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North Trunk Sewer bid approved

Local contractor, local financing for $1.2 million project

SOLON A local contractor and a local bank will be helping the city finally bring the North Trunk Sewer project to life.
At a Feb. 3 meeting, members of the Solon City Council awarded the contract for construction of the sewer line to BWC Excavating LC of rural Solon with a low bid of $1,212,215.
Financing for the project will come through a 10-year, $1.5 million bond issued by Bridge Community Bank.
The North Trunk is a long-planned buried sewer line to connect the wastewater treatment center on the west side of town directly with the Windmill Estates, Fox Ridge and Prairie Acres subdivisions.
Council members, meeting virtually, held a public hearing on the projects plans and estimated costs, awarded the project to the low bidder and discussed the citys bonding capacity with a consultant from Northland Securities Inc.
City Engineer Dave Schechinger told council members the new 24-inch line eliminates the need for the lift station serving Windmill Estates, and will be able to serve future development to the north and east of Solon.
The project required substantial environmental clearances from Johnson County, the U.S. Army Corps of Engineers and the US Fish and Wildlife Service, he said. All necessary permits and easements have been obtained, he noted.
The city received 11 bids, ranging from $1.212 to $2.278 million, Schechinger reported. BWC Excavating LC, located west of Solon on Hickory Hollow Road, provided the low bid.
The estimate for the sewer line had been $1.1 million, he noted.
After talking to contractors and subcontractors, Schechinger determined the fluctuation in pricing was due to the cost of boring under Highway 1 and Sutliff Road.
Council members unanimously accepted Schechingers recommendation and awarded the bid.
Mayor Steve Stange thanked Schechinger, City Administrator Cami Rasmussen, Public Works Director Scott Kleppe and City Attorney Kevin Olson for their work.
I just really appreciate the effort that all of you have given to the project, he said.
The citys professional staff has a really solid working relationship which makes these things happen, Rasmussen responded. Its a joint effort.
Council members then moved on to a discussion of the projects financing with Heidi Kuhl, part of the public finance group at Northland Securities.
Originally, the city considered borrowing from the State Revolving Fund (SRF) for the North Trunk project, Kuhl explained, but with municipal bond rates and a changed outlook on Tax Increment Finance (TIF) dollars, it made sense to look at the bond market.
An SRF loan would offer a 2 percent interest rate and a 20-year payback, while the bond could be paid in 10 years using Local Option Sales Tax (LOST) and TIF funds, she said.
Banks prefer shorter, smaller notes of $2 million and less, and the city received two bids for the $1.5 million loan, Kuhl reported.
Bridge Community Bank offered the best terms, she said, with a 0.65 percent interest rate over the first six years and 1.15 percent for the remainder.
The resolution before the council to award the general obligation sewer improvement bond would lock in the rates, she noted. A future council action will be required prior to closing on the loan, she added, with funds available March 2.
Council members passed the resolution unanimously.
Stange commented on both the financing and the contracting for the large project coming from within the Solon community.
Thats pretty cool, he observed.
Kuhl went on to review the citys current debt as well as projections for the impact of the North Trunk Sewer, the new firehouse and a substantial street project.
Her analysis had been provided to council members in advance of the meeting, and Kuhl had separately met previously with members of the councils finance committee.
There are two types of debt, she explained. General obligation (GO) debt has the backing of the citys debt service levy while revenue bonds are repaid through a single source.
GO debt is based on property valuation, and since fiscal year 2011, she said, Solon has averaged just over 6.5 percent growth for total valuation and 7.5 percent for taxable valuation.
Its important to know where youre at from a growth standpoint, Kuhl stated.
Statewide for cities, the average growth rate is just under three percent, she added. So, youre growing at double the average of cities.
A citys debt capacity is five percent of its total valuation, and Solon is currently using 33.92 percent of that amount.
How much of that capacity should be used varies from city to city, Kuhl stated. A good rule of thumb is to stay at 75 percent or less, where a conservative approach would be 65 percent or less.
With $269,000,000 in total valuation, she said, Solon could have $13,443,000 in total GO debt for the upcoming year.
In projections including the North Trunk Sewer, current TIF payments, the fire station and a 5th Street and Stinocher Street reconstruction project, she said, the city would bump up against the 65 percent comfort level, but still would have a $4.6 million buffer for emergencies.
GO bonds can be repaid through a variety of sources, including sewer and water revenues, TIF, LOST, road use, special assessments and debt service levy.
The city of Solon has historically not had a debt service levy, Kuhl noted. Thats not very typical for cities, so thats a good thing that youve been able to fund your debt without having an additional levy.
The city has structured its debt based on the expiration of TIF in 2024, but its now believed that is not the case, she said, opening up a lot of doors to make payments.
In addition, the city hasnt utilized much of its LOST funds, Kuhl stated, and while a ballot referendum would be needed to alter the Revenue Purpose Statement, the money could be used to make payments without a debt service levy.
Based on the scenario including $3 million for the fire station and street project, Solon would still be able to maintain its $750,000 TIF asking annually without an impact to the general fund, she said.