As many readers know, the EID staff is proposing a series of rate increases over the next five years. The increases are needed to maintain safe and reliable water and wastewater services. They are also needed to help the district meet its debt service requirements, which are legal obligations to our bondholders.

One of the most common questions we’re hearing from EID customers is, “What happens if the district defaults on those debt obligations?” We called in our bond counsel to explain the potential consequences during the January 11 regular meeting of the board of directors, and I’d like to share this information with our customers.

The overall conclusion is that we face both legal and financial repercussions if we fail to develop a budget that meets the obligations to our bondholders.

Let’s take the legal ramifications first. The trustees for the bondholders can send a notice of default to the district and insist on a remedy within 30 days. They can also demand immediate payment of all of the district’s outstanding debt and accrued interest, and they can, along with EID’s credit guarantor, sue and ask the courts to appoint an outside party to basically run the district. This would take away the responsibilities of the current, locally elected board of directors and place authority in the hands of an unknown entity whose only duty is to the bondholders, not this district and its customers.

As for financial consequences, EID would likely see an immediate suspension or downgrade of its A+ credit rating. That would quickly lead to spikes in interest rates on our variable-rate debt. We would also pay much higher interest rates on future borrowings, if we could even borrow, and it would cost us more to use our line of credit. Each of these consequences would cost millions of dollars.

EID staff delivered a 2010 budget to the board late last November that included not just the proposed rate increases but also significant cuts in operating expenses. Despite the cuts, the budget—with the proposed rate increases—allows us to continue to deliver high-quality services, just as our customers expect.

Jim Abercrombie, general manager, El Dorado Irrigation District