Oro Valley Financing NWRRDS Project Cost Overruns— $6 Million Loan Approved, $12 Million More Coming

Oro Valley approves $6 million loan for NWRRDS water project
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.

Concerns about project management... and total project cost
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?
- - -

Guest View: Tim Bohen ~ The Real 5-Year Plan for the Community Center (Hint: It’s now a 25-Year Plan)

Note: The $6MM Community Center Bond approval is included in the Adoption of the Tentative Budget that the Town Council will be voting on at tonight’s Council meeting.

We have often heard from Town Council that we need to give the Oro Valley Community Center golf investment time to show that its financial viability is trending positively. This was a fair request since the golf purchase was truly a major undertaking. However, three years have now elapsed and time has revealed what the 5-year plan may have been all along.

Another victory for Humberto Lopez (HSL Properties) and golfers
At the end of next the fiscal year, the Town’s obligation to rebate Vestar 45% of the sales taxes collected at Oro Valley Marketplace will end. This information was provided by Town Manager, Mary Jacobs during the Town Council Budget Study Session on May 9th. When Vestar’s tax incentive ends, approximately $800K per year in sales tax revenue from OV Marketplace will now become available to support Town services. This should be great news. I’m sure we can all think of many community-wide uses for this new revenue stream. Perhaps we could use it to actually provide more ball fields or playground equipment for young families since that’s what residents have been requesting.

But wait. Later at the same May 9th budget review, a significant portion of these same revenues ($450-480K per year) was proposed to be effectively passed to HSL and our “Country Club” and fitness members as security for a 20-year bond to improve the Community Center and Golf Courses. And once again, ball fields and playgrounds take a back seat to golf.

The percentage of Oro Valley residents who have $20-$40 monthly fitness memberships is only approximately 3% of our population. And the number of users who visit this facility per day (about 320) is far less than 1% of our town population, as was cheerfully volunteered by Parks and Rec themselves at the same meeting. Do these 9,500 total visits per month in a town of 45,000 include out-of-town visitors from the resort who are coming to enjoy our sales tax subsidized golf?

Lipstick on a Sign
In essence, all the Town did was to cross out the “Country Club” sign in lipstick and write “Community Center” on the sign in the same lipstick and…well, it’s still a Country Club. It’s great that we have a day camp and fitness center members that enjoy the Community Center and make this portion viable. But this benefit clearly goes to relatively few as reported by Parks and Rec themselves. And frankly, this benefit has been, and will long continue to be, dwarfed by the golf losses borne by all.

All that has really changed at El Conquistador since 2014 is the sign out front, a new traffic light, and more importantly, who is now responsible for the long-term upkeep of the combined Community Center and El Conquistador Resort (HSL) golf asset. It’s we taxpayers who will now shoulder an ever increasing load of $3-4 million dollars per year for the next twenty years minimum (0.5% town-wide dedicated Community Center sales tax + 60% of the previously committed OV Marketplace sales tax to Vestar).

Fast Pitch
Our Community Center purchase agreement provides HSL with a 50-year (at $10K per year) Canada golf course improvements option to keep this one course open. Mayor Hiremath has stated that the signer of the purchase agreement, former Town Manager, Greg Caton, always seemed to “hit it out of the park.” It looks like this ball might come down some time around 2040 as far as loan payments, or 2065 as far as our lease with HSL. It’s a tape measure home run for HSL and the golfers either way. As for the vast majority of Oro Valley sales tax payers who don’t use the facility, let’s just say we’ll keep getting hit by the pitch.

Privatized Gains and Socialized Losses
So, upon learning this, how do we as a Town, in good conscience, choose to sink $6M minimum more into a 35-year old building and golf courses over the next three years? Our local economy includes flat golf revenues, rising local construction costs over the short term of this project, and potentially catastrophic decreases in CAP water for southern Arizona over the long term. Losing CAP water may shut all but the most financially healthy Tucson courses.

El Conquistador Country Club memberships are already well below where they need to be. This is maybe the only point everyone in Oro Valley can agree on. So, how exactly will three years of phased construction improve the membership rates? They won’t. Watch your Council brag about the great fiscal position of the Town resulting from their “skillful planning” and fiscal restraint and try to reconcile that with this long term decision. You can’t.

Town Council to vote on Community Center bond issue at Wednesday’s Council Meeting

At this Wednesday’s Town Council meeting (6 PM in Town Council chambers), Agenda Item #4 pertains to the Adoption of the Tentative Budget for FY 2018/19 (which begins on July 1st).

Part of this budget includes a $6 million dollar bond for Community Center and Golf Course improvements to be utilized as follows:


• $3.8 MM will be used to replace the aging and leaking golf course water lines
• $2.2 MM will be used to remodel the outdated Community Center

More information can be found in the attached article from Sunday’s Arizona Daily Star, including how the Town Manager and Town Finance Director propose that we repay this 20-year bond.

Read the AZ Star article HERE

Guest View: Mike Zinkin ~ The $6 Million Dollar Bond

The “turn-key” Community Center needs another $6 MM in taxpayer funds
In December 2014, Town Manager, Greg Caton, plus Mayor Hiremath, and Councilmembers Hornat, Snider, and Waters insisted that the Community Center and Golf course purchase was a great deal because it was a “turn-key” operation costing only $1 million dollars and that no debt service would be required. Turns out that this has become just another one of their lies/broken promises.

Through a series of email exchanges with the Town, I recently learned that Town Manager, Mary Jacobs is recommending a $6 MM bond for Community Center expenses, with half to be spent in FY 2018/19 and half in FY 2019/20.

According to Finance Director, Stacey Lemos, the actual cost for this bond, assuming an interest rate of 5% over 20 years will total an estimated $8.7 million dollars.

A Budget Study session will be held on Wednesday, May 2nd at 3 PM in Town Council Chambers. Will the mayor and council consider approving a $6 million bond in order to save golf? We expect that they will since none of their previous efforts to finance the Community Center and Golf Courses have been successful.

The Repeated Lies and Broken Promises of the Town Council

• They promised that the half-cent sales tax increase would cover ALL Community Center costs. It hasn’t.

• They asserted that there would be no debt service. Yet, here we are, three years later, discussing a $6 MM bond for Community Center/Golf expenses.

• They lied when they said that only $1.2 MM would be taken from the General Fund Contingency to jump-start the Community Center Fund. As you will recall, they had to transfer another $350,000 from the General Fund last year to meet Community Center expenses.

• They lied when they promised they would pay back the $1.2 MM to the General Fund with $120,000 a year for the next 10 years.

• They spent $50,000 of taxpayer money on a Golf Study and then completely ignored the recommendations.

Mary Jacobs email stated the following:

“I point you to page iv of the Town Manager’s budget message that outlines how the recommended capital expenditure is being budgeted in FY 18/19.

In addition, the Recommended Budget includes half of the projected $6 million in total planned funding for capital improvements at the Community Center building as well as irrigation system replacement, turf reduction and other improvements on the Canada and Conquistador 18-hole golf courses. The expenditure will be financed via the issuance of a 20 year bond, and debt service will be repaid through the Capital Fund…..it’s a $6 million bond with HALF of it expected to be expended in 18/19, and HALF expended in 19/20.” (emphasis added)

Page 228 of the TMRB
Town Manager Jacobs has requested $3.6 MM for golf course repairs and $2.4 MM in Community Center improvements (TOTAL $6 MM) spread over two years and financed with a 20-year bond

The following information was obtained from Page 228 of the Town Manager’s Recommended Budget (TMRB).

COMMUNITY CENTER (CC) BOND FUNDED IMPROVEMENTS

                                                                     FY18/19                FY19/20                  TOTAL
Community Center Improvements              $1,200,000            $1,200,000              $2,400,000
Golf Course Irrigation Replacement           $1,800,000            $1,800,000              $3,600,000
TOTAL CC BOND IMPROVEMENTS         $3,000,000            $3,000,000              $6,000,000

The Town Council’s Community Center financing plan did not work
The additional half cent sales tax was supposed to offset ALL expenses for the Community Center, including golf, tennis, and the Community Center building. Instead, all of the sales tax revenue is going down the drain for golf. As such, there have been limited funds for capital improvements which is why the Town now wants to bond $3M in the 2018/19 budget and another $3M in the 2019/2020 budget.

How many more millions of taxpayer dollars are they going to spend on this endeavor before they admit that they made a mistake in purchasing the El Con Community Center and Golf Courses?
---
Mike Zinkin has a Bachelor’s degree in history and government from the University of Arizona and a Master’s degree in Social and Philosophical Foundations of Education from California State University, Northridge. He was a commissioned ensign in the United States Navy Reserve. He was an Air Traffic Controller for 30 years. He and his wife moved to Oro Valley in 1998. Mike served on the Oro Valley Development Review Board from 2005-2009 and the Board of Adjustment from 2011-2012. He served on the Town Council from 2012-2016 during which time he was named a Fellow for the National League of Cities University, he was a member of the National League of Cities Steering Committee for Community and Economic Development, and a member of the Arizona League of Cities Budget and Economic Development Committee.