City Council Says No To Intra-Governmental Loan

City officials will be looking at financing alternatives for wastewater improvements after members of the city council on Monday night voted not to make an intra-governmental loan of $2 million from the electric department to the wastewater department for the headworks project at the wastewater treatment plant.
On a vote of 3-4, members decided not to make the loan between the two departments, which council members had been considering as a way to help the city save paying interest by not taking out a conventional loan to pay for the headworks project. The $2 million loan, as proposed by councilman Brad Chumbley, would have been for 20 years at an interest rate of one-half percent. The loan would have paid for two-thirds of the cost for the headworks project with the remaining $1 million coming from wastewater department funds.
The Finance Committee of the city council voted last week to recommend the council make the loan between the two departments despite concerns expressed by the city’s bond counsel, financial advisor and city auditor. During Monday night’s meeting, City Attorney Tara Walker also advised against making the loan and both City Administrator/Utility Director Ron Urton and TMU Comptroller Rosetta Marsh submitted written documents to council members stating their concerns with making the loan.
Councilman Larry Crawford, who was one of the four no votes, said that if the council was not “110 percent committed” to making the loan, then he would be opposed. He expressed concerns about future needs of the electric department, such as increased costs for electric power purchase, and did not want to put the utility in a position of trying to find other revenue sources (rate increases) to fund those needs because the electric department is committed to the loan.
Another no voter, Travis Elbert, said he has talked with the city’s bond counsel and was told the loan would not be illegal. However, he expressed concerns with committing future councils to making the loan payments, noting that there is no way to guarantee that down the road that the council may decide “it doesn’t want to pay itself back.”
“It’s not like a conventional loan, where the city would have consequences in not repaying their loan,” he said. “The city is not going to sue itself if the loan is not repaid.”
Chumbley said he did not want to put any city department into a weak financial state, but noted that within 10 years, the wastewater department would be paying off a bond that would free up money that could help in paying off the loan early. He said it is imperative that the headworks project gets done and feels that the city making the loan to itself was the most cost-efficient.
Glen Briggs expressed his concern as to whether or not the loan between departments would be considered an investment for the electric department, which was said could only be made for a three-year period. There were also concerns regarding several electric department projects that are needing to be done but had been postponed or canceled in the past due to uncertainties involving ConAgra. Transformer repair/replacement costs and meeting future utility regulation requirements were also mentioned.
Mayor Dr. Nick McHargue said the city could save over $1 million in interest by making a loan to itself rather than using a conventional loan. He had quoted figures based on a $3 million loan in determining the savings, however, the loan finally considered by the council was for $2 million. Savings figures based on $2 million were not stated.
In addition to Crawford and Elbert, voting no were Briggs and Lou Fisher. Yes votes were cast by Chumbley, Larry Porter and David Mlika. Jennifer Hottes was absent.
Following the vote, Urton was asked to contact the city’s financial advisor to begin the process of looking at conventional loan options to fund the headworks project. It was noted that process could take up to eight weeks, at which time the city will have an election and could have as many as four new council members and a new mayor when the funding issue comes back for consideration.
The council took action on two items regarding waste disposal, approving a bid from Rapid Removal to provide residential service as well as an ordinance authorizing a contract with Hope Haven Industries for recycling services.
The Rapid Removal vote was 7-0 for a five-year period. The monthly cost will be $11.25 throughout the entire period of the contract. A second bid from WCA placed the costs at $10.75 per month for the first two years, then increasing by 50 cents per month each of the next three years, with the final year’s cost being $12.25 per month. The average cost over the five-year period was listed at $11.35 per month.
The Hope Haven contract was approved on a vote of 5-2, with Fisher and Chumbley voting no. Chumbley expressed dissatisfaction with Hope Haven not providing information to customers about recycling, which had been promised when the bid was approved in November.
Urton reported that the city has advertised for bids regarding demolition of buildings in the area of the 17th Street bridge project as well as for grading work at the fire training center. He anticipates having the final contract for the burn tower to the council for approval at the March 28 meeting. The new asphalt plant is scheduled for delivery on March 20.
In other business, the council:
• rejected bids for the Normal Street sewer rehabilitation project due to mistakes found in the bidding documents submitted to the city.
• approved hiring a part-time employee at the electric department for inventory work. The individual would work approximately 20 hours a week.
• approved a bid from Dustin Etter to mow six city-owned properties as well as the city cemetery and a portion of Ridgeway Avenue in front of the cemetery.
• approved two ordinances, authorizing contracts with M&M Utilities for waterline work on Eighth Street from Kumler to Rural and for the Ninth Street waterline crossing elimination project.
• approved an ordinance authorizing renewal of an agreement with Everbridge for the mass notification system being used in Grundy County. The cost is $5,000, with the city paying $1,700 of that cost.
• approved an ordinance approving the disclosure compliance services agreement between the city and Gilmore and Bell, which will assist the city in meeting its disclosure obligations for municipal bonds. The cost to the city is $1,200 per year up to five years.