Council Discusses Financing Sewer Repair Project

THE SEWER RECLAMATION PITS to the north of the sewer plant require attention according to state statues, but the operation will be costly.

The O'Neill City Council met on Monday, Feb. 2, with all members present.

The council discussed approving an ordinance of necessity to authorize a bond for improvements to the city's sanitary sewer system.

The city's sewer system needs about $1.5 million in repairs. The problem is with the pits to the north of the sewer plant, which need repair. The bid to fix is that the project is expensive, but it is something the city cannot neglect under state statutes.

Scott Keene with Piper Sandler was on hand to explain the project and a solution for how the city could fund it. The city has worked with Piper Sandler in the past on financing the road project, which FEMA left the city high and dry on, approving funding and then denying it.

One solution is to make a resolution on the sewer project. Keene said "The resolution describes that the maximum amount of the project, including the cost of issuance, not only the cost of construction of the improvements, engineering for the improvements, but also some potential issuance costs of the notes, can't exceed a $1,350,000. So  under state statute, the engineers, all of the costs have to be less than or equal to the amount of notes that are issued," said Keene.

Councilwoman Kayla Brudick asked about the project's costs and whether his companies' costs were included in the bid.

"That's correct. And it's actually less than that. I'm happy to talk about it now or when we get to the ordinance. But our expectation is that the amount of notes to be issued is approximately $1,310,000, since the actual construction cost from the engineers is $1,290,000. So we're adding the issuance costs, the lawyers' fees, and our fee on top of that. Expecting to issue a million 310," said Keene.

Burdik asked how the financing would work and how the bonds are secured.

"There are really two ways for a city to issue bonds to finance a project like this. One is issuing revenue bonds, secured solely by revenues from the sewer system. That's the only allowable pledge. You can't use any general fund or property tax dollars. It can only be revenues. So it can often force an increase in sewer rates to cover debt service on top of the sewer system's regular operations. State statute also allows cities to issue general obligation bonds by going through this resolution of necessity process and having general obligation bonds, where you're still allowed to use your sewer revenues to repay the debt if you choose to, but you also, to the benefit of the bondholders, have the taxing authority of the city to backstop it. So that lowers the interest rate. The investors are willing to accept a lower rate because the creditworthiness of a general obligation bond is much higher than that of a revenue bond. So that's the reason that we're going through this process of approving the resolution of necessity because that's the state statute way to drive that process," said Keene

"The ordinance includes certain parameters. You are authorizing the mayor and the clerk-treasurer to proceed with the financing once this ordinance is approved. And it cannot be in an amount, a par amount in excess of a $1,350,00. Again, we're currently estimating a $1,350,00."

"The notes have to be issued within a year of the date the council passes the ordinance. We were talking about issuing them within a month. The final maturity can't exceed 4 years. We'd probably be one year or less. True interest costs can exceed 6%, and our discount cannot exceed 1.25% of the power amount."

Burdick, concerned about the city's debt due to FEMA roadwork and other projects, asked Keene how the city stacks up against other municipalities. 

"The good news is, no, you actually have a very low debt burden. Generally, investors are looking at your debt, the total amount of debt you have, against your valuation. You actually have a very favorable one, so in terms of total indebtedness, you're in great shape. The question you're asking about raising funds ahead of time and saving up so you don't have to bond: there are a couple of arguments against doing that. One is that you're being forced to raise sewer rates, taking those extra dollars, and just putting them in the bank. And just sitting on them. And so there are some ratepayers who say, " Wait a minute, why are you charging us more just to sit on a bunch of cash?"

"And you can argue, well, we have this project that's coming along. And they can come back and say, well, there is some public benefit to this project. And it might have. The community will benefit from this project for the next 10 to 20 years. So why not allow the people who live here when we do the project to benefit from it and help pay for it? Meaning folks that move to town five years from now or ten years from now or fifteen years from now, they're all helping to pay for that improvement that they are benefiting from, rather than the people that just happen to live here for the five or six or seven years when you're saving up the money to pay for the project."

"So that's kind of the public policy argument for why it's fair to have a financing get done. And it is somewhat driven by the difference between the interest rates you're paying on tax-exempt debt and the cost of construction. Because you might be able to argue, well, let's not do this project right now. Let's do it five years from now. When we've saved up the money to do it."

"Well, by then, with construction inflation often higher than the bond borrowing rate, you're borrowing less, but you're well off because you saved up the money. You may be borrowing less, but it's for a much more expensive project than getting it done right now. So those things kind of enter into it as well."

Rich McIntosh, representing the ambassadors, spoke to the council about the city taking over utilities and insurance for the welcome-to-O'Neill signs at the four edges of town. The issue was brought up at the January meeting, and the council tabled a decision until the Feb. meeting. The council agreed to take over their obligation of the signs, and it was mentioned that the city should reimburse the O'Neill Chamber of Commerce for their years of paying the insurance and utilities by giving them free rent on the O'Neill Community Center for their events held there for  a few years until the credit is used up.

The council approved some ordinances on final reading and approved some LB840 loans.

The council approved Austin Root and Josh Miller for the Fire Department. Alex Miles, assistant Fire Chief, and Brandi Fehringer, O'Neill Ambulance Capt., asked the council to consider funding the purchase of three new defibrillators. The current ones the department uses are almost 15 years old, and with a program from Zoll, the department can get three new ones and pay over three years. The ambulance budget had money to replace one this year, but with the program, they can take delivery of all three and pay the rest off over the next two years. The council seemed agreeable to the proposal, with the money added to the ambulance budgets for the next two years. 

Jeanne Mejstrik gave the annual report to the council about the O'Neill Library. In the last year, the Library had 21,182 visitors. The facility had 2,616 active borrowers, and the top Library Patron borrowed 685 items; the current value of the O'Neill Library's collection is $948,730.49, including books, magazines,audio books, and DVDs; and 49,978 total circulation of library materials, including physical and electronic materials.

The meeting was adjourned for the evening after the bills were approved.

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