if this pipeline is built."
Queries to the Kane County Water Conservancy District were referred to Executive Director Mike Noel, a Republican state lawmaker who is unavailable this week.
The economists applied an "elasticity" model, which accounts for decreasing water use as rates go up. Kane’s per-capita water use is 420 gallons a day, about 2.5 times the national average, so there appears to be much room for reductions in use.
If the district covered the cost by holding water rates at current levels and instead turned to impact fees alone on new construction, those fees would soar from $6,438 to $50,000, the report said. That scenario could put a damper on the growth the pipeline is supposed to accommodate.
Undeveloped land in Kane County would not be as attractive to builders with impact fees that high, Lozada said, so sellers would have to accept lower prices for their land.
Even a combination of increases would still be hefty, according to the study, with water rates shooting up by more than 500 percent and impact fees swelling to an average of nearly $30,000 per connection.