Amid a severe drought and limitations on the use of water from the Colorado River, municipal bonds are helping to fuel rapid growth in southern Utah.
One of the most significant developments in the St. George area will be financed with $106 million of limited tax general obligation bonds issued this month for the 278-acre Black Desert Public Infrastructure District.
Developers plan 148 hotel rooms and 299 hotel condominiums around a 200-acre, 19-hole golf course, a wellness spa and 46,160 square feet of restaurant and retail space.
Black Desert Resort
The residential component is designed for 32 single family estates, 783 condominium units and about 214,000 square feet of commercial space.
“This region is growing at a significant pace, and we are well-positioned to accommodate this growth, while contributing directly to the economic development in the area,” said Patrick Manning, managing partner for Black Desert Resort.
Financing was managed by D.A. Davidson’s Special District Group, which has handled five deals in the state worth about $230 million.
Brennen Brown, managing director at Davidson, said that high-yield municipal bond funds were the expected buyers.
“They are buying non-rated ‘dirt deals’ and love the opportunity to do this in a new geography to diversify their holdings, especially given the very strong growth dynamics in Utah,” Brennen told The Bond Buyer via email.
To create the district and authorize the debt, developers needed approval by the Ivins, Utah, City Council.
The city will have no financial obligation for the district, said Ivins director of finance Cade Visser.
On a 3-2 vote in July, the council approved the district and bonds backed by property taxes levied only on residents of the new resort.
At its June 17 meeting, the council discussed ways to comply with extreme water conservation measures, including a ban on new golf courses, residential lawns and a limitation on building permits.
The Black Desert Resort at Entrada is being built around a golf course, and developers are seeking to overturn a council restriction on building height for the resort hotel.
Some Ivins City Council members questioned the size of the development.
“A big part of my concern is water,” council member Cheyne McDonald said at last month’s meeting. “This is going to take a lot of water.”
In its Sept. 30 limited offering memorandum, the district cautioned investors that it had no firm commitments for water from the city.
“It is anticipated that the developer will secure culinary water service for the resort center prior to construction of the hotel for the remaining villages and executive homes as development approvals are obtained,” the statement says.
Brennan told The Bond Buyer that the city has adequate supplies of water to serve the development.
The Washington County Water Conservancy District last month addressed city councils on recommendations for water use and conservation. The potential ordinances would affect new construction, according to Zach Renstrom, general manager of the water district.
Washington County’s only water supply comes from the Virgin River, where water levels were the lowest ever recorded.
To fuel long-term growth in the region, the water district and developers are seeking federal approval for a water pipeline from Lake Powell, the reservoir created by Glen Canyon Dam on the Colorado River.
Environmentalists oppose the pipeline, and some have called for removal of the dam. Amid the present drought, both Lake Powell and Lake Mead downstream behind the Hoover Dam have fallen to the lowest levels since they were filled.
In Washington County, a record 928 building permits were issued in the last year. Construction of a single house requires an average of 300,000 gallons of water, officials estimate.
“We have to take conservation seriously,” Renstrom said in a statement in June as the state adopted new restrictions on water use. “We have one local water resource that is almost tapped out and a population that is projected to more than double in the next 40 years.”
Renstrom said the district has invested more than $70 million in recent conservation efforts. The district offers more than two dozen conservation programs and is working with Maddaus Water Management, an international authority specializing in water demand analysis, water conservation and drought planning, to identify additional programs to implement in its 2021 water conservation plan.
Other programs under review include rebates for turf removal, water-efficient irrigation devices and water-smart appliances.
The water district is in southwestern Utah, about 300 miles south of Salt Lake City and 120 miles north of Las Vegas. As the primary provider of wholesale water in Washington County, it shares the county’s boundary covering about 2,430 square miles.
Tourism is the major component of the economy due to nearby Zion and Bryce Canyon national parks.
The district was rated AA by S&P Global Ratings in 2017 with a stable outlook.
The district supplies 13 communities, eight of which have entered into regional supply agreements with the district. The eight communities represent more than 85% of the residents within the service area.
The Lake Powell Pipeline project was expected to begin this year but is still under federal review. The project is expected transport water from Lake Powell to two counties with approximately 82,000 acre-feet to Washington County at full development. The estimated cost of the project is $1.4 billion, which would initially be paid by the state; the district would then repay its share of the costs over a 50- to 90-year period.
In August the first Colorado River water shortage was declared since the 1922 Colorado River Compact was agreed to by seven states in the region.
The compact divides the states into the upper basin and lower basin. As part of the upper basin, Utah has senior water rights, allowing it to take water from Lake Powell.
Utah has spent more than $40 million preparing for the 140-mile long pipeline, and Gov. Spencer Cox said the state is committed to the project, despite the drought.
In 2017, Ron Thompson, general manager of the water district, listed 10 reasons the pipeline was needed, primarily for economic growth and to provide sustainable supplies even in a drought.
“Some have recently suggested the Lake Powell Pipeline is an unnecessary water project,” Thompson wrote. “My job would be much easier if that were the case.”
“Building large water infrastructure projects is challenging — it takes a tremendous amount of time and resources, the environmental process is long and complicated, and it’s expensive. I know this all too well. But, I’m committed to the effort.”