Bond adviser Walter Lewis recommended Monday that the Brewton City Council raise sewer rates as part of an overall plan to refinance a sewer bond issue to provide more funds for needed upgrades.
“History speaks for itself,” Lewis, of Benchmark Securities, told Brewton councilmen Monday. “There is already debt, and ongoing needs come at a cost.”
Council members have been wrestling with what to do about the bond issue for several weeks, and raising the sewer rates — which are by far the lowest in the region — a likelihood along with refinancing current debt.
If the city does nothing, it will have a balloon debt payment due in 2015 — nearly triple what it has been paying to service the debt on a 2005 sewer bond issue.
Lewis, who was assisted by co-worker Will Ruzic in his presentation to the council, said there were efficient ways to hand the debt to keep Brewton’s sewer operation costs manageable.
“We believe there is a way to handle the current debt and expenses for the sewer system so that it becomes self-sufficient,” Lewis said. “Right now, we are facing a huge debt service payment in 2015, and that does not include the ongoing needs for the system.”
In a scenario Lewis presented, the city could diminish its lump-sum payout amounts by restructuring existing debt and planning for the future with additional funding for the sewer system in the city.
Brewton Mayor Yank Lovelace said the capital needs for the system include several upgrades and improvements in order to keep the system running for the residents.
“We have some critical needs right now,” Lovelace said. “We have some things that can be put off to next year, but there are critical needs right now.”
Those critical needs includ a $400,000 upgrade at Blacksher; $1.2 million in upgrades on Alexander Drive; $500,000 upgrades at the main pump station; and an expected $2.9 million needed for matching funds for community development block grants.
Lewis said one possible solution is to refinance the 2005 bond issue warrants at a lower rate and do some restructuring of finances for the system.
“With a lower interest rate, refinancing is a good idea,” Lewis said. “We can restructure the loan to fit the needs of the system. The capital improvements can be combined as well to make this deal work.”
Although refinancing the bond at a lower rate is a start, Lewis said other fixes would be needed to make the plan run smoothly.
“There will also be a need for increased revenue,” Lewis said. “That can be done incrementally and raise the annual revenue to cover the debt service and operation costs.”
In addition to increasing the percentage of sales taxes designated for the sewer fund, Lewis proposed a step-up increase to sewer rates for consumers.
“By increasing the percentage of sales tax contributed by the city, we could see an additional $200,000 annual contribution,” Lewis said. “A rate structure increase would also generate $674,000 the first year up to $1,019,335 by 2016.”
Proposed increases could begin this year, Lewis said, and would continue to increase each year to reach the best income potential for the system.
The proposed changes would take the minimum charge for sewer service from $9 per month to $15 per month. Currently the cost per 1,000 gallons used is 75 cents. With the incremental increases the cost would change to $2 per 1,000 gallons in 2013; $3.50 per 1,000 gallons in 2014; $3.65 per 1,000 gallons in 2015 and $3.75 per 1,000 gallons in 2016.
Through increased revenue through city contributions and sewer rates, the system would be generating just over $1 million annually, which, Lewis said, would cover service debt and operating costs.
No action was taken by council members following Monday’s presentation.
In other business, the council:
• Heard from city attorney Ed Hines concerning an agreement reached between the city and South Alabama Gas. “This has been a work in progress for a year or so,” Hines told the council. “The company still runs a high-pressure line through our town and will now be required to post a substantial insurance policy to cover costs of damage should it occur. They will also be able to sell gas to our department at a discounted price. This will be very beneficial for our city. They are our neighbor — they rely on us and we rely on them. It’s a win-win situation for every.”
• Heard from Chamber of Commerce President Kirk Garrett concerning projects on-going and in planning stages by the group including the Kick it at the Creek concert and crawfish boil on April 25; Observation of Earth Day events; the Chamber Classic golf tournament in May; Spring Fly-In event also in May; Blueberry Festival in June; Taste of Brewton event in the Fall and the Holiday Kickoff and Christmas parade in the 2013 holiday season.
Garrett also said plans are currently under way to provide a Farmer’s Market soon.