City Council approves $3 million interfund loan
May 15, 2009 · Updated 9:32 AM
On Wednesday, City Council members narrowly approved up to $3 million in borrowing from the city's water utility to help prop up the depleted sewer utility fund.
The move comes after weeks of uncertainty over how to finance ongoing construction on the city's wastewater treatment plant (WWTP).
Funding options for the WWTP, including a long-term bond or a bond anticipation note, were scuttled due to a lawsuit filed by a group called the Bainbridge Ratepayers Alliance, which contests the legality of the bond issuance.
"We're recommending the use of the interfund loan solely because we have a lawsuit against the city seeking to void any bond borrowing," council member Barry Peters said.
The WWTP needs more than $4.5 million in direct funding to hit a February 2010 completion target. Currently the sewer fund has only $5,000 dollars in reserve.
Under the terms of the interfund loan, up to $3 million in water utility fund money could be transfered to the sewer fund on an as-needed basis, essentially creating a $3 million line of credit to pay for ongoing WWTP costs which run between $200,000 and $400,000 a month, according to city administration officials.
The water utility fund has about $3.6 million in cash that has been accumulated through customer fees. The city would have until May 15, 2010 to repay any amount borrowed from the water utility, with interest.
However, some council members opposed the interfund transfer saying it would disrupt water system maintenance timelines and the Winslow Way project which is projected to use roughly $1.7 million in water utility funds.
"I've been opposed for the last year and a half to this project's funding strategy," said council member Debbie Vancil.
Vancil also objected to the measure because there was not definite way for the city to repay the loan, which she said is contingent on the ratepayer litigation.
"It carries huge risk, lots of risk, what if we can't repay it," Vancil said.
City Administrator Mark Dombroski said the city would have a problem funding other capital projects if the loan was not repaid in 2010.
Council members Bill Knobloch and Vancil both expressed interest in delaying the project while settling the ratepayer litigation. However, even a stop or slowdown on the project would cost additional money that the sewer fund does not have, Dombroski said.
"Right now, if I don't have an interfund loan, I cannot pay the bills next week," he said. "I need something to pay the contractor for the next 90 days."
Estimates by the acting director of Public Works, Bob Earl, indicate a stop or slowdown on the WWTP would cost an additional $50,000-$150,000 a month.
Also, if the project misses performance dates, the state can request immediate repayment on a $7 million public works trust fund loan, which would cause sewer rates to skyrocket.
"You start to weigh the risks and the challenges and we are breaching our fiduciary responsibility by delaying or stopping this project," council member Hilary Franz said.
She also raised concern that stopping or slowing the project could open breach-of-contract litigation between the city and the contractor on the WWTP, and potential litigation from residents who live next to the WWTP on Hawley Lane.
The move by the council to approve the loan indicates they will deal with the ratepayer litigation while sticking to the WWTP construction timeline.
While many council members agreed the interfund loan was not the ideal way to fund the sewer project, to many it was the only way to move forward.
"I see a disconnect," council chair Kjell Stoknes said of the ratepayer litigation and the funding alternatives for the WWTP. "I think all parties can be reasonable and reasonable people work together and find solutions and that is why I choose to support this."
The city council passed the interfund loan measure in a 4-3 vote.