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Interest Generated in Interest Savings

The relationship between the Central Utah Water Conservancy District and the Department of Interior is a long standing one. The “District” was formally established in 1964 to act as the local entity to contract with Reclamation regarding the construction, operation, and financing of the Central Utah Project (CUP). The purpose of the CUP is to enable the State of Utah to beneficially use a substantial portion of its allotted share of the Colorado River water under the Colorado River Compact.

The District sponsors the CUP which includes five specific units. Each unit consists of a series of dams, pipelines, reservoirs, tunnels, and aqueducts designed to help meet the water needs of all ten of its associated counties. The District, primarily a wholesaler of water to other cities and agencies, has the responsibility to plan, design, construct, operate and maintain project facilities, administer the sale and delivery of project water, and repay the federal government the reimbursable costs of the CUP.

Repayment of reimbursable costs is a necessary component of that relationship, but early repayment is even more beneficial because it reduces the amount of interest the District pays on federal loans. Such repayments periodically take place.

The District and the Department of Interior recently signed a contract which allowed the District to prepay nearly $171 million dollars against its outstanding obligation with the Federal government. The payment was applied to the cost of developing municipal and industrial (M&I) water under the CUP.

“The prepayment allows the district to have the revenue stream to fund the development of the project,” says Provo Area Office economist Karl Stock. He’s been involved in the repayment agreement and has a good understanding of the repayment process. “In general, [The District] is required to fund 35% of the total cost of the facilities. To come up with the 35% funding, they’re using the difference between the revenue they would’ve paid to the Federal government each year, and the revenue required to finance the bonds for the prepayment.” He says this prepayment satisfies the remaining repayment obligations under the District's 1965 repayment contract with the United States, as amended and supplemented, which is associated with the first 94,750 acre feet of project water development.

Wayne Pullan is the Program Coordinator for the Central Utah Project Completion Office. He drafted the last two prepayment agreements and calculated the prepayment amounts. “The CUP has been authorized by the voters the ability to borrow up to 561 million dollars. So in order to be able to borrow money to pay the local cost share, they have to retire the debt to the government. The difference in bond rates allowed them to pay the government, save some money and free up some space in that 561 million dollar cap.”

So, two significant things are going on that benefit government, the CUP and the voters. First, because of the difference between what the CUP repays on the government bonds and what it receives in water sales, the CUP is able to use the difference to pay on its government debt. And, because it uses that difference to pay ahead on the loan, it saves itself a huge amount of interest which lets it get out of debt faster. It’s examples like that of savvy money management and firm cooperation which have made the cooperation between the Federal Government and CUP a success.


Last updated: January 22, 2007