Eye On Modesto

Thoughts and observations about Modesto and Stanislaus County

Vance Kennedy Voices Concerns to the MID Board

By Vance Kennedy

1.  There is an estimated minimum need for about $35 million dollars in funds to answer requirements for Don Pedro

Drip Irrigation Layout and its parts.

Drip Irrigation Layout and its parts. (Photo credit: Wikipedia)

reservoir and the MID irrigation system.  That number is a very approximate one.  To the best of my knowledge, funds have not been saved for this.

2.  That money is too large to be obtained by immediate charges, so a bond issue is necessary.

3.  Recent comments by the head of the Federal Reserve, suggesting an easing of bond buying, caused a very rapid jump in 30-year Treasury interest rates of 0.8 percent.  That still leaves interest rates far below long-term averages.  However, the Federal Reserve immediately hastened to try to calm the fears of a rapid rise in interest rates.  It helped, but did not cause interest rates to return to the prior low rates.

4.  In the past, large-scale printing of money resulted in large increases in inflation, but with a variable time delay.  It seems reasonable to assume a similar occurrence in the future.

5.  Now is the time to sell bonds before the Federal Reserve actually does raise interest rates.

6.  A source of bond repayment must be identified before the bonds can actually be sold.

7.  That means an equitable distribution of charges to water users is needed, which will take time, but the time available is very, very short if we are to take advantage of existing low interest rates and before inflation takes off.

8.  The only way a bond can be issued rapidly is to use MID’s overall credit, with a definite written agreement that raw water users will repay the rest of MID customers as soon as possible, and that means very promptly, with no exemptions.

9.  That will require a major, perhaps gradual, charge causing water rates to increase greatly.

10. When water rates increase greatly, many farmers may forego flooding and use drip irrigation.

11. That will result in dropping the water table greatly, just like in the foothills, due to lack of sufficient groundwater recharge.  Also, it could cause a permanent loss of rights to river water, since flood irrigation is greatly reduced and canal water will not be used beneficially.  That loss of water rights should apply permanently to farmers going to drip irrigation because once water rights are lost, they cannot be easily recovered if, indeed, they ever can be recovered.  Otherwise, drip irrigators will act like parasites on the flood irrigating farmers.  This problem with drip irrigation has not been widely recognized in the past, but can no longer be ignored.

12. To avoid the loss of water rights to the river, the farmers must continue to flood irrigate and pay whatever is required to retain the water rights to canal water.  Cities should also encourage farmers to flood irrigate, since groundwater is their backup in case of a severe or prolonged drought.

13. A rough estimate of the cost to pay off $35 million dollars over 30 years, and cover already existing costs, is on the order of $38 per acre foot, plus or minus $5 per acre foot, assuming the present interest rate of 4.8% on MID bonds.  That will mean at least quadrupling the present raw water charge.  Before city residents get all excited about their water rate increases, they should realize that the water charge is estimated to be less than 2% of their water bill.  Hence, their water bill might go up $3 to $4 dollars per month.  City cost now is 1/5 of a penny per gallon.

14. The immediate reaction to this proposal will be “No way”.  Farmers can either face reality now or pay a lot more in the not too distant future.  I challenge anyone to face the situation realistically and come up with a better way to solve our long-term problems.  Detailed explanation of these ideas have been provided to the Board members will prior to this meeting.  Do the Board members have any questions or comments?  Time is of the essence.  $35 million for each 1% increase in interest cost to pay off $35 million over 30 years.  The total increase in interest costs over that 30 years will be about $10.5 million.

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One thought on “Vance Kennedy Voices Concerns to the MID Board

  1. Vance is mostly correct. Water rates would need to increase five times, immediately, in order to secure financing for the $35M. However, an increase of this amount would cause many users to forego using surface water in favor of using pumped water, further exacerbating the groundwater problem. A better solution is a gradual, although much faster than the MID board has been willing to do in the past, increase in rates so that the improvements can be paid for on a pay as you go basis. Yes, interest rates are low but MID does not need to increase its debt level.

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