By Ivan Raconteur
NEW GERMANY, MN New Germany is a small town facing some big questions involving a proposed $8 million infrastructure improvement project.
The city council considered these questions during a special meeting Wednesday evening. While the project represents a huge undertaking for a town of 372 residents, and one that the council is taking very seriously, the fact emerged that New Germany may not have much choice.
The special meeting was a response to recent meetings between city engineer Sheila Krohse, Mayor Jason Kamerud, Council Member Steve VanLith, and some government agencies.
First, there was the bad news.
The Public Facilities Administration, which the city had hoped would help finance a drinking water treatment facility, a part of the project, told the city that it is not willing to fund the project because the city has too much existing debt from its new well, water tower, and lift station.
Then, there was some better news. United States Department of Agriculture Rural Development, which was already on board for some of the improvements, offered to help the city finance the entire project, which includes a new wastewater treatment plant, a water treatment plant, replacement of much of the city’s sewer and water infrastructure, and repaving the streets.
The offer from Rural Development includes 25 percent just over $2 million in grants, and the rest in a low-interest (2.875 percent) loan for 38 years.
The city currently has two outstanding bonds, one with a principal balance of approximately $430,000 at an interest rate of 5.046 percent, and one with a principal balance of approximately $1.4 million at an interest rate of 4.3935 percent.
Even with the favorable financing offered by Rural Development, it is a large project, but all of the pieces are literally connected, and doing part of the project may not be an option.
“It is an all or nothing deal at this point,” Krohse said.
Drinking water treatment plant
The drinking water treatment facility represents about $1.3 million of the total project cost.
The plant will remove the high levels of iron and manganese, and significantly improve the water quality in the city, according to Krohse.
The main reason the city needs the plant, however, is that the city’s water contains levels of radium that exceed legal limits.
“This is a primary drinking water standard that is not being met,” Krohse said.
The city has been blending water from its backup well and its main well to dilute the concentration of radium as a temporary measure, but the backup well has begun to pump sand into the system, and it is unclear how long the city can continue to do this.
If the city does not build the water treatment plant to eliminate the radium, it could be subject to fines from the Minnesota Department of Health, Krohse said.
Inflow and infiltration concerns discussed
Another significant concern for the city is the level of inflow and infiltration (I and I) that is entering the sanitary sewer system.
Dan Wroge of PeopleService, the company that contracts to operate the city’s sewer and water system, explained that the amount of water pumped into the treatment ponds through the sanitary sewer system should be roughly the same as the amount pumped into the system from the city’s well.
This means on average, about 35,000 gallons per day should be entering the ponds. The actual flows have been closer to 50,000 gallons per day, Wroge said.
In an extreme case during recent rains, Wroge said more than 100,000 gallons of “extra” water flowed into the sewer system in a 24-hour period when the city received just over 1 inch of rain.
Wroge said he has reviewed the records, and the city has exceeded the design capacity of the ponds during 26 of the past 53 months. This means that more than half of the time, more water is flowing into the ponds than they were designed to handle.
The city already has a signed acquisition agreement with the Metropolitan Council under which the Met Council will take over the city’s proposed wastewater treatment plant once it has been built.
However, the Met Council will impose surcharges for all of the excess water that flows through the plant, Krohse said.
In addition to that, the city will have to pay to treat the excess water, which would increase the cost of operating the plant, and, as a consequence, result in higher water rates for residents.
Wroge said based on the actual flow numbers for the past four years, if the city had been on the Met Council’s system during this period, the city would have paid an additional $102,000 just for the extra water that should not have been entering the system.
These are not the only ways that I and I cost the city money.
One of the recent meetings included the Minnesota Pollution Control Agency (MPCA).
The city has been telling the MPCA for years that it is working on the I and I problem, and the city has even developed a plan for addressing the issue.
However, Krohse said, due to delays, and changes to the system that have fallen through, little has been done to address the I and I problem.
She said the MPCA is tired of waiting, and the city needs to take action.
Not only can the MPCA choose not to approve extension of the city’s wastewater permit, it could place a moratorium on new hookups until the problems are fixed. It may also have the ability to impose fines until the I and I problems have been addressed, Krohse said.
She said the city should begin by implementing ordinances to correct items such as sump pumps and drain tiles that are connected to the sanitary sewer system. She explained that this was common practice in the past, but should not be allowed, and this is one source of inflow and infiltration.
One way to identify these improper connections would be to televise the lines.
The council will consider what action to take at a future meeting.
The Rural Development proposal also includes refinancing the city’s existing debt at a lower rate over a longer period, and the cost savings will help to pay for the project, Krohse said.
If the city were to do only part of the project, such as the water treatment plant, assuming that it was able to get financing, it would likely be at a much higher rate for a shorter term, Krohse said. The city would also still have the higher costs of the existing debt, which would be reduced if the city accepts the Rural Development proposal.
Krohse said her revised cost analysis is not all that different from the one she provided to residents during two previous public hearings on the project.
One thing that is not included in the analysis is expanding the assessments for the water treatment plant to property owners in the Black Forest Estates development.
These residents were not assessed for the sewer and water improvements in other parts of the city, because the law does not allow the city to assess properties unless they benefit directly from a project.
However, Krohse said, the residents in Black Forest Estates will benefit from the water treatment plant and should be assessed for that portion of the project.
Based on Krohse’s cost projections, assuming no growth in the city during the 38 years of the bonds (worst case scenario), the total average monthly cost would be $155 per equivalent dwelling unit (EDU). Generally, a single-family home is one EDU, while businesses may represent multiple EDUs.
There are a total of 191 EDUs in New Germany.
The city will not increase the base charges for sewer or water for five years, but the gallonage charge (currently $7 per 1,000 gallons for water and $8 per 1,000 gallons for sewer) will increase by 50 cents in 2012, 2013, and 2014, and by 3 percent annually thereafter.
The base charges will also increase by 3 percent annually beginning in 2015.
Krohse said if the city decides to move forward with the project, it will probably need to schedule another public hearing this summer or fall, prior to the council authorizing plans and specifications for the project.
The council will consider the matter again during its Tuesday, May 3 meeting. It could take action on the proposal during that meeting, but if not, it will likely make a decision no later than the Wednesday, May 18 meeting.
Although the proposed financing package is new, the need to address the sewer and water issues is not.
Former Mayor Paul Engelhart commented that the city has been talking about the problems since he was mayor several years ago, and they still have not been resolved.
Council Member Jim Paul said until the city addresses the issues, it cannot grow, and growth would help to pay for the needed improvements.
Council Member Shirley Jaeger said if the city does not move forward with the project, it will be subject to fines and surcharges, and will get nothing for its money.
Trophy Lake Estates foreclosure announced
Krohse announced during the meeting that the city has been notified that the bank is foreclosing on the $1.4 million Trophy Lake Estates property owned by developer Grant Hustad.
Krohse said a sheriff’s sale for the property has been scheduled for Friday, June 3.
Krohse said there is still a $250,000 letter of credit that the city can draw against if Hustad defaults on the assessments for the property.
She said New Germany City Attorney Dave Hubert contacted the Glenwood State Bank and confirmed that the letter of credit is still good.
The city extended utilities to the property to accommodate the development, and the special assessments for the infrastructure are needed to pay the debt service on the infrastructure.
The city assessed the Trophy Lakes property for two-thirds (about $1 million) of the cost of extending the utilities, because the extension was done for the benefit of that development, Krohse said.
The private sewer and water system that was designed for the proposed gated community has not yet been installed, and Krohse said no building permits can be issued for the development until this has been done.
Seven of the lots in the development have been sold and are owned by people other than Hustad, according to Krohse.