A resolution approving and authorizing a Form of Interim Loan and Disbursement Agreement by and between the City of Pella, Iowa, and the Iowa Finance Authority, and Authorizing and Providing for the Issuance and Securing the Payment of $1,150,000 Water Revenue Capital Loan Notes Anticipation Project Note, Series 2014, of the City of Pella, Iowa Under the Provisions of the Code of Iowa, and Providing for a Method of Payment of Said Notes was approved by the Pella City Council last week.
This resolution approves and authorizes a $1,150,000 Interim Loan and Disbursement Agreement by and between the City of Pella, Iowa, and the Iowa Finance Authority. The purpose of the interim agreement is to secure an interest free loan for the planning and design work that is currently taking place as a part of the City’s long-term water supply plan. Once the planning and design phase of the project is complete this interim note will be rolled into Pella’s final state revolving loan.
Long-term Water Supply Plan
On April 2, 2013 Council approved an engineering services agreement with HR Green, Inc. in the amount of $945,500 for the design of a reverse osmosis system (RO), an additional Jordan Well, Water Treatment plant improvements and a new raw water main from the new Jordan Well to the Treatment Plant. This contract was approved after HR Green conducted an extensive infrastructure analysis for our water utility. Listed below were key points of the analysis:
-The existing water infrastructure is capable of meeting water demands; however, due to potential water quality issues as well as a lack of adequate water source backup, HR Green stated the City needs to consider in the foreseeable future the addition of a 3.0 million gallon per day (MGD) reverse osmosis plant along with an additional Jordan Well.
-The long-term water supply plan outlined by HR Green involves utilization of the Des Moines River alluvial well system and existing lime softening plant and a new 3.0 MGD reverse osmosis plant along with an additional Jordan Well.
-The Iowa Department of Natural Resources (IDNR) recommends that communities should be able to cover their load if their largest source of water is out of service. In our case, if the Jordan Well is out of service it appears we are not able to meet this requirement during periods of high water usage and low river flows at the Des Moines River. This type of scenario is most likely to occur during the time periods of August and September.
The City’s long-term water supply plan involves a new Jordan Well, a new 3 million gallon per day (mgd) reverse osmosis treatment process (RO) and extensive improvements to our current lime softening water treatment plant.
The cost estimates ($15 million) include a large contingency at this time since the CIty is still in the process of performing preliminary engineering and design for the water system improvements. In addition, Council authorization will be required separately for each of the individual improvements.
Financing for Long-term Water Supply Plan
City staff is proposing to utilize both cash reserves and a loan through the State Revolving Fund (SRF) to finance the City’s long-term water supply plan. As a part of this plan, staff is proposing Council approve this interim financing agreement of $1,150,000, which is intended to fund the design and planning phase of the project. Under the terms of this agreement, the interest rate is 0% and the note will mature three years from the date of issuance. Once the notes mature, staff would propose to include these interim financing notes in our SRF loan, which will be used to fund the long-term water supply plan. At this time, the current interest rate for an SRF loan is approximately 2 percent over a twenty year time period. The purpose of the Interim Loan and Disbursement Agreement is to secure an interest free loan for the planning and design work that is currently underway before the final state revolving loan is approved.
In considering this interim financing agreement, it is important to realize the capital loan note will not constitute general obligations of the City or be payable in any manner by taxation, but will be payable from and secured by the net revenues of the Municipal Water System. In addition, it is important to realize before any funds are authorized or obligated on behalf of the City, the City Council will need to approve each of these projects associated with the City long-term water supply plan on a case by case basis.