Finance Committee considers borrowing money to replace water mains

By Karen Cornelius

Back in May, city engineer Lynn Miggins introduced a 25-year water main replacement program that could cost close to $16 million. Replacing old, corroded water mains is a mandate from the EPA and would eliminate a lot of problems with breaks and service. The question at the time was how to pay for this work.
At the Finance Committee meeting on Monday night, July 10, finance director Brian Keller gave council members some options on borrowing from the Ohio Water Development Authority (OWDA) to kick start this program. He said because they have borrowed funds from OWDA before, the city could get a one-half percent discount on the interest to pay back the loan. The city could borrow between $500,000 up to $5 million. The terms could be based on 5 to 20 years to repay or 25-30 years. He said the interest rate for a 5-20 year loan would be 2.75 percent or 2.90 percent for a 25-year term to 30.

 

Keller said he took into consideration the condition of the water fund, its anticipated expenses, and the rate increase. He said he would feel comfortable if the city borrowed $1 million at a 25-year term which would make the interest payment each year at $56,513.97. Keller said he discussed this with the city engineer and believed they could address the most immediate water main needs, certainly not the whole program. He said it would be a jump start for the worst areas which lead to breaks.

 

Councilman Fred Ostrander was inclined to borrow more than $1 million based on the city engineer’s chart of 25 years of replacement. He said the more they can fill the water tower, the more efficient the system would become. He said then they might not need to operate the plant 24/7, but do a 16-hour day and take one person out by eliminating a shift. He said cutting one staff member would save $90,000 or they could quit overtime on the third shift. Keller responded that he didn’t feel comfortable borrowing more money, and he didn’t know how realistic it would be to take one person out of the plant based on what they know now.
Councilman Jim Forthofer disagreed with Ostrander about borrowing more than $1 million. He said they would have to pay $56,513 every year as it is leaving a low carryover in the fund. He said if they borrow too much, it leaves them too thin with still the majority of lines to repair. Councilwoman Barb Brady thought if they repaired a lot of lines there would be less breakage and they could save money, time and materials which could be spent elsewhere. Service director Tony Valerius agreed they could do other things in the city rather than fix breaks, however he didn’t see a big savings and the water mains that still need repair would just be getting worse.

 

Council president Steve Herron said he appreciated the recommendation made by the finance director. “There’s never enough money. This city needs to continue infrastructure planning on a permanent basis, and this is a good start for a long-term plan.” Councilman Forthofer said he agreed to get some mains replaced fast. But, they were still at a risk. They needed a plan to find what resources they can use to address replacing the remaining majority of water mains. Councilman Ostrander was looking at borrowing $2.5 million and thought there could be a savings if they didn’t staff the plant 24/7. He said it could be a wash. He advocated a bigger program and doing a bigger chunk of work. “We should do as much as possible.” Councilman Forthofer questioned, “How much is too much.” He said they don’t know what will happen to the lines they don’t address.

 

Finance chairman Monica Stark said they should listen to their finance director and his comfort level. She said at some point they could always go back to the OWDA and do an additional loan for more lines. “We should get moving and fix this portion then take sections one at a time. It’s a positive thing.” Councilman Frank Loucka added, “The interest rate is positive.” Councilwoman Brady pointed out the escalation rate per year included in the project could be saved if they cut out five years of work on the schedule.

 

City engineer Miggins said realistically there is $15 million in costs for 25 years based on the current rates. She said council has to accept that there will be rate increases needed for these capital improvements. Finance director Keller said the OWDA appoves loans every month. If council borrows some funds, Miggins thought they could start next year, but later than spring. At $1 million they could do about 20 percent of the water mains, not quite two years of work on her proposed chart. Once they get the money, they could use it immediately for design, construction, and inspection services. “We could begin designing immediately,” said Miggins.

 

Councilwoman Brady asked how they would pay for the project if there was no loan. She asked what the project was based on. Miggins responded that it was a one-half million dollar per year program to build one project with the additional $2 increase in water rates, about $400,000. She said they didn’t have the $400,000 yet, but there was a $1 rate increase this year with another $1 increase coming in January. Brady said if they are going to have the additional $400,000 why not borrow $5 million instead. Finance director Keller answered that unexpected things could come up and he was not comfortable with only leaving $120,000 per year. Councilman Ostrander didn’t think the finances were adding up based on his figures and billings.

 

Finance chair Stark said they would put the topic on the August Finance agenda and ask the finance director to do more research on the numbers and find out from the administration where they would start and how much could be done on the list. Brady wanted them to look at the water department in general and the budget. She asked about results from the water plant study of the intake into the lake because they needed to know whether it was acceptable to the EPA or not. Service director Valerius said he is waiting for the EPA’s response after filming the intake. Brady asked what happens if they close the plant and purchase water from somewhere else. Chair Stark said regardless, they still need to do the distribution pipes.

 

Councilman Forthofer asked if they start with $1 million how much can be done. Miggins responded that they would start with the westside of the city at Decatur and Adams and then do Adams Street for about $1 million. She confirmed that replacing water mains has to be done even if Vermilion purchased water from another entity. New lines would have to be added, but they still need the replacement program to continue distributing water to all the streets.

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