KENDALLVILLE – With some help from other city councils donating $ 1 million in taxpayers’ money, Kendallville City Council members are content to borrow the rest to fund a new solar field on the site of the former McCray refrigerator factory.
The city is now considering a five-year funding plan that should have no impact on local taxes or sewer charges, which means that residents no longer have to afford anything to afford green energy development.
At their meeting on Tuesday evening, the city councils found out about possible financing options for the project.
The proposed solar field would take up most of the 11 acre McCray property off Wayne Street, one block west of Main Street, and extend from the west end of the property to Mill Street.
The solar field would include 1,174 tracking panels – the small, reflective blue glass that sits on top of the arrays – and 2,702 fixed panels for a total of about 1.55 megawatts of electricity.
The project is expected to cost around $ 2.35 million to build.
The electricity generated by the solar field would help to significantly reduce the annual operating costs of the sewage treatment plant.
Currently, the city spends about $ 216,500 per year on electricity in the facility, but it is expected that a solar field could reduce that by about 82% to about $ 38,000 per year.
The city estimates that about $ 6.7 million could be saved in the first 30 years of using the solar field.
The total cost of the project was originally estimated at a little over $ 2.4 million, including retention costs, but the city recently received a commitment of $ 500,000 each from Kendallville Local Development Corp. from the Economic Development Income Tax Fund and the Kendallville Redevelopment Commission, from its tax hike funding dollar.
With the cost of the project now down to about $ 1.4 million, Eric Walsh of financial advisor Baker Tilly said that Kendallville had two possible funding options – either a typical bond or a special short-term bond expectation grade.
Bond anticipation is a funding option for up to five years where the city basically says it will borrow now with the intention of borrowing for repayment in the future.
However, if the city can pay off this early repayment penalty before it expires, it won’t have to borrow a larger amount in the future.
Bond coupons are limited to five years, but Walsh said that even if the city takes a little longer, it can re-borrow on a different grade after five years to meet the timeframe it needs.
With about $ 1.4 million needed, Walsh said the city would want more from a seven- or eight-year payback period.
“If you were targeting seven or eight years, you could do this for five years and then extend it for two to three years,” said Walsh.
Councilors asked if the city could use their general fund money to pay off the loan at the end if needed, rather than extending another loan, which Walsh likely could.
Bond anticipation notes also have some speed and cost advantages over typical bonds, Walsh explained.
First, the banknotes do not have to be competitively offered in the market, although they can if the city so wishes. This may allow the city to either work directly with a lender of their choice, or to quote or bid from local institutions, rather than giving it to statewide and national lenders. Competitive bidding generally results in the best interest rate, but staying on-site can help support the area’s institutions.
The interest rates on municipal bonds are currently 2% or less, so Kendallville is expected to incur low borrowing costs over the term. This rate would be locked for five years at the time of signing, so even if interest rates rise in the near future, the city would enjoy the lower rate.
“You may also want to check with some regional or state banks to see what’s out there. Prices are historically low, so you will likely get good deal anywhere, ”said Walsh. “If you want to bid competitively, you can, but it is not required.”
In the case of bond advance receipts, there are no other preparation and legal costs in connection with longer-term, tax-privileged loans, so that the city saves these ancillary costs as well.
The note can also be structured however the city likes, Walsh explained. For example, if the city only wants to make interest payments during the construction and early operation of the solar field in the first few years, it can set up a large balloon payment at the end of the term.
The city assumes that it will be able to cover the cost of the loan from the current income of the sewage authority and will not have to levy taxes or sewage fees in order to be able to afford the project.
City council members were encouraged by the updated funding information and decided to move ahead with the bond anticipation pursuit.
“When we started this project (Councilor Amy Ballard) and I and the Mayor listened to what you had to say, at the time we were looking at $ 2.4 million. I didn’t want to see another bond to the city on top of the $ 8 million bond we currently have in the sewage plant, ”said Council President Jim Dazey. “With the generosity of the KLDC and the RDC, I think that it is very possible to do this through a loan anticipation and repayment in five years. I would like to pay it off in five. “
Councilor Regan Ford asked if the wastewater department could both afford loan payments and need money to do some upgrades around the facility to address some of the recent wastewater treatment issues.
Dazey and Mayor Suzanne Handshoe both said that with the help of an engineering firm, recent problems were addressed in the short term and permanent fixes shouldn’t be too costly.
That satisfied Ford, who also agreed that the city should apply for the five-year grade and try to pay it off within that timeframe.
“I like the flow of new money into this project,” said Ford. “I’m comfortable with that. If we can make it and pay it off in five years and take care of all the other problems in the sewage plant, I’d be thrilled, ”said Ford.
The council voted 4-0 to secure funding for the project. Councilor Steve Clouse resigned from the council earlier that day and was absent from the meeting.
Walsh said the process could take no more than 45-60 days. A bond ordinance has yet to be drawn up, although the city may not end up getting bonded. A public hearing is not required and the council could choose to suspend its rules and approve the bond regulation in one session if it so wishes.
Since the project is secured with sewage funds, the city has to give the project a 21-day objection period, even if the loan does not affect the sewage charges.