Discussions of sewer surcharge continue
November 19, 2009 · 4:07 PM
The city is getting closer to having to impose its “last resort” funding option to complete the remaining upgrades to the Waste Water Treatment Plant.
The project requires $1.5 million in funding to complete, but the city has been unable to secure bond funding or loans to pay for the remainder due to pending litigation. The City Council is now considering a temporary surcharge to sewer ratepayers.
As former City Manager Mark Dombroski’s time on Bainbridge neared its end, he said the surcharge was the last option. Interim City Manager Lee Walton has said that completion of the treatment plant upgrade is his top priority and he is seeking alternative sources of funding.
Walton said at Tuesday’s Finance and Personnel Committee meeting that he has contacted Stan Palmer Construction, the company contracted for the upgrades, about a possible warrant. Walton said Palmer was interested but nothing is concrete at this point.
“It’s promising, but I wouldn’t depend on it,” he said.
The warrant, which is essentially a direct, short-term loan, could work in several ways, Finance Director Elray Konkel said.
Konkel said the city could write a warrant to Palmer, which could then receive the $1.5 million from the company’s bank, the city’s bank or hold the note itself.
Konkel said this route is similar to going straight to a bank for a loan. It could be more costly than going through the bond market because the bank or lender could assess a higher level of risk and charge a high interest rate, Konkel said.
“Instead of us going out to a market, it just becomes a very direct, very specific sort of loan,” Konkel said. “It’s just another option.”
If passed, the rate increase wouldn’t go into effect until Jan. 1, giving Walton and the council time to negotiate an agreement with Palmer. The surcharge could be repealed if a solution is reached before the increase kicks in.
A Nov. 9 public meeting on the surcharge is scheduled to continue on Nov. 23. At that point the council has the option of sending it to a third reading on Dec. 4, or waiving the third reading and voting on the surcharge.
Should the council have to impose a rate increase, the staff has supplied several options.
The council can charge an across-the-board fee, a fee based on consumption, customer billing units or a combination of the two.
Though the surcharge has been presented to the council as the only viable option at this point, Councilor Bill Knobloch voiced his displeasure that another possibility has not been found.
“I feel that a surcharge at this point is not the solution,” Knobloch said. “I think we can find a better solution.”
The Utility Advisory Committee has also weighed in on the situation. The UAC recommends a monthly, uniform 130 percent surcharge for both the base charge and volume charge per customer until June. Andy Maron, chair of the UAC, said at the council’s Nov. 9 meeting that the surcharge may be a necessary evil.
“It is not in the best interest of the ratepayers to stop construction when it’s about 85 percent complete,” he told the council. “If you have to finish the plant, and you can’t fund it anyway else, yes, we do recommend you do a surcharge.”
At this point, a primary obstacle of the surcharge is the question of how to pay back the money to the ratepayers.
Councilor Barry Peters suggested that the city simply cut checks to ratepayers when the surcharge is no longer necessary.
“To me, the happiest ratepayers would be the ones receiving a check for however much they paid in between January and June.”
But City Attorney Paul McMurray said this kind of refund would violate the State Constitution. The lawful way to repay the ratepayers would be to dramatically lower rates once the need for the surcharge ends, he said.
The surcharge has been considered because the city has been unable to obtain funding for the final portions of the projects.
Filed in April, the Bainbridge Ratepayers Alliance lawsuit has affected the city’s ability to secure financing. The city has asked for funding from several banks and other avenues before considering the rate surcharge.
A potential rate increase would raise fees that are already higher than state and county averages.
The sewer fund has been the poorest of the three utility funds. Earlier in the year the city authorized an interfund loan of $3 million from the water fund to prop up the sewer fund.
The increase in rates would not pay off the interfund loan. To this date, $2 million of the authorized amount has been loaned to the sewer fund.