Colfax sewer and water can support additional debt with recent rate increases

By LeAnn R. Ralph

COLFAX — Recently-enacted sewer and water rate increases in Colfax will allow the utilities to borrow more money for maintenance projects or for the Colfax Health and Rehabilitation Center’s building project.

Brian Reilly of Ehlers, the village board’s financial consulting firm, reviewed the village’s finances at the August 27 Colfax Village Board meeting.

According to Reilly’s report, the village has a remaining borrowing capacity of $1.1 million with a current equalized value of $42.4 million, a total borrowing capacity of $2.1 million, and outstanding debt of nearly $1 million.

The water utility operated at a $52,000 deficit in 2011 and a $14,000 deficit in 2010.

The water utility has debt service payments of about $65,000 annually on 2004 revenue bonds. The debt service payments will continue until 2024.

Although the minimum ratio of revenue available to cover debt service is 1.1, the recent water rate increase that went into effect this year of 46 percent means that the water utility will now have a debt service ratio of over 2.0, ranging anywhere from 2.06 to 2.29, Reilly said.

The village’s sewer utility operated with a $29,000 deficit in 2011 and a $21,000 deficit in 2010.

The 26 percent rate increase for the sewer utility means that the utility will now have a ratio available to cover total debt service of anywhere from 1.47 to 2.23, Reilly said.

Water and sewer revenue bonds from 2004 carry a payment of around $40,000 every year. Another $15,000 from the sewer utility is devoted each year to paying general obligation notes, according to the report Reilly provided to the village board.

The village could add another $20,000 in debt service payments for the sewer utility to fund capital costs, Reilly said.

As for Tax Increment District 3 (TID), classified as a blighted district, TID 3 seems healthy and does not need support, in spite of increment value declines, Reilly said.

TID 3 was valued at $2.4 million in 2009 and was down to $1.6 million in 2011.

TID 4, on the other hand, is classified as a mixed-use district that is not likely to generate sufficient revenue to pay debt service obligations, Reilly said.

The village board might want to consider restructuring debt service for TID 4, he said.

General fund

Gary Stene, village president, wondered about borrowing money from the general fund to pay for sewer and water utility debt service.

“Do we have to pay that back?” Stene asked.

Reilly said that money borrowed from the general fund for the sewer and water utility does not have to be paid back.
The village board would, however, have to write off what was borrowed so that the village’s net assets decrease, he said.

Park Street

The village will be financing sewer, water and street costs for the Park Street project for the Colfax Health and Rehabilitation Center’s building project.

As of this writing, the Colfax Messenger had not yet received a copy of the developer’s agreement between the village and Colfax Health and Rehab, so there is no information available on what taxpayers — or on what Colfax Health and Rehab — would be expected to pay for this project.
Discussions on the developer’s agreement were all held in closed sessions of the village board.

The road, water and sewer will be the majority of the cost for the Park Street project, Stene said at the August 27 meeting.
Lisa Fleming, a project manager with Ayres Associates, noted that sewer and water costs generally account for one-third to one-half the cost of a street project.

Reilly recommended that the village board consider restructuring the village’s debt to accommodate payments for new projects.

Firm figures for Park Street project will be available later in the fall, Stene said.

Reilly said it was his opinion that it would be worth the time and the effort to include new debt in revenue bonds and to leave the general obligation borrowing capacity intact.

Closed session

Stene said he wanted to discuss revenue bonds and restructuring the village’s debt in closed session.

It was not clear under which state statute the discussion would fall and how the village board would serve the best interests of the public by keeping the discussion of spending the taxpayers’ money behind closed doors.

Wisconsin’s Open Meetings law does not allow public officials to hold closed sessions just because they want to keep their discussions a secret from the public they serve.

Closed sessions are intended for specific personnel issues — although not policy issues related to job descriptions or general salary ranges — and for competitive or bargaining purposes related to the investing of public funds or the purchase or sale of public property, with the emphasis on competitive or bargaining purposes.

Discussions of litigation, specifically strategies for litigation as a defendant or a plaintiff, also are allowed in closed session.

According to state law, the Colfax Village Board must demonstrate how keeping the discussion on restructuring the village’s debt in open session would harm competition or bargaining, and therefore, would harm the best interests of the taxpayers.

Purchasers of revenue bonds or general obligation bonds who wish to do business with the Village of Colfax would be competing by offering competitive interest rates on the bonds.

If one purchaser offered an interest rate and another purchaser matched that rate or offered an even a lower rate, and that information became available to competing purchasers of debt because of an open session of the village board, the lower interest rate would be in the best interests of the public because the public would be paying less for the debt.

Other business

In other business, the Colfax Village Board:
• Approved training requests for Jackie Ponto, village administrator and clerk-treasurer, and Sheila Riemer, deputy clerk-treasurer, to attend the Wisconsin Rural Water Utility Management training October 18.
• Approved a facility rental request for the Colfax Kiwanis for August 29 for the fall sports event at the Colfax Fairgrounds.
• Approved a bartender operator’s license for Megan Wallace from August 27 through June 30, 2013.