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Audit asks if revenue will be sufficient to cover the $1.43 billion Lake Powell Pipeline

By Amy Joi O'Donoghue, KSL | Posted - Aug 20th, 2019 @ 9:09pm


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SALT LAKE CITY — If projections pan out, it appears the Washington County Water Conservancy District will generate sufficient revenue — perhaps even an excess — to cover the costs of the planned $1.43 billion Lake Powell Pipeline, according to a legislative audit released Tuesday.

The probe by the Office of the Legislative Auditor General, however, did recommend the Utah Legislature more clearly define terms of repayment, including interest, and specify final repayment terms to deliver more certainty for ratepayers and taxpayers in general.

“Clarifying and formalizing the pipeline repayment process would provide certainty of expectations for the state and the district,” the audit said, noting the ability for the district to repay the state, especially in the first 15 years, depends largely on how the state restructures repayment terms and conditions.

“The Lake Powell Pipeline Development Act leaves questions unanswered concerning repayment of pipeline costs to the state,” the audit said. “These uncertainties in the act’s repayment requirements could seriously impact the state’s repayment revenues and the district’s ability to pay.”

That observation is key, especially given criticism from groups like the Utah Rivers Council that have blasted the project, characterizing it as an unnecessary and financial albatross that will saddle taxpayers with its excessive costs.

The 140-mile pipeline, which has already cost the state $38 million in preliminary design engineering services, permitting and cultural and environmental studies, will begin near Glen Canyon Dam at Lake Powell and end at the Sand Hollow Reservoir in Washington County.

It will deliver 86,249 acre-feet of water in a 69-inch pipeline to Washington and Kane counties. An acre-foot is enough water to cover a football field to the depth of one foot. The Utah Board of Water Resources will loan the district the money for the pipeline, which will be repaid by impact fees, water sales and property taxes.

The audit points out that the district expects 75% of costs will covered by from impact fees, which will increase by $6,000 by 2026, a funding mechanism the audit notes is volatile because it generates high revenue during a population boom but less revenue in a recession.

Proposed Lake Powell Pipeline map. (Photo: Washington County Water Conservancy District)

“While Washington County’s water impact fees may be among the highest rates in Utah, the county has continued to be one of the fastest-growing areas in the state and country,” the audit pointed out, and is expected to grow to a population of half-million people by 2065.

Construction of the pipeline won’t begin until 70% of the anticipated water is under contract, ensuring what the district says is a steady flow of cash to repay the loan to the state.

The district, according to the audit, has $202 million in available cash, with $100 million available to fund the project.

In a response to the audit, the district noted the savings account is not required by state law and it has built in additional funding streams such as a monthly surcharge on each connection.

While conceding the project does have risks, such as a reduction in population growth and thus a reduction in revenue, the district stressed the risks are not unlike other big projects.

“Every project funded by the state of Utah, including funds for education, roads, airports, etc., share similar risks as investments in water infrastructure,” wrote general manager Ron Thompson and deputy general manager Zachary D. Renstrom.

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“That said, unlike investments in education and transportation, water projects are repaid. Suggestions that water projects should be subject to additional conditions and/or repayment terms not typical in other state financing endeavors are counterproductive. Certainly, if lawmakers had intended to include such ‘special conditions’ they would have written those conditions in the act” authorizing the pipeline, they wrote.

The district did agree that there should be a formalization of the repayment plan once the financing terms and costs are finalized.

Thompson and Renstrom also pointed out the state stands to gain the overwhelming majority of the sales tax revenue generated by the pipeline — $9.4 billion between 2026 and 2060 — and water from the pipeline would support more than $9 billion in gross domestic product, according to the U.S. Bureau of Economic Analysis.

The pipeline project remains under environmental review from the Federal Energy Regulatory Commission. Its earliest completion date is 2028.

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