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$35 million dollar pipeline

When Is A $35 Million Dollar Pipeline Not A $35 Million Dollar Pipeline?

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.

$35 million dollar Pipeline

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.

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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.

Stay Tuned.

 

*** This article was updated to make a correction on simple and compound interest.

 

 

 

Elect Sam Toll For County Commissioner

About Sam Toll

Sam Toll is a native of Gold Hill and returned home in 2016 after 35 years in the Sacramento Valley. He enjoys old cars and loud music. And writing.

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7 comments

  1. HOW TO BUILD A $35 MILLION PIPELINE
    FOR SELF-SERVERS AT TRIC FOR $86 MILLION
    Thanks Sam Toll.
    I think.
    I see this kind of mendacity and double-dealing evil
    everywhere over here in Reno.
    Storey County TRIC-turners are just “better” at it.
    Where is the tar and feathers?
    Where are the revolutions?
    Sam DNA Dehne
    PS
    This treachery is even worse than depit

    • … worse than the previous chicanery perpetrated by TRIC getting the taxpayer funded Citizens’
      gigafactory itself, and getting the Citizens’ taxpayer-funded USA Parkway for these charlatans.
      Perfidiousness personified with etcs, etcs, etcs ad infinitum.

  2. GREEDY DEVELOPERS (BUT I REPEAT MYSELF)
    We wait with baited breath to see who the developers are. But we have a
    suspicion they are the regular govt-trough feeding “usual suspects” from before..
    and before.. and before.
    Sam DNA Dehne

  3. The giant businesses at TRI need water. I get it. I have run major divisions of Fortune 100 companies so I am not in the slightest anti-business. However, for a deal to be good, it must pencil out for all parties.
    A quick review of the chart offered shows that the “loan” will be at 5% interest and the water users will pay 2.35 cents a gallon. At that rate, the users will cover both the interest and principal of the loan with a net $244,459 left over. I do not know where this “profit” goes (the county, TRI GID?). Sounds like a fair deal but lets look at the other side of it…The tax payers are investing $35 million to presumably get an annual return of $244,459. That is slightly less than 7/10 of one percent interest. Who among us would purchase a $10,000 Certificate of Deposit which had an annual return of $69.85. Bad deal for us the investor.

    Questions:
    What provisions are made for potential cost overruns?
    What guarantee is there that all of the effluent will be purchased and if not where does it go?
    Who is responsible for the pipeline maintenance and repair?
    Who is responsible for the effluent treatment and to what standard?
    What provisions are in place to cover and unanticipated revenue shortfall.

    Inquiring minds want to know.

    • Ray,
      The chart shows what the companies in the Special Assessment District will pay the county for the county to turn around and pay the state. They assume that the bond interest rate to be paid by the county to the state will be 5%.
      The Special Assessment District companies will be paying the county back 6% so that the county gets the extra 1% for expenses related to carrying the loan and to administer it.

      All of that is a smokescreen.

      The smokescreen is there to obfuscate the fact that there will also be a Tax Increment Area, in the same location as the SAD , with the same companies where all taxes above the current tax revenue will be used to reimburse the bond payments made by the companies to the county.

      Now, the majority of that kand is undeveloped so the tax revenue baseline is currently low. When it gets developed the tax revenue will go way up…..those taxes will get siphoned to reimburse the companies….OUR tax revenues. I am scheduling a town hall meeting in Lockwood and the Highlands so people under stand this and to decide if they are for or against it.

      🤯

      Nicole Barde

      • Nicole,
        Thank you for your clarification of the obfuscation. Kinda sounds like Abbot and Costello’s whose on first. That was funny…this is not. I can see that this is a good deal for the current businesses at TRI since they will have access to the water they need at reasonable cost and no capital investment. It is also a big win for TRI vacant property owners since the access to additional water will likely increase the value of their holdings substantially at no cost to them.

        What I fail to understand is how incurring substantial debt with unknown potential risks and a projected minimal return is of benefit to Storey County residents.

        Is this a done deal?

        I greatly appreciate your time and efforts in monitoring this important issue. I am amazed at the lack of comments from our elected or appointed officials and candidates.

  4. I don’t know how far down the track they are …They are focused on the financing stucture of the deal as well as who is in first or second position on any default, and how much the state will “contribute” to the Tax reimbursement scheme in the TIA. I think that the use of our taxes to pay for this thing is a done deal since they didnt iffer alternate financing options…..which is a huge missing in this type of deal as far as I am concerned…..the details are what they are working on….including the answers to your questions.

    They have an October drop dead date.

    Nicole

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