City to borrow $5M for utilities

Wednesday, October 21, 2009
Mayor Barbara Woods, left, has been given authority to fine-tune the sale of $5 million in utility bonds in a deal being managed by Kevin Barnett, director of Public Finance at Robert W. Baird & Co., Nashville, right.

Lewisburg's City Council voted Friday to borrow $5 million so the Water and Wastewater Department will be ready to enlarge its sewage treatment plant and, separately, pay off a local bank loan for the Cornersville water system.

Water and sewer rates will probably increase in about a year as one result of the state-mandated project to double the sewage treatment plant's capacity, water department Superintendent Kenneth Carr said during a Friday meeting of the Council with the utility board. Plant expansion could cost $13 million.

The rate increase is in connection with the additional costs associated with the plant expansion.

"This is all brought about by TDEC," the Tennessee Department of Environment and Conservation and an order from one of its division directors to have the city address long-standing issues, Carr told elected and appointed officials. "E.P.A. (the U.S. Environmental Protection Agency) says we're going to do it."

The reasons are well enough known by local officials who were reluctant to repeat the four-letter word that sometimes replaces the word rock in the name Rock Creek for the stream that flows through a park where the Goats Music and More festival is held.

"As long as you have manhole overflows," Carr said of mandated sewage treatment plant expansion, "you're going to do it."

Doubling plant treatment capacity to six million gallons per day is to be completed by December 2011, he said.

As Councilman Robin Minor acknowledged that sewer "manholes are overflowing," Carr was asked where.

"They're all over town," the utility superintendent replied, offering the locations of the "critical" problems. They're from the "main line by the creek."

"It's," Councilwoman Quinn Brandon said, "pretty nasty."

Carr continued, "We have bolted tops down to stop rollover at the walking trail... on the railroad tracks...

"There are always health issues with raw sewage," Carr confirmed.

However, the wastewater is so diluted that the effect is nominal, he indicated. Other officials seemed to agree, but later comments were heard about how nobody goes swimming in Rock Creek.

Carr's explanations included his suspicions about downtown Lewisburg and a traditional problem that's been addressed more publicly in Nashville. It's one of the ways wastewater is diluted.

"I believe there is some interconnection from stormwater systems to the sanitary sewer system," he said.

Downspouts from roofs on big, old buildings have directed rainwater to sanitary sewers, thereby diluting the flow that leads to the wastewater plant where treatment is either partial or bypassed when volume exceeds capacity, Carr and other utility directors have explained. It's a common problem for utilities, one that's not usually the topic of dinner conversation.

Carr is convinced Lewisburg has the problem "because there will be an increase in the plant's flow about 10 minutes after a downpour of rain over downtown," he said.

A sale of up to $13 million in sewer bonds is to finance the work to address some aspects of the issue, Carr said. One remedy is to build a large holding tank near the sewage treatment plant. It's to receive volumes of wastewater that are greater than the plant's capacity.

The 10 million gallon tank would be comparable to a tank that's visible on the south side of Mooresville Highway just beyond the Fire Department's West Side Station.

"It's to hold the wastewater from high flows and then we'd blend it back in," Carr said. "As time will allow, we'll treat it in the plant. There could be one to two times a year when we receive water from a big rain..."

The tank should solve the problem for at least "363 days a year," he said.

"It's going to go on the pipe yard" at the utilities' treatment plants, and that location was selected "because its height is needed for gravity flow" to the sewage treatment plant, Carr said.

The utility is also using state grants to repair sewers so ground water won't seep into the pipes and increase flows. About 17-18 percent of the cost of that repair work is from the department, he said.

About "a ninth of our system" of 175 miles of pipeline has been reworked and there's been a reduction of ground water diluting the flow to the treatment plant, he said.

Still, Carr said, "You have to improve it faster than it deteriorates."

City Manager Eddie Fuller asked about another project costing some $500,000. It's the installation of "laterals," or pipes intersecting with main lines extending west, beyond Cedar Ridge Landfill, the Business Park and Interstate 65.

Laterals are to be installed before they're needed "in case the city decides to annex both sides of State Route 373," Carr responded to Fuller. "Then, the city won't have to bore" under Mooresville Highway for installation of utility pipes. Boring is expensive.

Kevin Barnett, director of Public Finance at Robert W. Baird & Co., Nashville, attended the half-hour meeting on Friday to be there with answers to financial questions about the $5 million bond sale. He anticipates completing the sale before Thanksgiving.

City Treasurer Connie Edde pointed out that the bond repayment schedule is for 30 years while most bond issues are for 20 years.

"It doesn't have to be 30 years," Carr said. "But this will be major infrastructure."

He opposes long term bonds for capital projects with a life span of 10 years.

"This one could be 20 years," Carr said. "There won't be much difference in the rates."

Barnett said, "The further you spread it (the payment schedule) out, the lower the payment..."

Minor noted differences of half to a quarter percent, calling that "no big difference."

"But," Councilwoman Quinn Brandon said, "when you're talking about millions, it's a lot."

She then started exploring the Internet on her cell phone to find an amortization schedule.

Barnett advised the bonds can't be paid off during the first 10 years of the contract, but thereafter that they are callable without penalty.

The first two years of the proposed repayment schedule is for interest only. After two years, other debt will be repaid, thereby making money available for the increased payment on the bonds.

"This will stabilize our rates," Carr said.

Discussion among utility board directors, and where other town leaders have called bids on public works projects, indicates this is a good time to borrow money because of the market. It's also a good time to call for construction bids.

Another Lewisburg water project was estimated at a cost of $589,000 by the design engineer, but when bids were opened, the low bid was $415,000, or some $174,000 -- nearly 30 percent - less, Carr reported Friday.

Fuller noted the city charges rates for its water customers beyond the city line at 1.5 times the rate paid by city residents. Carr added that when utility rates are increased the customers beyond the city line will face increases that are proportional to the change.

This planned $5 million bond issue won't increase utility rates, Fuller said.

A significant reason is that $2 million of the $5 million is to pay off a short-term loan obtained from First Commerce Bank. That was a bond anticipation note; a loan made in anticipation of the sale of income tax free municipal bonds that are sold on the financial money markets through a process that's time consuming. Since that loan was obtained, rates have dropped. Total repayment costs for that $2 million could be lower.

Another reason is that $2 million of the $5 million is to start the wastewater treatment plant expansion, a project that could cost $13 million.

The remaining $1 million is for other utility projects such as the lateral connections under State Route 373, Mooresville Highway.

Councilman Hershel Davis, chairman of the Water and Wastewater Board, moved to authorize the bond sale. The vote was unanimous.

As the mayor has been authorized to make changes in the bond sale plan, she was asked by one of the councilmen, "Are you bonded?"

"I'm very stingy," Woods replied.

The pending bond sale is to become the subject of a legal notice to be published in a couple of weeks.