The city of Cape Coral will move forward with the second of two options \u2014 commercial paper plus fixed rate bonds \u2014 for financing for its water and sewer utilities, a choice that will have a lesser impact on rates.<\/p>\n
Ratepayers are looking at a possible 5% increase in rates in 2028. <\/p>\n
In July of 2024, council approved an annual increase of 11 % per year for three years beginning that October. The third 11% increase will be this October.<\/p>\n
The other option, which failed to garner support, would have added a fourth year increase of 11%.<\/p>\n
That was the consensus reached by City Council at Wednesday\u2019s workshop.<\/p>\n
\u201cAt 50% buildout in the city, this is a need that we are going to have to maintain the infrastructure. Whatever we can do to soften the blow along the way I will surely support,\u201d Mayor John Gunter said.<\/p>\n
Pete Napoli, with Stantec Consulting, gave a presentation that reviewed the results of the 2026 revenue sufficiency analysis for the municipal utility, which included financing alternatives.<\/p>\n
\u201cWe identify utility cost over a 10-year time frame and look at revenues generated and ensure there is sufficient revenue to cover personnel, operating, capital and debt service coverage requirements,\u201d he said. \u201cThe most important factor is there is a total of $1.6 billion in utility rate funded projects identified in the current capital plan. It\u2019s the driving force behind all the results.\u201d<\/p>\n
Napoli said the operating costs have seen a 60% increase since 2022 in chemicals, electricity, and fuel, which is adding to the stress on utility rates.<\/p>\n
\u201cThe initial construction cost estimates are far below contractors actual biding for these projects,\u201d he said. \u201cThere is a lot of pressure from the labor market shortage, inflation, tariffs. It\u2019s not unusual around the state.\u201d<\/p>\n
The total for the major projects \u2013 North RO WTP Expansion Phase II, Southwest WRF Improvements, Everest Headworks, and North WRF 6 MGO Phase 1 went from a total of $334.0 million to $538.5 million.\u00a0\u00a0<\/p>\n
Napoli said the high-level overview of key assumptions for the 10-year financial forecasting model looks at how much is in the bank and separate accounts.<\/p>\n
He said with the assumptions for continual increase in the operating cost there is a 4% increase annually.<\/p>\n
\u201cThe $1.6 billion 10-year capital plan is the big part,\u201d Napoli said, adding that the accounts coming online in the UEP areas does help to supplement the rate revenue.<\/p>\n
He said a 4% increase used to be considered high for annual increases.<\/p>\n
The assumption is the significant increases will normalize.<\/p>\n
\u201cThose COVID years were pretty abnormal, and we don\u2019t continue to have them. We don\u2019t expect to have that level of increase,\u201d Napoli said. \u201cIf we were to experience any level of inflation higher than the 4%, it would have a direct impact on the rate plan. That is why it is suggested the city to continually review numbers and adjust when seem to come out worse.\u201d<\/p>\n
Santec provided two modeled scenarios with the first option being the traditional fixed rate bonds, and the second one being commercial paper plus fixed rate bonds.<\/p>\n
\u201cFor me it completely makes sense as a loan officer. I structure loans every day and always start principal after construction. The commercial paper plus fixed rate \u2014 save money now for all of our people \u2014 that is the way to do it,\u201d Councilmember Rachel Kaduk said.<\/p>\n
The traditional fixed rate bonds, due to the size of the projects, requires a very large issuance in advance spending of $450 million in 2027 and $111 million in 2029. He said there is an approximate two-year interest only, which relieves a little pressure up front on the city and level debt service thereafter.<\/p>\n
\u201cThe principal is paid during construction \u2013 (you) borrow money up front,\u201d Napoli said, adding that there is an assumed interest cost of 4.70%.<\/p>\n
The net present value of the total debt service is $539 million, which is preliminary and subject to change.<\/p>\n
\u201cIn order for this traditional, conventional finance plan to work, (there would be) an additional 11% (rate increase) factored in 2028,\u201d he said. \u201cThat is because of the pressure on the debt service coverage.\u201d<\/p>\n
Napoli said starting in 2029 there would be a 5% rate increase.<\/p>\n
The commercial paper plus fixed rate bond scenario would increase the commercial paper program by approximately $350 million to fund the construction of major projects upfront and align borrowing with construction draws, he said.<\/p>\n
\u201cIt eliminates the need to borrow in advance of spending and principal begins to be paid after construction. It relieves the pressure up front,\u201d he said.<\/p>\n
Napoli said the commercial paper would be refinanced after construction and then the city would do the fixed rate bond method.<\/p>\n
The net present value of the total debt service is $524 million, a savings of an estimated $15 million.<\/p>\n
\u201cOverall, it reduces payments required up front and relieves pressure on debt service coverage. It allows time for more of those UEP customers to come online and supplement the revenue,\u201d he said.<\/p>\n
The second option would allow the city to begin the 5% rate increase plan in 2028 \u2014 therefore eliminating the necessity to have that additional year of an 11% increase.<\/p>\n
\u201cBecause of that the revenue catches up a little bit with customers coming online and principal payments are delayed a little further,\u201d Napoli said.<\/p>\n
The difference between the two options is option one \u2014 which council did not support \u2014 would have an additional year of 11% to meet debt service coverage, while option two \u2014\u00a0which council did \u2014\u00a0requires a 5% increase in 2028.<\/p>\n
Consensus votes at council workshops provide staff direction. They are not binding unless and until approved at a regular meeting.<\/p>\n