New Mexico City Water Division Financial Strategy Development

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In 1999, the one New Mexico city had recently finished financing and then re-financing the acquisition of its water system. The newly formed City Water Division soon found that the water system was in need of major repairs and that the revenues from water sales were wholly insufficient to pay for it all. In fact, the revenues were not sufficient to meet all of the financial coverage requirements of the bonds that had been issued to finance the acquisition; the City was in technical default of its bondholder covenants and had received notice from bond counsel demanding that the City comply with the covenants or face legal action.

Meeting the demands of the bondholders required an immediate and drastic rate increase. The impact on the City’s new water customers was as unwelcomed as it was unexpected. After the emergency rate increase, the City Council vowed to never let such a situation happen again. With the City’s support, MWH management consultants embarked on a long-range financial plan resulting in a detailed projection of water demands, rates, operating, and capital costs. The strategic plan incorporated all of the repairs required in the water system, the acquisition of a $200 million source of renewable water supplies, and established policies for cash reserves, performance metrics, and annual renewal of the plan.  MWH developed an annual process that established a plan and then reported to the City Council on the Division’s performance to the plan.

    Location: Santa Fe, New Mexico, United States
    Region: Americas
    Service Offering: Management Consulting
    Market Sector: Water & Wastewater
    Status: Complete

    The City successfully restored confidence from the capital markets, quickly erasing its 1999 blemish from its technical default on its bonds. The City was able to finance its major water supply acquisition with new bonds in 2006, receiving a rating of AA from the major credit rating agencies. In 2010, the City refinanced a portion of its outstanding debt and received an AAA uninsured rating. The Water Division has never had a drastic or unexpected rate increase since 2000 despite huge increases in capital project activity; the financial plan called for six successive years of 8% increases starting in 2004/05, the last scheduled increase was for 2013/14. Cash reserves remain strong and the Water Division is able to fund millions of dollars of capital construction each year from its annual earnings without issuing any new debt.


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    Address:
    Santa Fe, New Mexico, United States
    GPS:
    35.6869752, -105.93779899999998

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