Long-Term Debt

As of September 30, 2011, the Water Authority has just under $2.0 billion of long-term debt outstanding. Long-term debt is in the form of fixed-rate revenue bonds, with final maturities at the time of issuance in the 20 to 40-year range. Most of these bonds (except for the Series 2010B Water Revenue Bonds) are tax-exempt. These bonds are tax-exempt because principal and interest payments to bondholders are not subject to federal income taxes. Because the bonds are tax-exempt, the Water Authority pays lower interest rates than if it issued taxable bonds. The Series 2010B Water Revenue Bonds were issued as taxable bonds pursuant to the “Build America Bonds” stimulus program created under the federal “American Recovery and Reinvestment Act of 2009”. In the case of these bonds, the Federal Government subsidizes a portion of the Water Authority’s interest payments by rebating 35% of the interest payments it makes to bondholders, thereby achieving interest rates, net of the subsidy, that are lower than if the Water Authority had borrowed on a tax-exempt basis.