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Water CIP Review Committee

A Water Capital Improvement Project (CIP) Review Committee was appointed by Mayor Tatton and has been meeting the last several months to review the City’s culinary water distribution system.  Committee members are City water consultant Gerald Hayward, Council member Colleen Bonner, Public Works Shane Owens, Public Works Cory Lott, City Engineer Wes Johnson and Mayor Connie Tatton. The Committee evaluated the City’s needs for the next 25 years.  The charge of the committee was to make a comprehensive list of CIP projects, list advantages for upgrading our system, explore finance options to keep the City out of debt, and make recommendations to the City Council. The Committee did not consider the unknown: growth, inflation and unforeseen emergencies, i.e. tank failure. 

The Committee has made a list of 23 plus projects that need to be completed at some point.  None are critical now but they will be critical at some point within the next 25 years. The Committee evaluated the pipe material and size.  All of the projects we put on the list have outdated cement, transite, cast iron, or galvanized pipe. These pipe materials are all either inadequate, leaking, currently do not meet state standards, or potentially pose a slight health hazard. The Committee has one line on the list that is plastic, but it needs to be replaced because it is only 2 inches wide where the standard requires 8 inches. The City’s risk insurance company indicates it needs to be replaced for fire flow protection.

The Committee developed a spread sheet on the pipe costs and road repair costs.  This adds up to a little more than $8.3 million.  The Committee:

  • Reviewed current revenue and expenditures, impact fees, and water reserve fund.
  • Explored borrowing and bonding.  
  • Reviewed grants we have applied for in the past with no success, because our water rates are considered low and our household income high. 
  • Also reviewed a CIB loan application in 2004 which was aborted by Council because of high lending costs. 
  • Reviewed Community Development Block Grants (CDBG) the City has had in the past where over 18 blocks of lines were replaced.  The City is now ineligible for CDBG because of high household income levels.
  • Also explored monthly water rate increases.

Amortization Schedule from Zion’s Bank for $10 million loan over 25 years
rate                  total interest                            rate                  total interest
2.0                   $3,306,301.02                         6.0                   $9,329,042.04
3.0                   $4,226,339.42                         7.0                   $13,950,889.83
4.0                   $5,835,105.21                         8.0                   $16,415,524.66
5.0                   $9,325,578.43                        

 

Build America Bond acquired in Dec., 2010 by a Heber company
$6,301,000      bond issued over 25 years
$5,534,784      total cost of interest and issuance costs
$11,636,207    total debt service
4.86%              average all in interest rate

Current Midway City CIB (Community Impact Board) loan payout year 2014   
$1,000k (or $1,000,000) at 2.5% interest rate for Burgi Lane project

Past Loan and Grant Applications

  • CDBG – Community Development Block Grant. We have used this grant over the years and have replaced over 18 blocks, but do not currently qualify because of high household income.
  • CIB – 2004 application for $2.5 million loan.  Council aborted the loan because of high loan costs.
  • January 2009 – applied for Senator Bennett’s Section 595 grant for $2,616,636 for the Gerber line and SCADA replacement.  We were informed there was a two to three year queue.  Since then the economy tanked and the mood of Congress makes this grant option unlikely.
  • August and September of 2009 - applied with the Division of Drinking Water for the same project.  Applications were never finalized because we were told that our household income was too high and our water rates too low to qualify for a grant.  Loans are an option from DDW and CIB.
  • We are keeping in touch with Pam Juliano from Rep. Jim Matheson’s office on grant possibilities, but the prospects are dim.

Water Rate Increase Options
We currently have 1670 water users paying a base rate of $15.00 per month. In our current budget we have put $125,000 into CIP.   If we raise our water rates “x” amount we can add that increase to our $125,000 and spread out over 25 years come up with the following:

$10 increase = $200,400 + $125,000 CIP = $325,400/ year = $8,135,000 over 25 years
$13 increase = $260,520 + $125,000 CIP = $385,520/ year = $9,638,000 over 25 years
$15 increase = $300,600 + $125,000 CIP = $425,600/ year = $10,640,000 over 25 years

The Water CIP Review Committee Recommendations:

  • Hold a public meeting to allow residents to comment
  • Water Fund Reserves should be retained for unforeseen emergency CIP projects
  • Impact fees should be expended only as time line requires
  • Recommended implementation date is July 1, 2011
  • Finance by a fee rate increase as determined by Council
  • Increased flow:

As part of the system up-grades the line sizes would be increased.  The increased pipe volume would provide additional water flow.  It should be noted that the water pressure would not be increased, only the flow, or volume of water.

  • Increased fire protection:

By increasing the flow to the water system, we would be able to provide additional flow to many of our existing fire hydrants.

  • Conservation of water resources by proper metering and replacing leaking pipes:

As we up-grade our existing water lines we expose the existing pipes and laterals. Often times we find waterlines and laterals which have actually eroded entirely through the pipe with one-inch diameter holes are not uncommon. We have seen in several locations where the pot-rock is actually holding the pipe together. By upgrading our system we will be able to eliminate many of our existing leaks. By installing meters at key locations we will be able to better monitor the system for water leaks and account for the water within our system.

  • Avoiding slight potential health issues through inflow contamination or pipe material:

When the water system is under pressure and supplying water, water will leak out of the pipe and into the soil.  However, when the system is being shut-down for repairs there is a potential for the existing leaks to draw groundwater back into the system with potential contamination concerns.

  •   Lowering of pipes which results in less freezing on the city side of water mains:

In decades past, we didn’t have the technology to excavate into the hard pot-rock, therefore, the old City standards were to install the waterlines with five-feet of soil over the pipelines, or until pot-rock was encountered.  The current excavation technology allows the pot-rock to be excavated and the waterlines installed with five-feet of cover.   Installing the waterlines with five-feet of cover will greatly reduce the chance of the City water mains from freezing.  However, the City water improvements stop at the residential water meter.  If the water lateral between the water meter and the home is installed at a shallow depth the lateral will still be prone to freezing.

  • Road repair of trench area and possible total re-pavement from general funds:

The waterlines will generally be installed within the existing asphalt.  To allow the asphalt to be installed with the use of an asphalt lay-down machine, it is anticipated that the asphalt trench width will be eight-feet wide.   As part of the water system up-grades we evaluate the existing roadway condition and determine if the general fund will allow for the entire roadway to be repaved.

  • Coming into compliance with state standards:

The current Utah State Division of Drinking Water minimum pipe diameter is eight-inch.  Our current water system has several waterlines with a diameter smaller than eight-inch.  Each of the water system up-grades would install a minimum pipe diameter of eight-inch.

  • Reduced Operation and Maintenance costs:

A large portion of the public works department is spent repairing leaks within the current water system.  By up-grading the water system, the amount of time the public works employees spend repairing the water system would be greatly reduced.

  • Increased system reliability:

Each time a water leak is repaired a segment of the water system must be shut-down.  By up-grading the water system the amount of shut-down would be reduced providing for a more reliable water system.

The Midway City Council is setting a Town Meeting on April 13, 2011 at 7pm in the Community Center, located at 160 W. Main Street.  The purpose of this meeting is to discuss the findings of the Water CIP Review Committee.  This Committee had the charge of evaluating the condition of the water distribution lines within the City, make a comprehensive list of CIP (Capital Improvement Projects) and explore finance options to keep the City out of debt. 

The Committee found 23+ lines that need to be replaced within the next 25 years.  The lines will mostly be upsized and the outdated and leaking pipe material will be replaced.  None of these lines are critical today but all will absolutely need to be replaced in the near future.  The tricky part is how to pay for the estimated $8.3 million price tag and keep the city out of debt.  The Committee reviewed the possibility of grants, loans, interest rates, bonds and fee rate increases.

The Committee presented their findings to City Council during their March meeting.  The City Council set the Town Meeting date on April 13 at 7pm and will possibly act on the recommendations during their April 27 meeting.  Even though the City Council is not required to hold a public meeting to raise water rates it was felt this was such an important issue that the public needed to be fully informed. 

Aging infrastructure is the most serious problem facing communities all across the nation, whether it is roads, bridges, sewer, water systems, etc.  Robert Dunphy, a senior resident fellow at the Urban Land Institute, said “We have an impending crisis with infrastructure, but it is easy to ignore until you have a catastrophe.” Midway City has chosen not to ignore its infrastructure problems any further.  What is being proposed is a proactive 25 year pay as you go plan.  Yes, it will require a base fee rate increase, but that is all.  You won’t have to pay principal and interest rates that will keep the City budget in bondage for years and would also require a greater rate increase than what is currently being proposed to pay down principal and interest.

This nation was founded upon sound financial principals.     In a letter to John Taylor in 1816 Thomas Jefferson said “I sincerely believe . . . that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale.”  Alexander Hamilton said “Accumulation of debt is perhaps the natural disease of all Governments.”  This is why this proactive 25 year pay as you go plan makes so much sense to me.  It keeps us out of debt and addresses a serious problem that is not going to go away.  Often times it takes courage to make the hard decisions.