There has been quite a bit of “buzz” lately about the Morton Grove/Niles/Evanston water “deal”. At the forefront of “news” coverage has been the claim by Morton Grove village president DiMaria that this agreement will “save” the residents of Morton Grove some Ninety Million dollars over the next 40 years. Of course, that doesn’t take into account that Evanston has already telegraphed a 12% or so increase between 2018 and 2010.
A Morton Grove Champion article states; “Morton Grove officials said at Monday’s meeting that they expect to save $90 million to $100 million over the life of the 40-year contract, which locks in the suburb’s water rates over that time period. The contract includes the option for two, 10-year extensions.”
Later on in the same article it says; “The two villages are expected to pay about $90 million for a new water transmission main in Evanston at McCormick Boulevard and Emerson Street and other infrastructure needed to deliver water from that city, according to officials from all three towns. That construction is expected to be financed with bond sales.”
Something here sounds like common core new math. Taking a conservative view, assuming that the “savings” projected are accurate, that would amount to a saving of $2,250,000 per year on the water rates, (about $265 per year per household).
However, in order to take advantage of these projected savings, the village will have to pay $90,000,000 to build a new water transmission main and other infrastructure needed to get the water from Evanston to Morton Grove… and that expense is expected to be financed by bond sales.
We need to remember that Morton Grove’s bond rating was recently lowered a second time under this administration which means that borrowing money by issuing bonds will cost taxpayers more money.
In another Morton Grove Champion article on the lowering of the bond rate, it mentioned that the village’s Equalized Assessed Valuation, (EAV) had dropped 22.4% over a five year period. Simply stated, the EAV is a multiplier used to determine what we pay in real estate property tax. A lower EAV means that each individual property owner must shoulder more of the tax burden.
Currently the village’s bond rating is Aa3, and, even if the administration can get a rate of 2.1% that would amount to an interest cost if $1,800,000 on $90,000,000 of municipal bonds, (and that doesn’t count the cost of underwriting the bonds which include such things as “Gross spread”, which is a complicated combination of what is called “take down” [the difference between what the underwriter pays out to the village and what they get for the bonds on the open market];”management fee; underwriter’s expenses and “Other fees”, [which may include such things as Financial/Municipal advisory fees, Bond counsel fees; Disclosure counsel fees, Rating agency fees, bond insurance/credit enhancement fees, trustee fees, escrow agent fees, feasibility study costs, auditor’s fees and printing costs]. Figuring out what it costs to issue bonds is, at best, complicated.) Spreads are usually quoted in terms of dollars or points per thousand bonds. For example, a gross spread of $5.00/$1,000 bond on a $90 million issuance would be $450,000: [($90 million /$1,000) *$5.00]. If you are feeling “nerdy” you might check out this article that somewhat explains the process.
If the current administration had kept it’s promise of transparency and had held public meetings telling us the upfront costs of the deal, at least taxpayers could have had some input on spending close to ONE HUNDRED MILLION TAX DOLLARS. Maybe village president DiMaria, trustee Grear and all the other Action Party trustees figured that it would be easier to ask forgiveness rather than permission.
So, let’s recap the math on this deal;
- The “savings” estimated by village president DiMaria on the water deal: $90,000,000 over 40 years, ($2,250,000 per year).
- The up-front cost of the “build out” for water main piping and other infrastructure: $90,000,000.
- The cost of issuing the municipal bonds, (not counting “miscellaneous” “OTHER FEES”): $450,000 [approximately].
- The cost of interest on the bonds, (assuming a 2.1% rate, recently Aa bonds have been returning between 3.3% and 3.7%): $1,800,000.
Wait a minute! What happened to that $90,000,000 savings that village president DiMaria spoke about?
“Savings” over 40 years: $90,000,000
build-out cost: -$90,000,000
“gross spread” to underwriter: -$450,000
interest, (based on 2.1% yield) -$1,800,000
Net cost to Morton Grove taxpayers: -$2,250,000, (or about $265 per household)
Doesn’t seem like much of a deal to us… sounds more like a fast shuffle.