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www.mybaycity.com January 16, 2011
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Relief may soon be in store for city sewer customers paying high bills caused by debt on the system. Legislation sponsored by former State Rep. Jeff Mayes may be used as a legal structure to refinance a bond issue for $30 million beginning Feb. 1

High City Sewer Bills Relief in Sight Under Plans by Manager Belleman

City Sewer Bond Refinancing Eased Under Legislation Sponsored by Rep. Mayes

January 16, 2011       Leave a Comment
By: Dave Rogers

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Relief may soon be in store for city sewer customers paying high bills caused by debt on the system.

Legislation sponsored by former State Rep. Jeff Mayes may be used as a legal structure to refinance a bond issue for $30 million beginning Feb. 1, MyBayCity.com has learned.

House Bill 5550, signed by Gov. Granholm late last year, appears to pave the way for refinancing the 2001 bonds with a maturity at 2033 instead of 2023.

The city commission is slated to meet privately this month with an attorney to discuss legal issues on sewers and water. A Town Hall Meeting is scheduled Jan. 31 at 6:30 p.m. in the State Theatre at which time potential solutions to the utility dilemmas may be announced.

City Manager Robert V. Belleman also has asked a Sewer Fund Advisory Committee to consider how the city could strike a deal to transmit city sewage to the West Bay County Wastewater Plant for treatment.

The committee met last week with Tom Paige, county plant supervisor, who said the plant that currently processes 10.3 million gallons a day would require expansion of its capacity to handle the city's 7 million gallon a day flow.


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The city bond refinancing would encompass nearly $21 million of equipment improvements, based on an overall useful life of 30 years.

"Based on current market rates, which are seasonably high, the refinancing provides approximately $370,000 of cash flow relief through 2023, but at a significant cost," wrote a financial consultant to the city Warren Creamer, director of public finance for Robert W. Baird and Co., Traverse City.

The refinancing would apparently pave the way toward one of Mr. Belleman's goals: restructuring sewer rates. An audit of the contract operations and performance of the system is also planned by the manager.

Another goal of the manager is capital for improvements with "strong ROI" (return on investment), according to the manager's reported plans. Whether that capital could come from the refinanced bond is unclear.

It is also undetermined whether the refinanced bond funds could be used for improvements on the county wastewater plant should a city-county partnership be formed.

The city sewer system continues to be plagued by contamination from PCB (polychlorinated biphenyls) in sludge filling 320 miles of sewers. Sludge and solids in some cases is reported to amount to half the the capacity of pipe up to 36 inches in diameter. City crews are cleaning sewers at the rate of 15 miles a year, a process estimated to take 20 years to complete.

William Kaiser, city wastewater plant supervisor, told the advisory committee last week that five PCB "hotspots" remain in the sewer system. That apparently refers to industrial sites, or former sites, where testing shows PCB contamination.

Discovery of the PCB contamination led to a federal court order in 2001 mandating a $45 million bond issue for tertiary treatment of sewage. Payments on that bond are nearly $5 million a year.

Projections by the financial consultant show the city would pay $21 million interest on the proposed new/refinanced bonds, with total debt service of $51,693,400 by 2033.

Interest rate is projected at 5.2 percent with net savings over the life of the bond totaling $4,346,105, according to figures from the consultant.

The act requires the city to hold a public hearing and the city commission would have to approve a resolution to apply to the Michigan Department of Treasury to refinance the debt, according to documents provided the Sewer Fund Advisory Group.

The city has pared sewer fund operations and personnel by $460,000 a year to reduce the bills that are abnormally high because of the debt and recent pullout by Hampton Township and Essexville, the lower usage costing the city about $1 million annually,the committee has been told.

"In essence, the bill would allow local units of government, that meet the legal criteria, to refund and issue new debt that would lower their current principal and interest payments but raise the total amount owed over the life of the bond," wrote Fiscal Analyst Eric Scorsone of the Michigan Senate Fiscal Agency.

"The refunding security would have to be issued before December 31, 2012, and could not be secured by the full faith and credit pledge of the municipality," Scorsone wrote in a bill analysis.

The sewer fund overall total budget is $14,645,185 annually, including $7,669,271 for the wastewater plant, $6,475,727 in sewer collections and $509,187 in utility billing, according to city figures.

Wastewater treatment plant and sewer collections debt is listed at $4,850,519 per year presently, with the sewer debt portion amounting to about $2 million per year.

A projected refunding of a $30,365,000 bond with an issue date of March 1, 2011 at 2.5 percent would require payments of $1,975,000 initially, rising to $2,655,000 by 2023.

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Dave Rogers

Dave Rogers is a former editorial writer for the Bay City Times and a widely read,
respected journalist/writer in and around Bay City.
(Contact Dave Via Email at carraroe@aol.com)

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