After Milford City Council last week unanimously voted in favor of going to referendum, asking residents to approve accepting a $3.5 million loan to fund water system upgrades and maintenance, council’s public works committee is now challenging that decision by presenting other avenues of funding for the project.
For more than a year, City Council has been discussing options as to how to fund the water system project, which includes upgrades and maintenance of the city’s 2,500 valves and 82 miles of water main, as well as the implementation of a SCADA system to monitor the valves’ location and operations. The $3.5 million loan, offered by the Drinking Water State Revolving Loan Fund, offers a 1.5-percent interest rate, a selling point that Finance Chair Allen S. “Skip” Pikus repeatedly argued as something council will never see again.
“We will never get another opportunity to borrow money at 1.5 percent,” Pikus said in a phone interview Thursday. “I still think we should go to referendum and borrow that $3.5 million at 1.5 percent and keep our reserves healthy. We looked at all these different options and we knew that money was there. But I say at every council meeting that we want to keep our reserves healthy in case of emergency.”
During a public works committee meeting Wednesday afternoon, City Manager Richard Carmean, committee chairman Owen Brooks and committee members Dirk Gleysteen and Bryan Shupe discussed the option of avoiding referendum by using available in-house water reserve funds rather than taking on a loan that would result in an increase in water rates.
Milford Finance Director Jeff Portmann said there is currently about $5 million in the water reserves, with only $600,000 earmarked, leaving a balance of $4.4 million available for water projects.
In 2006 the city raised the water rates by 65 cents in anticipation of projects like the currently proposed water systems upgrades and maintenance. However, the city never moved forward with those projects, and the revenues from the increased rates were set aside and have been collecting interest as an investment for eight years, Portmann said. That rate increase has accumulated $1.8 million in water reserves since 2006.
An additional $2.6 million in water reserves could supplement the remaining cost of the proposed project, Carmean said.
“We’ve got the money. We can do these projects,” Carmean said during the public works meeting this week. Carmean also argued that the city will not have to worry about prevailing wage if they do not borrow state funds, which could also save the city some money as it moves forward with the water system upgrades projects.
Brooks agreed that he’d rather fund the project in house, if that is a viable option, as confirmed by Portman after reviewing the water reserves.
Page 2 of 2 - “Why would we put the taxpayers under a $3.5 million referendum to pay it back if we don’t have to?” Brooks questioned.
Accepting the $3.5 million loan at a 1.5-percent interest rate would call for an approximately 9 percent increase to the water rate for residential customers and 11 percent for commercial customers, which City Council voted to approve during its regular meeting on Feb. 10. The public works committee is recommending that council rescind its vote to accept the loan, and instead fund the project using money found in the water reserve accounts, of which $4.4 million is available, according to Portmann.
During the 2013 budgeting process, Davis, Bowen & Friedel, Inc., an engineering firm that consults the city, estimated the City of Milford would need $2.3 million for city-wide valve replacement, $900,000 for the SCADA system, $200,000 for well replacement, as well as a few other maintenance and capital projects, which then derived the estimated $3.5 million project cost.
While the total estimated cost to check, repair, replace and monitor the city’s valves and water main may cost approximately $3.4 million, City Manager Richard Carmean and DBF Associate Erik Retzlaff have both said on multiple occasions that they are unsure of the scope of work because the city does not have a clear picture of the state of some of its valves because a project like this has not been tackled before.
Although council has already voted to move forward with the project, Shupe said that the funds weren’t originally noticed by council because the $1.8 million that would fund a portion of the project was placed in investments by the city’s financial office.
“Really, how this came about was, after we had looked [around] and been advised by the financial committee and by our financial director to do the referendum, there seemed like something was not right, that something needed to be looked at and that there had to be more money somewhere,” Shupe said during a phone interview Thursday. “It’s still our duty after we make a decision to keep looking for what might be a better answer.”
The issue is expected to be presented to council at the next regular meeting at 7 p.m., Monday, Feb. 24.