South San Joaquin Irrigation District has almost $50 million in the bank.
Even so, the governing board took prudent steps Tuesday to pare back spending to make sure expenses do not exceed revenue in the current fiscal year.
That’s because banks and bond buyers frown upon government agencies that essentially delve into reserves when revenue comes up short against current year expenses. If the SSJID keeps expenditures in line with revenues they will be able to protect their AAA bond rating and AA underwriting rating. AAA is considered prime and is the best you can obtain for long-term borrowing. AA is midway in high grade territory. That means the district, if they go to borrow money, will get the most favorable interest rates possible. It also means they will have no trouble selling bonds.
That’s important given two major initiatives that could come up in the near future.
If SSJID gets permission to enter the retail power business it will need to borrow money to make it happen. The same is true of a potential undertaking to put the entire SSJID irrigation system under pressurized delivery.
In both cases, exhaustive studies have shown the retail system will generate ample revenue to pay for ongoing expenses, wholesale electricity purchases, and the retiring of debt. The district intends to use the same approach if the board decides eventually to pressurize the water system to reduce water use, improve crop yields, and slash farming expenses. In that case, the water saved will be sold to cover all borrowing costs.
The key to keeping costs as low as possible is by maintaining the highest bond ratings possible.
The board on Tuesday pared back $1 million they had budgeted down to $300,000 to assist farmers implementing water conservation measures.
“No one is losing their jobs,” SSJID General Manager Jeff Shields said. “We are not increasing rates and farmers and the cities will get the water they need.”
Many irrigation districts with cutbacks in water deliveries to farmers are facing significant drops in revenue. It is forcing a number of water agencies to impose drought surcharges to generate additional money. The SSJID has no need to do that. Some also are facing the real possibility of defaulting on debt without revenue from irrigation sales flowing into their coffers.
SSJID expects to see a big drop off in revenue this year from the Tri-Dam Project since less water means less hydroelectric generation and therefore less wholesale power sales.
The Tri-Dam revenue has historically been used for capital outlay projects. In doing so, it has allowed the district not to raise rates in more than 20 years save an instance when they had to impose a state mandated charge on water deliveries.
The SSJID water rates are considered the lowest in California for farm irrigation.
Shields noted the board wanted to act now instead of waiting until October to see how well the district weathered the drought and if the snowpack had bounced back enough to allow sales to other districts. Should that occur there would be money to cover the entire $1 million budgeted for farm water conservation efforts. But if that doesn’t happen, then the district would have an impossibly small window to try and jettison expenses to make sure they didn’t exceed revenues when the fiscal year ends Dec. 31.