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City Council may ask voters to consider wastewater treatment upgrade

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Posted: Friday, July 27, 2012 11:46 pm | Updated: 10:37 am, Mon Jan 21, 2013.

FAIRBANKS — The Fairbanks City Council is considering asking for voter approval to help a local water utility fund an addition to the city-owned wastewater treatment facility.

An ordinance sponsored by Mayor Jerry Cleworth would place a question on the October ballot asking voters to authorize the mayor to apply for and accept a loan of up to $4.6 million from the Alaska Clean Water Fund. Golden Heart Utilities would then use this pass-through loan to replace the sludge dewatering system at the Peger Road Wastewater Treatment Plant.

The ordinance received its first reading at Monday’s City Council meeting and may be voted on at the next regularly scheduled meeting Aug. 6.

The city sold its utility system to a consortium of buyers in 1997 and Golden Heart Utilities eventually purchased the water supply system. The utility chooses to lease the wastewater treatment portion of the system from the city for $33,075 per month because it believes it’s more advantageous to continue leasing, even though it costs $400,000 per year, according to Cleworth.

“There are certain reasons for them not to buy it outright — there are advantages the government has that the private sector does not have,” Cleworth said. “They want to try to take advantage of grants and low interest loans that come from the state and any other sources. These loans and grants have to come through city.”

The city is eligible to borrow money at a low interest rate of 1.5 percent, according to the ordinance.

Over the course of the utility’s arrangement with the city it has paid $5.6 million in lease payments, $4 million of which has gone into the city’s permanent fund, according to Cleworth.

“It was a lease purchase, so it’s kind of like making a mortgage payment — there’s a point where they can exercise their right to say ‘we want to just own the plant. We’ve paid you enough money.’ Well that point has come and gone — they could have bought the plant now with these lease payments. They decided not to buy it and they continue to make lease payments to us. This is actually a real revenue generator to the city that we didn’t ever envision when we sold the utilities,” Cleworth said.

If the question is put on the ballot and voters approve the loan it will benefit ratepayers, according to Cleworth.

“If they say no, then we just kind of walk away and Golden Heart is going to have secure its own financing for that. The bad part about that is if they borrow privately it’ll be at a higher rate and the rate-payers will be paying more,” Cleworth said.

The ordinance also would ask voters to approve an additional loan of $650,623 for a clarifier project and to ratify a previous loan with a current balance of $637,830 for prior improvements at the wastewater treatment facility.

According to Cleworth the previous loan should have been presented to the voters but was not.

“Our code says we cannot borrow any money without voter approval,” Cleworth said. “Under a previous administration it got by them. It didn’t raise any red flags at the time — nobody thought it through. We took a look at it and said we don’t think it can be handled that way.”

The ordinance states the voters would have a chance to ratify the previous loan “so that ratepayers benefit from the low interest rate. If not ratified, the loan will need to be refinanced at higher rates.”

A resolution authorizing the city to apply for a municipal matching grant from the Alaska Department of Environmental Conservation was approved by the council Monday. The grant would help defray the cost of the sludge de-watering project and reduce the amount of the loan, according to the resolution.

Golden Heart Utilities would pay a loan origination fee of 0.5 percent of the actual loan amount, pay the full cost of city employee wage and overhead for time spent administering loans and grants, would provide an annual financial audit and obtain a loan repayment guarantee from its parent company, Fairbanks Sewer and Water.

If the utility is forced to build the facility without grant funds and using conventional financing, it would result in a rate increase of approximately 2.89 percent, according to the ordinance. With maximum grant funds and a 1.5 percent interest loan the approximate rate increase would be 0.56.

The current dewatering facility is nearing the end of its useful life and a new facility would increase the amount of water removed from the sludge and reduce the total sludge volume and the plant’s operating expenses, according to the ordinance.

Contact staff writer Dorothy Chomicz at 459-7590.

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