Sewage plant refinance may lower rates temporarily

Oak Harbor leaders are considering consolidating loans on its $150-million sewage treatment plant.

Oak Harbor leaders are considering consolidating loans on its $150-million sewage treatment plant in order to lower sewer rates, but only in the short term.

The city’s high sewer rates have been a political issue in recent years with candidates promising to do what they can to reduce the cost for residents. The proposed refinancing of the loan, however, has opposition from the city council since it extends the life of the loan and costs more in the long run.

At Wednesday’s city council workshop, Finance Director David Goldman said that staff was working to obtain debt relief on the state revolving fund loan taken out to help pay for the Clean Water Facility.

Five state revolving fund loans were provided by the state for the facility. The loans were worth $103.5 million initially and now have $86.4 million remaining. One municipal bond was taken out at $25.7 million, and it is still at $25.7 million. The bond debt is interest-only until 2037-38 to coincide with the retirement of the state loans.

Goldman said the state has offered Oak Harbor a consolidated refinanced loan for the five state revolving fund loans with certain terms. The state would extend the payback period nine years to 2047 instead of 2038. The interest rate would be 1.9%. The current loans’ weighted average is 1.65%.

“The market interest rate is much higher than 1.9%, so that’s a pretty decent deal,” Goldman said.

The issuance date of this consolidated loan would be June 1.

“The next (state revolving fund) loan payment was due March 1, but they said they’ll waive the late fees depending on the city council direction on this possible consolidation,” Goldman said.

Goldman explained that changing to the proposed loan would mean the city has $4.3 million of annual debt instead of $6.2 million, but debt payments would continue for an additional nine years. When things are all said and done, the city would end up paying $108.1 million instead of $98.6 million.

The current monthly average rate in the city for a family home is $118.41.

Goldman said the proposed loan would reduce payments in the first 16 years but increase them in the last nine years. The proposed loan would reduce sewer rates by $17.99 from 2023-36, reduce rates by $16.32 in 2037 and by $10.76 in 2038. It would then increase rates by an average of $41.11 from 2039-47. He said it would mean a $3.65 increase on a 25-year average.

He added that extending the term of the state loans would result in the debt payments being due at the same time principal payments on the bond begin.

Mayor Bob Severns said he told Goldman to look for possible rate reductions, especially for the sewer rate.

“I can’t think of a better way to make our housing in Oak Harbor more affordable than to drop our darn sewer rates by $15 or $20 or any amount we possibly can,” he said.

Councilmember Shane Hoffmire was in favor of consolidation.

“While eventual relief is a wonderful concept, our citizens need the relief now, not in 2039,” Hoffmire said. “We must continue reducing rates as quickly and as drastically as possible in the short term. In the long term, we are also working towards aggressively attacking the clean water facility debt and the resulting exorbitant rates as well.”

However, other members of council were more skeptical. Councilmember Jim Woessner said he was concerned that the city would be taking on more costs and it would add “insult to injury” by extending the loan and pass it down to “future generations.”

Councilmember Eric Marshall agreed.

“I struggle with the idea of saving money just to pay twice as much in the future,” he said.

Councilmember Bryan Stucky asked if any members of the audience wanted to speak.

“I really am adamantly against this,” said Juli Brooks-Leete, adding that she did not want her grandchildren to have to pay for the higher rates.

Council did not take any action on this item, but Hoffmire told Goldman he was hoping to see the item on a regular meeting agenda soon.