Question: When Is A $35 million dollar Pipeline Not A $35 million dollar Pipeline?
Answer: When you have to borrow money to pay for it.
On August 7th, Storey County Commissioners approved moving forward on a plan to borrow money for an effluent pipeline. The pipeline would divert future County Tax Revenue to supply TRIC developers with 1.3 million gallons of effluent a day. You can read about the details of the pipeline’s deal structure here.
One of the slides in the presentation presented a sample repayment schedule shown below. You can scroll to the bottom of this article to read the entire presentation.
Anyone who has a home mortgage knows (or should know) how the whole interest vs. principal thing works. There are free simple interest calculators you can download (like this one) to show you how much faster you can retire your mortgage if you pay a little bit more each month.
The proposed pipeline deal is no different. From the cash flow statement above, you can see how the cash flows over the 20 year lifetime. As the numbers show, the $35 million dollar pipeline will actually cost taxpayers $56 million dollars in future tax revenue.
But Wait, There’s More
Anyone paying attention knows government funded construction projects never end up costing what the project proponents propose initially thanks to the magic of cost overruns. In 2008, California taxpayers foolishly approved a $10 billion dollar bond to build a High Speed Rail System to connect the San Francisco Bay Area to Los Angeles. Ten years after the taxpayers approved the boondoggle, the project has quintupled in cost. “The Bullet Train To Nowhere” is now estimated to cost taxpayers between $77 billion and $97 billion dollars. And it won’t be completed until the mid 2030’s. And you can take Southwest Air from SFO to LAX for around a hundred bucks. And get there in like an hour.
Let’s be charitable and say that the pipeline will only increase 10% over the initial construction estimate. This brings the project cost to $38.5 million. If you downloaded the compound interest calculator, you would see that a 10% cost overrun will move the total price from $56 million to $66 million. Jeez.
But Wait, There’s Even More
I read the presentation carefully, and a bullet point that talks about the terms of the bond caught my eye:
Using the handy dandy interest calculator, we see that if the terms of the bond move to where the “developer” requests, the total cost of the pipeline goes to $67.5 million ($ 74 million with a 10% overrun). Taxpayers will be on the hook for $75 million ($84 million with a 10% overrun) if they invoke the maximum 30 year term.
So there you have it. The $35 million dollar pipeline could end up costing us up to $84 million dollars in future tax revenue. And that is if they don’t change the scope of the project after we approve the deal. The
How you like them onions, gentle voter?
Since Commissioner Gilman can’t vote on this proposal, wouldn’t it be great if we could postpone the final vote until a new commissioner was seated? The current schedule has the final vote
In part three of the our coverage of the “$35 million dollar pipeline deal”, we will look at exactly who these developers are. Prepare to get all dandered up.
*** This article was updated to make a correction on simple and compound interest.