Sometimes, bad things happen to good people. How you react when bad things happen is what counts. The same holds true for municipalities.
Back in 2004, the good people of Lamar embarked on a process which turned out badly for them indeed. The Lamar Repowering Project, an initiative of the Arkansas River Power Authority to convert an old gas-fired power plant to coal (remember that coal was considerably cheaper than natural gas at the time), was intended to be a reasonably run-of-the-mill effort to convert an aging plant, extend its working life, and provide electricity for Lamar and the surrounding region for years to come. So, Lamar and the other members of ARPA, agreed to finance the project by taking on a $146 million bond debt.
What followed was an almost perfect storm; bad luck, bad timing, bad design and engineering flaws, and more than a little malevolence on the part of a radical environmentalist group all conspired to doom the project. After environmental litigation firm WildEarth Guardians sued over a defective boiler that failed to meet emissions standards, the project was shelved – but Lamar, and the rest of the ARPA members, still had millions of dollars of debt to pay off.
Arguments over who is mostly to blame for the debacle will probably continue for years. There is plenty of blame to go around. ARPA was somewhat short-sighted, and made some poor timing decisions; some might argue that switching to coal rather than just upgrading the gas plant was rather foolish. On the other hand, the member municipalities did agree to take on debt for the project, even agreeing to further debt after an initial round of cost overruns. The manufacturer of the defective boiler was culpable for their part. And of course WildEarth Guardians, the only players to come away from the mess scot-free, dealt the final, fatal blow.
But everyone can agree that Lamar got the worst end of the entire deal – millions in debt, and no power plant to show for it. In fact, since Lamar’s plant was the one chosen for the project, it is now the only one of the six ARPA member communities to not have a plant.
Lamar ended up filing a lawsuit to get out of paying its share of the debt. While the merits of that lawsuit may be subject to question, the city did ultimately accept a mediated settlement. The settlement offer includes a one-time payment to Lamar of $1 million, and subsequent yearly payments of $400,000 for the next 26 years – a total of $11.4 million, designed to compensate Lamar for the loss of their plant – and a restructuring of the debt, cutting the interest rate roughly in half.
This is as good a deal for everyone as can be expected from a disaster like this. Lamar gets some compensation, and each member pays considerably less on overall debt service.
Only now there is a new wrench being thrown into the works; the town of La Junta has decided to reject the settlement, jeopardizing the agreement, and risking the lawsuit going back to court.
The reasons given by La Junta are disappointingly short-sighted. They are apparently upset at the $11.4 million being paid in compensation to Lamar. Now granted, cutting their share of the Lamar compensation would benefit La Junta financially in the short term, at least by a few thousand dollars. But even ignoring for a moment the fact that Lamar is the community most directly financially hurt by the failure, what will be the options for La Junta if the lawsuit is revived?
If La Junta goes ahead and rejects the settlement, and Lamar pursues its lawsuit and is victorious, the remaining ARPA members – including La Junta – will each have to pay back a greater share of the debt, with Lamar out of the picture, and its share now spread around. And they will have to do so under the original 5-6% interest rate, not a refinanced 3-4% rate.
Even if Lamar loses its case, La Junta and the rest of the ARPA members will be paying more than they would under the settlement, as there will be no settlement, no restructuring, no reduction in the debt service. Either way, La Junta loses.
There is one more thing to consider, and that is the effect on the municipal bond market if the lawsuit goes to court and Lamar prevails. That will set a precedent for other jurisdictions around the country to look to if they end up with bond debt. If other jurisdictions decide that they can sue their way out of bond debt, then suddenly municipal bonds become high-risk, and the interest rates that will be attached to them to mitigate that risk will make bonding for public projects far more expensive than they are currently. Expenses that will be paid for by the taxpayer.
In this new age of out-of-control environmental litigation threatening just about every development project out there, that is a risk we cannot afford to take. La Junta should accept the settlement and save its taxpayers from another financial mistake.
U.S. Sen. Michael Bennet, a Colorado Democrat, is warning against underestimating Senate Republican leader Mitch McConnell’s ability to pass legislation overhauling the nation’s health care system — even if the bill appears to be on the ropes.
There is no question America is witnessing unprecedented dysfunction in government. Whether it’s the hyper partisanship in Washington that has led to record-low Congressional approvals or the growing frustrations coming from a divided government in the Colorado State Capitol, citizens are losing trust in their leaders.
As these frustrations mount, we often look to our lawmakers at the local level to set a better example in governing and serving their constituents. Mayors, city council members and county commissioners are closer to the people they serve, and thus have always held a unique understanding of their constituents’ needs and generally served as good stewards of taxpayer dollars.
But when they fail, they must be held accountable.
One of the big reasons House Speaker Crisanta Duran wants to get a statewide transportation deal done this session is so big cities don’t break off to pay for local needs and leave places such as Lamar behind. Prowers County on the Eastern Plains isn’t taking a back seat. The County Commission talked last week […]
Secretary of State Wayne Williams met Tuesday with local residents and Prowers County Clerk Jana Coen in the second stop of three town-hall meetings in southeastern Colorado.
“It was good,” Coen said, of the secretary’s visit to Lamar. “He asked if his office was providing the services we need, and I told him they are.”
Williams earlier in the day visited with Baca County residents, and after Lamar he headed to Eads for a town hall meeting in Kiowa County.