By Jennifer Gallus
HOWARD LAKE, MN - During a workshop that took place after Howard Lake’s city council meeting Tuesday, discussion centered around a possible grant and loan program that would allow for the completion of the city’s capital improvement plan.
The city’s capital improvement plan entails updating the city’s aging infrastructure, and is something the city has been plugging away at for the past five years.
However, about $8.5 million worth of projects remain for six sections of streets south of Highway 12, and because of the cost, the city figured the improvements would slowly take place over the next 40 years.
In fact, no new improvement projects were going to be budgeted in the next couple of years in light of today’s volatile economy.
After the city met with a representative from the USDA Rural Development program, the city was informed that its capital improvement projects qualify for a grant of 45 percent of the project total, which is $3.825 million, and the remaining 55 percent, or $4.675 million, could be loaned through the USDA program at 3.75 percent interest for 40 years, according to City Engineer Barry Glienke.
“Typically, in the past, even if you qualified for it (rural development program), you didn’t get it,” Glienke said about the USDA program, because the funds weren’t available. Because of President Obama’s stimulus plan, the funds are now being made available.
“Now, if you qualify you get it,” Glienke said.
“This would be a true stimulus project,” City Administrator Kelly Hinnenkamp said, “because we weren’t planning on any new projects in the next two years.”
Since 2003, capital improvement projects throughout Howard Lake have been correcting deficiencies in the water distribution system and sanitary sewer collection system, which have reduced the amount of inflow and infiltration (I&I) into the sanitary sewer system, according to Glienke.
“Since 2003, the difference between the amount of sewage treated and the amount of water sold to residents has varied from a high of 35 million gallons to a low of 19 million gallons in 2007,” Glienke explained. “This averages to about 25 millions gallons of extra wastewater being treated every year.”
“The I&I comes from three main sources,” Glienke said. “Broken, cracked, and leaky pipes; footing drains tied into the sewer system; and incorrectly discharged sump pumps.”
“Now that the city is paying $3 per 1,000 gallons to treat the wastewater at the new Annandale/Maple Lake/Howard Lake Wastewater Treatment Plant, this additional I&I results in a direct cost of $75,000 (per year) to the city,” he added.
Most of this cost to the city could be eliminated with rehabilitation of the city’s infrastructure, in conjunction with other projects, Glienke explained.
Glienke estimates that about 70 percent of the I&I could be eliminated through the reconstruction of the aging infrastructure, along with completing a sump pump inspection program, and enforcing a footing tile ordinance.
“This 70 percent reduction would amount to about a $50,000/year net savings by not pumping additional sewage to the regional facility,” Glienke explained.
Council Member Jan Gilmer asked for someone with a calculator to figure out how much the $75,000 additional I&I would cost the city after 40 years, which resulted in $3 million.
“It’s almost a wash until you add the interest,” Glienke said.
The city would pay $231,000 per year in debt service over the life of the loan starting in 2012.
If the city were to take the loan out for the full 40 years, the ending amount paid would be $9.2 million. However, there is no penalty for prepaying the loan off, and after the year 2020, the city’s bond payments start dropping off, which will place the city in a good position to pay the loan off earlier.
Hinnenkamp explained that the worst case scenario, where the city did take the loan out for the full 40 years, which would cost the city just over $9 million, could be likened to taking a zero interest loan out for the $8.5 million project.
“It does cash flow we can do it, but it doesn’t mean we have to,” Hinnenkamp said.
The project would not negatively impact the city’s taxes or rates, according to Hinnenkamp.
“Rates stay intact,” Hinnenkamp said, and will only increase according to the current plan structure regardless of whether this project were to proceed or not.
The city council will discuss the matter further at the next regular council meeting.
Hinnenkamp said that it will be a difficult decision for the council to make because it is a large amount of money to take out in a loan, but the completed infrastructure will be a huge asset to the city.
“We either buckle down and do it now, or we pass on it and try to explain later why we passed up a nearly $4 million grant,” Hinnenkamp said.
Glienke mentioned that the cities of Maple Lake and Annandale have also recently met with USDA Rural Development program representatives about the program, “because it costs money to have bad sewer lines.”