Council holds special hearing on USDA sewer plant funding

     A special Monticello City Council was held on Monday, March 28 to hold a public hearing regarding the USDA Rural Development loan related to the new sewer treatment plant.

     No public was present for the hearing. The council did not take any action on approving the funding; a public hearing is a mandatory step toward application process.

     If the council should choose to follow through with the USDA loan, they would see a 40-year term at 1.25 percent interest.

     The special meeting was needed, as the deadline to complete the application was March 31.

     “It means substantial payment reductions but a longer term for the sewer treatment plant funding,” noted City Administrator Russ Farnum. “We’re not obligated to use this financing. It would remain an option that we could pursue.”

     Annual payment to repay the loan would be between $758,000 and $760,000.

     Previously, the new sewer plant was estimated to cost around $12.5 million. Now, the price has increased to about $17.5 million.

     “While the engineer’s estimate for the sewer treatment plant is currently $17.5 million, that includes a lot of other work that’s not just the treatment plant,” explained Farnum. “There is almost a $1.5 million contingency alone for the size of this project that we may or may not end up spending depending on where costs overrun or inflation comes in.

     “It may seem like a little sticker shock when we were looking at $12.5 million,” continued Farnum. “If you look strictly at construction of the plant itself and the equipment, we’re still right around that ballpark. It’s only gone up about 10 percent. It’s not terrible at this point. But those who have kept tabs on the construction industry, you’re well aware of the variations we’ve seen and the timing issues for different products.”

     Initially, the city previously looked at a 20-year revolving loan from the state at 2 percent interest. Those payments would come out to be about $1.1 million per year with the revised project estimate.

     Farnum said to reduce those payments, the city could look at a lower interest rate, which he prefers, or to lengthen the term of the loan.

     “Which is not one of my favorite things to do because I prefer to get debt paid off as soon as possible,” he noted.

     If the city went with the USDA loan, they would see both a lower interest rate and reduced payments. There would also be no penalty if the city made additional payments or paid the loan off early, before the 40-year deadline.

     This option would also free up about $200,000, which could be used to make additional payments.

     “This is one of our most flexible financing options for the city to pursue for the waste water treatment facility,” said Farnum.

     Council member Tom Yeoman inquired about the life expectancy of the new sewer plant, wondering if a 40-year loan would out-last the facility or vice versa.

     “That 1.25 percent at 40 years looks really attractive, but 10 years from now and it’s not paid off and we have to change it again,” he said.

     Water/Wastewater Director Jim Tajden said it all hinges on the DNR.

     Mayor Dave Goedken commented that the Aquatic Center will be 20 years old this summer, and the city already had to consider setting aside $30,000 toward maintenance.

     “Do we want to be paying for a plant for 40 years that we could possibly be doing some substantial updates by the point already? There are a lot of different things to consider here,” he said.

     Two positive updates from Farnum in relation to sewer plant funding… Jones County Economic Development Director Derek Lumsden is working on two possible grants to assist the city. The CDBG (Community Development Block Grant) option could be about $500,000. However, this would be a federal grant, which means the city would have to follow procedures similar to that of USDA funding.

     “Because it’s federal money, once we put federal money into the pot, we’re building to federal standards,” said Farnum.

     The other grant is for $2 million through Iowa Economic Development Authority.

     “We’re very happy with how the progress of those two grants is coming along,” praised Farnum. “The $2 million in particular takes a big chunk of change off and that would lower our payments on our bond issuance substantially.”