City Manager Mark Alexander said Tuesday that the city was able to provide this credit thanks to the state’s resumption of a loan program that funded the other sections of the sewer project.
In 2005, the state ceased the low-interest-rate Clean Water State Revolving Fund loan program due to budgetary constraints. The city had to issue revenue bonds to raise the additional $27 million needed to finish the sewer project. These bonds have a higher interest rate of 2 – 4.7% instead of the 2.3% interest charged by the state’s revolving fund loans.
When the state resumed offering the loans later that year, the city was able to obtain one and use it to pay off the revenue bonds early. Given the difference in the interest rates, the city was able to save $5.4 million over the 20-year loan period. It is passing this difference on to residents, Alexander said.
Alexander said that as a fail-safe measure, in the unlikely event that the city is not able to pay off the state loan in its final years with the lowered rate, the city will apply the savings as an interest rate credit, rather than lowering the sewer assessment itself.
“The same rate, that will appear on the property tax bill … but then there will be a subsequent credit back,” said Alexander. “And so they will see a net reduction, but they will see two entries on their property tax statement.”
Alexander said the city chose this method because if it lowered the sewer assessment itself and then had to raise it again, residents would have to vote on the increase, possibly restricting the city’s ability to pay back the state.
Residents who choose to pre-pay the remainder of their sewer assessment will be charged a total amount that factors in the interest rate credit.
“It’s just like taking out a loan and paying the loan back early,” Alexander said. “You’re going to pay less because you’re not going to pay interest on the full total of the loan.”