The City of Brewton is considering a plan to refinance a 2005 sewer bond issue, freeing up money to repay the debt and fund needed sewer projects — with the possibility of raising rates, which are already among the lowest in the region.
City Clerk John Angel and utilities Superintendent Ray Madden presented the options Monday night to the council who must weigh whether to refinance and how to repay the $5.6 million bond issue.
No decisions have been made yet, but the council has a looming financial burden: The city has been making interest-only payments on the 2005 bond issue, but in 2015 will have to go from paying $229,535 on the interest to $694,535 for interest and principal.
That is a sum the current sewer fund — an enterprise fund made up of sewer revenue — cannot support, Angel said.
“If we do nothing, the bond is coming due no matter what,” Mayor Yank Lovelace said.
The proposal, as outlined by Angel, includes:
• The city would take out a $615,000 loan from the state to help pay for less critical projects including retrofitting the Robinson Street sewer station with submerged pumps; replacing the Old Lagoon pumps; and replacing the St. Joseph Street station with a submerged system. That loan would be repaid over 20 years at an interest rate of 1.5 to 2 percent, or less than $38,000 per year.
• The city would refinance its 2005 sewer bond to pay off that note, then repay the bond going forward with a principal and interest payment. If the city refinances just the original amount, at $5.6 million, the money would be used to repay that bond issue. Refinancing at about $11 million could yield about $5 million in construction capital for needed sewer projects and maintenance, Angel said.
• The city would raise sewer rates in 2013, with the flat rate going from $9 to $15, and the rate per 1,000 gallons going from 75 cents to $2, then incrementally rising until 2016.
Most households with just one or two people use fewer than 1,000 gallons, Angel said, and only pay the flat rate. But some larger households use more.
So for example: If you currently use 4,000 gallons of water, your sewer charges per month are $12 — which equals $9 for the initial flat rate plus 75 cents per 1,000 gallons.
Under the proposed rates, if they take effect this year, that bill would be $23 — $15 for the flat rate and $2 per 1,000 gallons.
By 2016, the rate per 1,000 gallons would be at $3.75, Angel said. By that year, the higher rates would be generating more than $1,000,000 to pay off the bond debt.
Using the example of 4,000 gallons per month, water bills for municipalities in the region currently range from $12 in Brewton to $32.28 in Atmore. Under proposed rates for 2013, a Brewton bill would fall in the mid-range in the region.
The last time the city raised sewer rates was in 2005, the same year the city borrowed the money for the bond issue.
That bond issue, Angel said, was designed to pay the matching funds on Community Development Block Grants for sewer work through 2015 — but much of it was depleted by the botched Belleville sewer project that took four times longer than originally planned and finally ended in 2011. The last of the money will be used for matching grants for a CBBG sewer project in the Alco community.
With the bond issue coming due, Madden said the sewer fund cannot afford to repay that money with the current rate structure.
“There is no way we can operate and maintain on those rates,” he said.
Lovelace said the city has been looking at refinancing the bond issue because interest rates are so low. The mayor said he hopes the council decides to refinance and to raise sewer rates so that the city can repay the old bond issue and make needed improvements in the sewer system — and at the very least make the bond repayments a more manageable amount for the city to pay each year.
But he said he understands that raising the sewer rates could be a hardship for some residents. “No solution is palatable,” Lovelace said.