Last week, the Oro Valley Town Council unanimously approved a $6 million senior lien water revenue obligation. This new loan will help fund an overrun on the town’s share of the partnered Northwest Recharge, Recovery, and Delivery System (NWRRDS) project — a multi-agency effort to deliver some of Oro Valley’s Colorado River water allocation directly to the town, rather than routing it through Tucson Water. The project’s partners are Marana and Metro Water.
As it turns out, NWRRDS is a very expensive project
The project has turned out to be far more expensive than town staff envisioned in 2017. Partnered costs have grown from $30 million in 2017 to $49 million today. Oro Valley’s share was projected to be around $12–$13 million in 2017, based on its contractual capacity of 4,000 acre-feet per year. Today, that share is about $21 million. The independent portion of the project, which Oro Valley funds entirely, was originally estimated at $6 million. The town now plans to seek a $12 million WIFA loan in April 2025, doubling that initial estimate as well.
This ballooning cost should have prompted discussion by the council last week. Questions like: Are our Oro Valley Water engineers competent in bidding, managing, and, most importantly, reporting to their customers on complex projects where risk and inflation will inevitably revise the initial estimate? — have never been asked. Instead, councilmembers praised the town’s strong finances and debt management during the meeting. But no one asked why this overrun exists, how realistic future funding assumptions are, or whether Oro Valley residents are being asked to pay for mismanagement or avoidable cost increases.
The loan to fund the partnered portion overrun is a private placement
The council approved the $6 million loan to help fund the overrun on Oro Valley’s portion of the partnered project. The funding will come through a private placement loan at an interest rate of 4.085%, repayable over 10 years.
Town is paying a premium interest rate for convenience
Town staff and advisors called the 4.085% tax-free interest rate “favorable,” but not all residents are convinced. One knowledgeable reader pointed out that the town may be paying a premium — less than 1% above what would be typical if they were able to borrow in the public market and exercise early payoff flexibility. Over a 3–10 year window, comparable borrowing rates would range from approximately 2.79% to 3.17%.
The private placement route offered convenience: no underwriting costs, no credit rating expenses, and a simplified process with six institutional bids. However, residents are left wondering whether the town thoroughly explored a public offering. While a $6 million deal is small by municipal standards (where issuance costs can be significant), the absence of comparative analysis leaves questions unanswered. As one resident put it: “It would be helpful if they provided more numbers as a comparison to the private placement.”
More borrowing ahead — and more questions
The $6 million private placement loan is only part of the picture. On April 16, the council will be asked to approve an additional $12 million WIFA loan for the independent portion of the NWRRDS project, bringing the total new borrowing to $18 million. The plan, according to staff, is for 60% of that debt service to be paid by future impact fees and 40% by the groundwater preservation fee (GPF).
But residents are asking: Where will the approximately $11 million in needed impact fees come from? According to the town’s 2022 fee schedule, the residential water impact fee for a standard 5/8" meter is $6,387 per home. That translates to roughly 1,700 new homes needed just to cover the planned impact fee share. Given current market conditions, including a growing apartment surplus in Tucson and slowdowns in new development, that target may be unrealistic.
One concerned resident wrote: “It appears to me that the 60/40 Impact Fee/GPF split can't be maintained. Our impact fee per house yet to be built is far too low to cover 60% of NWRRDS cost overruns. The GPF will possibly need to cover far more than 40% of the new debt service.” In other words, existing residents — not future growth — could end up footing more of the bill than originally planned.
What’s next?
The $6 million loan will close on April 22, giving the town the funds needed to cover project overruns and continue construction. But with another $12 million loan request coming next month and serious questions about funding sources and cost management, residents are left wondering: How much more will they be asked to pay — and when will the town council start asking hard questions of its own?
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