Rapid repayment of debt to save Pima County millionsby Pima County News on Sep. 12, 2012, under Economic Development, Environmental Quality, Pima County, Southern Arizona, Tucson, Water
In the same way that paying your mortgage off sooner saves significant amounts in interest payments over time, Pima County is using a strategy that will save $11 million by paying down debt more quickly over the next three years.
The Board of Supervisors Tuesday approved issuing $210 million of debt to help pay for a state-of-the-art wastewater construction project that will accommodate future growth and ensure the County meets strict federal mandates set by the U.S. Environmental Protection Agency.
That debt is split into two main tracks.
Approximately $150 million will be standard debt that’s repaid over a 15-year term. Although it is common for other jurisdictions to issue debt over as much as 30 years, Pima County generally pays 80 percent of its debt in the first 10 years.
Here’s why that makes smart fiscal sense: Assuming 4 percent interest, a 30-year, $150 million debt carries $57 million more in interest than a 15-year debt. Not only does that practice allow the County to save on interest payments, but it also ensures there is adequate debt capacity to respond to key needs.
Meanwhile, another $60 million is expected to come in the form of “certificates of participation,” which are essentially a form of debt that has an asset attached to them as collateral.
Those certificates are expected to be repaid over three years. The move has the added benefit of allowing the County to issue less long-term debt to finish the last phase of the project. This financial strategy of paying off the certificates in three years versus the standard county debt term of 15 years will save $11 million in interest payments.
“Funding wastewater improvements have proven extremely difficult for some other communities because they are expensive and complex projects,” acknowledged Pima County Administrator Chuck Huckelberry.
“In Pima County’s case, our facilities were more than 50 years old and would not meet compliance with federal mandates. But even though this is a large undertaking, we are rapidly paying it off. And once it is complete in 2015, we will be able to support 160,000 new homes and businesses without further significant investment.”
When complete, the wastewater upgrades will allow Pima County to decrease the amount of nitrogen and ammonia in the region’s effluent, which is typically discharged into the Santa Cruz River and can percolate into the groundwater.