San Diego advances $150m water revenue bond to fund pipeline CIP and refund 2016 debt

San Diego advances $150m water revenue bond to fund pipeline CIP and refund 2016 debtThe San Diego City Council has unanimously authorized a new water revenue bond issuance to take out up to $150 million in commercial paper for pipeline projects, while executing a debt refunding expected to save the water utility over $46 million.

The city will issue up to $150 million in new money to pay down commercial paper backing ongoing water capital improvements, with 98% of the funds directed toward pipeline projects.

The transaction will fully refund the outstanding 2016A and 2016B water revenue bonds, capturing an estimated $46.4 million in debt service savings.

While approved rates will support debt covenants through 2027, the Department of Finance noted that additional rate increases will be required in the future to cover ongoing capital and operations costs.

The City of San Diego is moving to the bond market to finance critical water infrastructure, following a unanimous city council vote on February 24, 2026, to authorize a new series of water revenue bonds. The issuance will serve a dual purpose: refunding existing debt to capture market savings and securing long-term financing for the city's ongoing pipeline capital improvement program (CIP). According to Jyoti Pantlu, Assistant Director with the Department of Finance, the new money component will provide up to $150 million to pay down outstanding commercial paper. The city relies on commercial paper to finance its water CIP on an interim basis between bond issuances. Pantlu noted that the city expects to reach the $150 million threshold in commercial paper expenses by June 2026, with approximately 98% of those funds allocated to pipeline projects. Concurrently, the city will execute a current refunding of its 2016A and 2016B water revenue bonds, which currently have $307 million outstanding. Financing Coordinator Alison Falkenstein stated that the refunding is projected to generate over $46.4 million in total debt service savings, representing a 13% net present value savings over the life of the bonds based on market conditions as of January 21, 2026. The savings will be front-loaded, providing approximately $5 million annually to the water utility fund from 2027 to 2029. The new money bonds are estimated to carry an interest cost of 4.23%, with an average annual debt service of approximately $8.8 million for fiscal years 2028 through 2057. The bonds will be issued publicly via a negotiated sale, backed by the net system revenues of the water utility fund. While the water utility's current rate trajectory will satisfy its debt service coverage covenants—requiring net revenues to be at least 120% of senior debt service and 110% of total debt service—Falkenstein cautioned that future rate adjustments will be necessary. "Additional rate revenues will be needed beyond the approved rate increases due to the ongoing capital program and the operations and maintenance costs, which include the cost of purchased water," she noted. Future cost of service studies will evaluate the specific level of these impending rate increases. The city anticipates bringing the preliminary official statement to the council for approval in May 2026, with the bond sale and closing expected in June.