In 1982, the City of Escondido, California, was buried deeply in a political controversy over growth. The mayor and two city council members changed office in a three-month period and the city manager and two key department heads quit. The city's budget was in desperate condition because of Proposition 13 and the depressed economy. The city attempted to finance the expansion of its sewer and water plants with the sale of bonds to be funded by a pledge of monthly user fees. The electorate expressed their unwillingness to pay for either the reconstruction of the existing plant or its expansion by approving an initiative by two to one to overturn this bond proposal. The approval of this initiative also placed the city in breach of its service contracts to the City of San Diego. Out of this undesirable situation, the Sewer and Water Infrastructure Financing Initiative was born.
The program addresses the increasing problem of maintaining and improving sewer and water facilities. The single greatest hindrance to meeting the infrastructure needs is money. The challenge is twofold: first, it is difficult to find a financial program that the agency can afford; second, finding a program that the electorate or citizenry will support proves difficult, as is deciding who is going to pay for what.
The purpose of the Sewer and Water Infrastructure Financing Initiative is to generate cash funding with no debt to pay for the improvement and expansion of the sewer and water facilities, in a manner that is equitable to property owners, developers, and existing users of the systems. Program staff employ a variety of tactics to achieve this goal. First, the city sold, for cash only, sewer and water "futures" and used the cash to rebuild and expand the sewer and water systems. (Only half the sewer and water capacity was pre-sold, reserving capacity for future users that were not aware of or could not participate. By retaining half the capacity, its future sale will produce enough cash for the next expansion and so on, providing the funding source for all future sewer and water system needs.) Because capacity was sold for cash in advance, no debt obligation was incurred, which eliminated the tremendous cost of interest. Without interest cost, the capacity was sold at about one-third the normal cost. In addition, the "futures" included sufficient funds for reconstruction of old facilities so existing users did not have to pay for anything.
By creating capacity rights in the system, the capital cost and operational cost in the city budget are now separated. This has provided the needed assurance to existing users that they won't be paying for the cost of growth and has brought a good deal of political stability back to the community. Purchasers of the "futures" or connection rights are guaranteed the right to connect to the system any time in the future and are free from any future connection fee increases. The connection right holders are free to resell their rights at a profit if they no longer have a need for their use. In addition, economic incentives are used to encourage participants to purchase the connection rights.
The sewer and water issues used to require about 25 percent of the city's staff time and posed a serious health and economic threat. Now, due to the Sewer and Water Infrastructure Financing effort, the city council, staff, citizens, and the development and business community no longer have to worry about having a safe and adequate sewer and water system, now or in the future.