Clearwater hasn’t increased its water and sewer rates this year. But that may be happening if city officials can’t find another way to keep the water and sewer funds in the black.

 

At the March city council meeting, members of the council discussed options to make sure the two funds didn’t operate at a deficit.

 

The city’s financial advisor Vicki Holthaus from AEM said neither fund is strong enough to support a major project in the near future. The city wasn’t collecting enough to put away money for capital improvements. 

 

Auditors said the sewer fund might have to borrow from another fund if a rate increase wasn’t put in place.

 

The sewer fund had a projected surplus of $6,000. The water fund’s surplus was projected at $34,460. But $40,000 a year from that fund has already been allocated to cover water main improvements from the North Area Street and Utility project.

 

One option discussed was possibly refinancing some of the city’s outstanding loans to stretch payments over a longer timeline. The council directed Administrator Kevin Kress to speak with the city’s bond counsel about the refinancing option.

 

At the April meeting, Kress said refinancing probably wasn’t a good fix for the problem.

 

The city currently has two low-interest Public Facilities Authority (PFA) loans from wastewater improvements. The 1997 PFA loan with a maturity date of Feb. 1, 2019 has an outstanding balance of $246,032 with an interest rate of 2.08%.

 

The 2008 PFA loan for the sewer expansion project has an outstanding balance of $5,335,000 and will be paid off Aug. 1, 2027. The interest rate on that loan is extremely low at 1.70%.

 

Typically, refinancing is done to lock into lower interest rates and reduce annual debt service payments.

 

Kress said in this case, the city couldn’t find lower interest rates than those already in place.

 

He said refinancing could be justified if the city couldn’t comfortably pay its annual debt service. Even at a higher rate, lengthening the payoff term would result in lower annual payments. But the city would be paying more interest for a longer period of time.

 

“They (bond counsel) are not recommending any sort of refinancing at this point,” he said. “It’s not cost-effective, and it will also go beyond the useful life of the utility.” 

 

“So they’re not recommending purely on the basis that we might not get a better rate that we currently have?” asked Mayor Pete Edmonson.

 

Kress confirmed that opinion.

 

“The rates we have right now are really good,” he said. “They are more in favor of doing a rate increase rather than a refinance.”

 

Kress said he asked bond counsel for a comparison of the city’s debt service payback schedule if the council decided to move ahead with the refinancing option. He said it should be ready for the next meeting.

 

“I guess we could look at them side by side and see if there’s any advantage of doing it,” he said.