The city of Cortez proposes to pay off nearly $3.7 million in debt from loans related to water projects and an aging hydroelectric plant.
At a presentation at Tuesday’s meeting, City Manager Drew Sanders reported the city is still paying off the main $3.44 million loan from 1986 for water projects at an interest rate of 6.06%.
The loan has a term of 60 years. After 36 years, the city has paid off less than $1 million of the principal of the loan but has paid $9 million in interest.
“At this rate, the city will pay another $3 million in interest by the end of the loan term in 2046,” Sanders said. “We still have 24 years remaining on the loan.”
He asked for City Council approval for appropriations to pay off the debt in full in 2023 from the general fund reserves.
“If council approves retiring this city debt, it will save the city $3 million in interest payments over the next several years,” Sanders said. “We have the money to pay it off and are in a good position to do so.”
Council members were supportive of the plan, which would be voted on as part of the upcoming 2023 budget process. Sanders added that water rates would not be increased to cover the debt repayment.
“We are blessed we can pay this off and not waste money. It will save us millions,” said Cortez Mayor Rachel Medina.
The other loan to be retired is for the city’s hydroelectric plant, which would be decommissioned.
The city has a debt service of $450,000 on the plant and was selling the power to Tri-State Generation and Transmission Association to cover the loan payments. But the contract expired in 2021, more than 10 years before the end of the hydroelectric plant loan term.
Sanders said Tri-State has reverted to paying a lower amount for the power generated, which is insufficient to make the loan payments. The result is continual financial loss to the hydroelectric plant fund. The plant is broken down and has an estimated repair cost of $50,000.
According to the proposal, the hydroelectric plant would be decommissioned. Its age, increased repair costs and minimal power sales make it impractical to continue operations, Sanders said.
Over time, the Water Enterprise Fund and the Hydroelectric Plant Fund would reimburse the general fund for paying off the loans. The hydroelectric enterprise fund would be terminated.
The council was supportive of the proposal of debt retirement.
“We’re not gutting the general fund. It is available to us, we have done well, and are spending money to save money,” said Councilman Dennis Spruell.
Councilman Matt Keefauver has been advocating for some time to retire the debt, and stated it would be “ridiculous” to continue to pay down the loan over the long term.
jmimiaga@the-journal.com
