City awards bid for water plant; 20-year loan envisioned
BY Sarah smith
Park Rapids’ wastewater treatment plant could go on line by March 2014 if progress goes according to plan. City officials would like to see it operational by the end of this year.
Tuesday night the Park Rapids City Council awarded the contract to an Excelsior firm, Di-Mar Construction, as the low bidder. That company’s bid of $2.055 million came in slightly below the engineer’s estimate of $2.126 million.
Meanwhile, the city is mulling whether to raise water rates to cushion the blow of paying for the facility. Water rates last rose in 2011.
A phased-in rate hike is contemplated even though Park Rapids has $1.7 million in its water fund now, required by state law.
But that reserve amount also is required as a “cover allowance” to obtain a $1.315 million loan at 1 percent interest through a government agency called PFA, said engineer Brian Hiles. Another $600,000 is envisioned as a DEED grant with the remaining $677,600 from a PFA clean water revolving fund principal forgiveness loan.
“Basically it’s a grant but the way the statute’s written they can’t call it a grant so it’s called a principal forgiveness loan,” Hiles said. “It’s a loan but the principal is forgiven by the state so it doesn’t have to be paid back. There is no interest on that either.”
The Minnesota Public Facilities Authority “provides municipal financing programs and expertise to help communities build public infrastructure that preserves the environment, protects public health, and promotes economic growth,” according to its website.
PFAFA “administers and oversees the financial management of three revolving loan funds and other programs that help local units of government construct facilities for clean water (including wastewater, storm water and drinking water) and other kinds of essential public infrastructure projects.”
Total project cost is $2.59 million, with engineering, construction, financing fees and interest.
The city still has $60,000 annual payments for its last water tower that will last another decade or so at a $2.57 percent interest rate.
City administrator John McKinney questioned whether it would be more financially wise to pay off that old loan if possible.
“You want to pay down the more expensive loan if you can,” he said.
Council members discussed whether a 15-, 20- or 30-year loan should be pursued without making a final decision.
The consensus seemed to favor a 20-year loan because that would roughly coincide with the estimated lifespan of the plant and would have the least quarterly impact.
The building will be concrete block, which will last decades. The filters and piping are projected to last 20 years, longer if properly maintained.
“With 20 years (financing) we’re not spending money after the useful life” of the plant, council member Rod Nordberg said.
And while water/sewer systems “should pay for themselves,” Hiles suggested an initial buildup of capital would be necessary at the outset of the project. The first major payment on the general obligation bond is due at the end of 2014.
“You shouldn’t use levy dollars to pay for it,” he said.
“Water rates should be a revolving entity,” Hiles said. City officials could adjust both the base rates and water use charges to arrive at an equitable formula for all users, such as a family of six versus a single retired person.
Water rates will be geared toward conservation, with incentives to keep usage down.
Council members voiced strong support for a billing system that would be fair to all water users.
PFA, in awarding loans and grants, takes Park Rapids’ median household income, multiplies that by a predetermined factor and arrives at what is called “an affordability rate.”
“Park Rapids is (already) close to that rate,” Hiles said. “Theoretically they’re trying to avoid” causing residents pain at the water faucet.
“That’s why the state provides the grant funding,” he said.
He presented five funding scenarios, depending on the depreciation and finance term. Depreciation is factored in as a reserve fund.
“It would be prudent for us to run this through our fiscal agents,” McKinney suggested.
The city did revise the completion date to March 30, 2014, in case there was a hitch ordering supplies.
The winning bidder specializes in building such facilities, Hiles said, and recently built a $3 million water plant expansion in Alexandria.
PFA requires general obligation bonds to be let and once the project is done, they close the GO bond and the city has the funding through PFA. The reason is if the city is unable to do the funding, which is rare, Hiles said, PFA is still covered.
The city is constructing the plant because persistent nitrate contamination of city wells can’t be remedied any other way.
In other business, the council said goodbye to retiring Chamber director Katie Magozzi, learned that funding for the Red Bridge project has been accepted by the DNR after July 1, but that the bridge may not be ready for installation until spring 2014.
City Planner Dan Walker said he may hold a community meeting at the downtown park with residents to determine where the old bridge should be relocated.
And the council voiced support for a Heartland Trail spur that will go to Itasca State Park.