City Sees Opportunity With Restructuring, Reissuance Of Sewage Works Bonds
November 8, 2022 at 2:56 a.m.
City Sees Opportunity With Restructuring, Reissuance Of Sewage Works Bonds
By David [email protected]
Mayor Joe Thallemer introduced the ordinance by telling the Council the Redevelopment Commission also looked at the ordinance on Monday.
“To make it as simple as we can, the sewer bonds, the SRF (State Revolving Fund) loan that we got in 2018 to expand the plant, we’re now going back to restructure these and redo these,” he said. “This presents a tremendous opportunity for the city.”
Warsaw Community and Economic Development Director Jeremy Skinner said back in 2018 when the city was doing the SRF loans, “they were going through the different kind of pluses and minuses, things you could look at doing. One of the things we could look at doing was groundwater rehabilitation. We knew we had some projects, but at that time, the sewage treatment plant was on a different schedule than the two projects that we’re looking at now.”
While the city knew it had two projects it needed to go, the sewage treatment plant project had to be done then.
“In our conversation with IFA (Indiana Finance Authority), they said as we develop these projects, we can refinance them, lower the interest rate and capture that money to do the projects. But we needed to define the projects first,” Skinner said.
Over the last two years, he said they’ve been talking to IFA about “getting to this point where we’re at today.”
One of the two projects is the Warsaw Chemical cleanup, which Skinner said has been going on since the 1980s. The new owner of Warsaw Chemical is proceeding with trying to get the property cleared off of Resource Conservation and Recovery Act (RCRA), the public law that creates the framework for the proper management of hazardous and non-hazardous solid waste.
“And we knew that, but we didn’t know what that looked like in 2019. So fast forward to today, over the last two years in working with them, we now know what that looks like and they have presented their plans to the EPA and the Indiana Brownfields program and the cost to remediate that groundwater,” Skinner said. “So in doing that, now we have a dollar amount of what that costs and we can apply that to these incentives that the IFA offers through the SRF.”
On top of that, Skinner said the city knew it was doing some lift station projects, specifically the airport lift station project because it’s providing sanitary sewer to an airport that doesn’t have a functioning septic system. The project will run sanitary sewer to the Warsaw Municipal Airport.
“That project also qualifies,” Skinner said. “So in talking with the IFA, we were able to more or less couple these two projects together to refinance the loan, take advantage of those interest rate savings, and more or less take the interest that we would pay and put it toward these projects.”
He said they’ve been working on this for two years and it wasn’t just something that came up, but they finally got to the point where they could refinance the loans, reduce the interest and take advantage of the money to put toward the Warsaw Chemical and lift station projects.
Jeffrey P. Rowe, CPA and partner with Baker Tilly, said the program they’re following through the IFA, essentially the SRF, is the brownfield program they offer. The other program essentially has to do with septic relief.
“So, they’re really two separate programs, but we’re kind of combining them sort of into one to simplify things,” Rowe said, noting it all relates back to the 2018 revenue bonds that were issued through the SRF at that time.
Using rounded numbers, Rowe said those bonds currently are outstanding around $32 million with about 17 years left on that bond issue. They were issued at an interest rate of 2.35%.
The Warsaw Chemical cleanup project is estimated at $1.6 million, while the lift station project is estimated at about $1.9 million, for a total of about $3.5 million “new money that we’re looking to issue through the SRF,” Rowe said.
What the SRF has offered, he continued, is that the SRF is willing to add an additional $3.5 million loan to the outstanding $32 million the city already has.
“If we were just to do that, take out a new loan, obviously that would be additional impact because we’re adding more money to the outstanding bond issue,” Rowe said. “The advantage here is that with the SRF program, what they’re allowing the city to do is, for the additional $3.5 million, that would be issued at zero percent. So, essentially, no interest.”
In order to get the city back to the same debt service it’s already paying on the 2018 bonds, Rowe said, “They’re allowing us to lower the interest rate on the roughly $32 million that’s outstanding.”
He said he ran the numbers on that and they’ll be able to reduce the interest rate from 2.35% down to 1.238%. That leaves the city with an additional $3.5 million “of new money - $1.6 million roughly goes to Warsaw Chemical to pay those costs; roughly $1.9 million goes to the lift station project.”
Rowe said they’ll reissue the 2018 bonds with a lower interest rate, add the $3.5 million at 0%, “and at the end of the day, we keep the same annual debt service payments for the remaining 17 years as what we would have paid in the first place. The city is essentially getting $3.5 million more money without any additional cost to the city, or obviously any additional rate impact, which is good news for the sewage works.”
Another benefit, he said, is that the SRF has offered to pay for the cost of issuance, including legal fees, bond counsel fees, financial adviser fees. The new loan is the same 17 years so the term isn’t being extended.
The Council will have to approve the 70-page ordinance on second and final reading at its Nov. 21 meeting. Rowe said the intention would be to close on the transaction before the end of the year and the new payment schedule would be available at that time.
Thallemer said, “Essentially, we’re taking the interest we were going to pay, and we’re going to pay to have some environmental things taken care of. Yeah, it sounds great, and it is great, and the use of those funds is very targeted and specific. There’s certain types of environmental issues, and not all environmental issues were eligible.”
He said they’ve had lots of discussions on it and the IFA has “bent over backwards to make sure we understand this and we’re able to take advantage of it. This is a great opportunity.”
Councilman Mike Klondaris made a motion to approve the ordinance on first reading, Councilwoman Diane Quance seconded it and it was approved 7-0.
Mayor Joe Thallemer introduced the ordinance by telling the Council the Redevelopment Commission also looked at the ordinance on Monday.
“To make it as simple as we can, the sewer bonds, the SRF (State Revolving Fund) loan that we got in 2018 to expand the plant, we’re now going back to restructure these and redo these,” he said. “This presents a tremendous opportunity for the city.”
Warsaw Community and Economic Development Director Jeremy Skinner said back in 2018 when the city was doing the SRF loans, “they were going through the different kind of pluses and minuses, things you could look at doing. One of the things we could look at doing was groundwater rehabilitation. We knew we had some projects, but at that time, the sewage treatment plant was on a different schedule than the two projects that we’re looking at now.”
While the city knew it had two projects it needed to go, the sewage treatment plant project had to be done then.
“In our conversation with IFA (Indiana Finance Authority), they said as we develop these projects, we can refinance them, lower the interest rate and capture that money to do the projects. But we needed to define the projects first,” Skinner said.
Over the last two years, he said they’ve been talking to IFA about “getting to this point where we’re at today.”
One of the two projects is the Warsaw Chemical cleanup, which Skinner said has been going on since the 1980s. The new owner of Warsaw Chemical is proceeding with trying to get the property cleared off of Resource Conservation and Recovery Act (RCRA), the public law that creates the framework for the proper management of hazardous and non-hazardous solid waste.
“And we knew that, but we didn’t know what that looked like in 2019. So fast forward to today, over the last two years in working with them, we now know what that looks like and they have presented their plans to the EPA and the Indiana Brownfields program and the cost to remediate that groundwater,” Skinner said. “So in doing that, now we have a dollar amount of what that costs and we can apply that to these incentives that the IFA offers through the SRF.”
On top of that, Skinner said the city knew it was doing some lift station projects, specifically the airport lift station project because it’s providing sanitary sewer to an airport that doesn’t have a functioning septic system. The project will run sanitary sewer to the Warsaw Municipal Airport.
“That project also qualifies,” Skinner said. “So in talking with the IFA, we were able to more or less couple these two projects together to refinance the loan, take advantage of those interest rate savings, and more or less take the interest that we would pay and put it toward these projects.”
He said they’ve been working on this for two years and it wasn’t just something that came up, but they finally got to the point where they could refinance the loans, reduce the interest and take advantage of the money to put toward the Warsaw Chemical and lift station projects.
Jeffrey P. Rowe, CPA and partner with Baker Tilly, said the program they’re following through the IFA, essentially the SRF, is the brownfield program they offer. The other program essentially has to do with septic relief.
“So, they’re really two separate programs, but we’re kind of combining them sort of into one to simplify things,” Rowe said, noting it all relates back to the 2018 revenue bonds that were issued through the SRF at that time.
Using rounded numbers, Rowe said those bonds currently are outstanding around $32 million with about 17 years left on that bond issue. They were issued at an interest rate of 2.35%.
The Warsaw Chemical cleanup project is estimated at $1.6 million, while the lift station project is estimated at about $1.9 million, for a total of about $3.5 million “new money that we’re looking to issue through the SRF,” Rowe said.
What the SRF has offered, he continued, is that the SRF is willing to add an additional $3.5 million loan to the outstanding $32 million the city already has.
“If we were just to do that, take out a new loan, obviously that would be additional impact because we’re adding more money to the outstanding bond issue,” Rowe said. “The advantage here is that with the SRF program, what they’re allowing the city to do is, for the additional $3.5 million, that would be issued at zero percent. So, essentially, no interest.”
In order to get the city back to the same debt service it’s already paying on the 2018 bonds, Rowe said, “They’re allowing us to lower the interest rate on the roughly $32 million that’s outstanding.”
He said he ran the numbers on that and they’ll be able to reduce the interest rate from 2.35% down to 1.238%. That leaves the city with an additional $3.5 million “of new money - $1.6 million roughly goes to Warsaw Chemical to pay those costs; roughly $1.9 million goes to the lift station project.”
Rowe said they’ll reissue the 2018 bonds with a lower interest rate, add the $3.5 million at 0%, “and at the end of the day, we keep the same annual debt service payments for the remaining 17 years as what we would have paid in the first place. The city is essentially getting $3.5 million more money without any additional cost to the city, or obviously any additional rate impact, which is good news for the sewage works.”
Another benefit, he said, is that the SRF has offered to pay for the cost of issuance, including legal fees, bond counsel fees, financial adviser fees. The new loan is the same 17 years so the term isn’t being extended.
The Council will have to approve the 70-page ordinance on second and final reading at its Nov. 21 meeting. Rowe said the intention would be to close on the transaction before the end of the year and the new payment schedule would be available at that time.
Thallemer said, “Essentially, we’re taking the interest we were going to pay, and we’re going to pay to have some environmental things taken care of. Yeah, it sounds great, and it is great, and the use of those funds is very targeted and specific. There’s certain types of environmental issues, and not all environmental issues were eligible.”
He said they’ve had lots of discussions on it and the IFA has “bent over backwards to make sure we understand this and we’re able to take advantage of it. This is a great opportunity.”
Councilman Mike Klondaris made a motion to approve the ordinance on first reading, Councilwoman Diane Quance seconded it and it was approved 7-0.
Have a news tip? Email [email protected] or Call/Text 360-922-3092