Mayor won't sign for Utilities credit without discussion

Colorado Springs Utilities is a billion-dollar powerhouse that routinely gets what it wants from city officials.

But the city’s first strong mayor is giving the city-owned enterprise a run for its money.

Mayor Steve Bach said Thursday that he refused to sign off on a $150 million line of credit for Utilities after learning that it cost ratepayers tens of thousands of dollars in fees annually and also put the city on the hook if Utilities failed to live up to its obligations.

“Colorado Springs Utilities served up to me before Christmas a document to sign extending a line of credit that it has in the amount of $150 million. No advance discussion,” Bach said during a wide-ranging news conference at the City Administration Building downtown.

“I was just told to be in my office at a certain time and be prepared to sign a document,” he said.

Even though the mayor has no oversight of the utility under the new mayor-council form of government, the city charter gives him the power to sign all city contracts, posing a major challenge for utility officials.

Utilities is described as the “tail wagging the dog,” and the City Council, which doubles as the Utilities Board, is often accused of rubber stamping Utilities’ requests.

The revolving loan agreements that Bach refused to sign were unanimously approved by the council on Dec. 13.

According to documents from the Dec. 13 agenda, Utilities maintains a revolving loan agreement “to provide an additional source of liquidity.”

“Credit rating agencies have identified a strong cash position (liquidity) as one of the key characteristics of a highly rated public power issuer,” city documents state.

Utilities spokesman Dave Grossman said the line of credit is for capital expenditures.

“Especially during unplanned outages, things that come up unexpectedly, that can cause a strain on our cash flows,” he said.

In an email, Grossman said “all utilities” issue debt to spread the cost of projects to improve their systems over many years.

“If utilities did not issue bonds,” he wrote, “customers’ utility rates would need to be increased significantly.”

Bill Cherrier, Utilities’ chief planning and finance officer, issued a statement indicating that the mayor’s refusal to sign off on the line of credit would have financial repercussions.

“Maintaining a revolving-loan agreement is the lowest cost way to maintain liquidity and a strong bond rating,” he said. “A strong bond rating keeps interest rates low, which in turn, keeps utility rates low for our customers.”

Bach said  routinely signs documents, but the numbers associated with that particular contract gave him pause.

“I don’t just sign $150 million contracts every day, and I’m not comfortable doing that without understanding the terms and conditions,” he said.

Bach said he asked City Attorney Chris Melcher to look at the agreement. Melcher and Steve Cox, the mayor’s former chief of staff, advised him not to sign the document, at least not yet, Bach said.

One of the reasons is that Utilities has maintained that line of credit for at least four years but “has never drawn a dollar,” costing ratepayers $140,000 a year in fees, the mayor said.

“We, in our utilities rates, have paid for about ($560,000 over four years) in fees to a bank, I assume, for this line of credit that has never been used,” he said.

Bach said Melcher told him that the revolving loan agreement includes language that not only obligates Utilities for the line of credit “but further encumbers the full faith and credit of the city of Colorado Springs.”

“Why would the lender need the full faith and credit of the city backing up Colorado Springs Utilities that has all the money anyway?” Bach said.

Council President Scott Hente said he disagrees with Bach’s interpretation that the revolving loan agreements require the city’s “full faith and credit.” But he said Melcher promised him that he was moving toward “some type of resolution” in the next week or two.

Hente said the problem is with the city charter, which states that the mayor is a non-voting member of the Utilities Board with no veto power over utility items but responsible for executing all city contracts.

“Clearly to me the best solution here is to fix the charter,” he said.

Hente said Utilities’ bond rating agencies understand that the city is going through some growing pains with its new form of government.

“For the short-term, they’re sympathetic, but we’ve promised them that we’ll get this resolved quickly,” he said. “We’ll get our lines of credit back to where they need to be, and everybody seems to be hunky-dory with that answer.”

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