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Lake Oswego to secure credit line before bond issue for water projects

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Officials worry disclosure of ugly controversy could deter investors


Lake Oswego will likely soon secure a line of credit as a short-term means of financing work on the Lake Oswego-Tigard Water Partnership, a $250 million effort to upgrade and expand public water infrastructure to serve the two cities.

The city council expects to review a resolution outlining financing details at a meeting next week. The short-term line of credit would mature in about a year, consultants said, and after that the city could issue about $80 million in bonds to provide a longer-term source of financing.

The money is needed as the water partnership’s project costs grow. While Tigard recently issued a revenue bond for $100 million, Lake Oswego has so far funded its share of the costs from available cash, ongoing service fees and Tigard’s payments, according to Lake Oswego officials.

The new overall $250 million project estimate has risen from previous spending projections of about $230 million. The costs are covered by water rate hikes already approved by Lake Oswego and Tigard’s city councils.

On Tuesday, Chip Pierce of Western Financial Group advised Lake Oswego City Council members that waiting a year on the bond issue would still allow the city to “take advantage of a low-interest-rate environment.”

“The reason for this rather than long-term financing now is the market does not like uncertainty,” he said.

Plans to expand Lake Oswego’s water treatment plant in West Linn so Lake Oswego can provide water not only to its residents but also to Tigard unleashed a torrent of opposition from West Linners opposed to private property impacts and inconveniences because of construction. Lake Oswego, the managing partner in its agreement with Tigard, also plans to replace the pipeline carrying treated water from West Linn to its customers. The two projects located in West Linn are still moving through the permitting process.

Aside from a separate challenge of Lake Oswego’s permit to serve Tigard with its state-granted water rights on the Clackamas River, the controversy in West Linn is enough to create risks when asking investors to back the water projects, according to the city.

Pierce said Lake Oswego would have to disclose these issues to potential investors.

“We would have to describe in great and gory detail the situation right now with the land use,” he explained. “Prospective investors see this litany of potential downsides.”

As a result, the city might have to pay an interest rate premium because of the disclosure, Pierce said.

On the other hand, within the next year, officials expect to have secured the permits they need for these projects. Waiting until then, Pierce said, “will serve the city better in the long run."

Lake Oswego-Tigard Water Partnership projects remain on schedule to meet a 2016 completion goal, according to the partnership's website.

The Lake Oswego City Council will review and possibly approve a resolution to help finance the city's share of projects at a meeting next week.