City Council Minutes 04-23-2007 Special
Special Council Minutes; 4/23/07
MINUTES
SPECIAL COUNCIL MEETING
Monday April 23, 2007 - 5:45 p.m.
Members Present:
Clint Herbst, Wayne Mayer, Tom Perrault, Brian Stumpf and Susie Wojchouski.
Members Absent:
None
1. Call to Order.
Mayor Herbst called the special meeting to order at 5:45 p.m. The purpose of the meeting was
to discuss financing options for the biosolids drying system.
2. Biosolids <Irvin!!: svstem fmancin!!: options.
Mark Ruff from Ehlers and Associates reviewed policy consideration for the biosolids. He
noted that it was unusual for a city's user fees to cover only operating and maintenance costs.
Two questions the City needs to consider: I) Who pays? and 2) How much risk does the City
take? He stated the fact that Sunny Fresh is a major user kicks any bond issue into the taxable
bond category depending on how payments are structured.
Mark Ruff pointed out that the property tax levy for bonded debt is no longer in the budget and
even though there are some monies in the trunk fund those monies are needed for infrastructure
improvements in addition to the biosolids.
There are a number of issues to consider in financing the biosolids project. These include the
amount of cash used versus the amount of bonded debt; how to spread the costs of debt services
and how to structure the repayment of the debt. It was recommended only $1,000,000 in cash
goes toward the project because of concern about maintaining trunk funds balance for other
needs and to offset the slower growth. $2,000,000 of the improvement cost would be
necessary to take care of the existing users excluding Sunny Fresh. Mark Ruff noted that not
all costs are related to growth; some are related to upkeep.
Mark Ruff stated that Sunny Fresh's agreement to pay certain wastewater treatment costs
complicates the situation because if one user is a primary factor for requiring the improvement
it could make the bonds taxable. Slow growth may cause the City to use a property tax levy to
help cover the debt cost. Bret Weiss talked about future SAC & WAC charges. Currently they
are about $7,000+ per unit. Bret Weiss wants to keep $500,000 in the trunk fund. If Mark
Ruffs recommendations are applied the SAC and WAC charges would be about $8,000 per
unit. Bret Weiss noted the City would be deferring some improvements proposed to be funded
by trunk fees if the growth isn't there.
The recommended option for financing the biosolids improvement would have a bond term of
15 years. The use of$I,OOO,OOO in cash would leave a bond issue of$8,800,000. Sale of the
farm land currently used for biosolids application would generate $5,000,000. However, the
land sale would not take place for seven years. Other revenues to cover the debt would be
generated by assessments, SACfW AC, trunk charges and tax levy The biosolids is a change in
I
Special Council Minutes; 4/23/07
technology so the land would be an asset no longer needed by the system. Estimated sale price
for the farm land is $30,000 acre. An additional $1,000, 000 is needed just to offset the cost of
taxable bonds so the City's financial consultant would be doing additional research to see if
there was a method for making the bonds tax-exempt.
John Simola talked about the existing agreement with Sunny Fresh. This agreement paid for a
major part of the gravity belt thickener and at a future date Sunny Fresh would be responsible
for Y, the cost of a sludge storage tank. When the City adds a fourth SBR tank, Sunny Fresh
would pay 37% ofthat cost.
It was recommended to phase in the increase in user fees over three years. Because of the
slow economic market they didn't want to put any more pressure on users.
The difficulty in these discussion on biosolids financing is that the City has had only one
meeting with Sunny Fresh and Sunny Fresh did not have a chance to process the information
submitted.
Another option called for a slower increase in user fees over a period of 5-6 years which would
allow users to more slowly absorb the cost and defer any principal payments on the debt until
2015. Sunny Fresh would pay approximately $250,000 in user fees per year. It was noted this
option has not been seriously discussed with Sunny Fresh. Residential users generate
$1,300,000 in user fees and industrial users $750,000. Mark Ruff stated operating costs will
also increase not just debt cost. Current sewer cost of$350 a year would increase to $420 per
year. Mark Ruff said you cannot put all charges to future growth. Mark Ruff felt it was
necessary to have more discussions before a decision is made on how to finance this project.
Clint Herbst asked how the City could get this far along before Sunny Fresh was brought in on
discussions. Rick W olfsteller said the City has been looking at this for a number of years and
was going on the assumption that trunk funds were going to cover this. The slower growth is
causing concern if sufficient trunk funds will be collected to cover debt cost.
Clint Herbst felt the City should take a step back and look at this closer with Sunny Fresh.
Clint Herbst felt there might be some efficiencies that could be done at the plant. Clint Herbst
said as a Council they have not sat down and set priorities as far projects that need to be
financed. Brian Stumpf said the City has to look at the burden on the taxpayer. He was
concerned about tax increases as well as user fee increases. Bret Weiss said the slow market
has affected how much money was in the trunk fund. Shifting the SAC charges from the
general fund also impacted the trunk funds. Bret Weiss said the question is whether the farm
will work for the City for biosolids application for a few more years. There was discussion on
restrictions on placing biosolids on the farm. John Simola said they are getting close to
affecting the groundwater with the amount of nitrogen they are putting on the site. A MPCA
representative states that the sludge requirements may change at any time. John Simola said
they are maxed out on the farm so the City has to look at different options. Clint Herbst didn't
feel all the questions were answered at this time.
Susie Wojchouski asked why the City was going the biosolids drying route. John Simola
provided a brief history of the actions that brought them to this point. Clint Herbst said the
Council was not second guessing the treatment option that was being selected but the timing of
it. He felt there was some additional study that needed to be done. He also noted that the
2
Special Council Minutes; 4/23/07
City decreased the levy over the last few years and may have to look at adding some tax levy
for this. Rick Wolfsteller said the City has had such favorably low rates for sewer and water
while other cities rates were high because those cities were using user fees for debt service as
well as operating and maintenance cost.
Tom Perrault stated that dealing with biosolids was a necessity and purchasing the YMCA site
was not. Brian Stumpf said the biosolids is similar to the YMCA because the property owner
is hit twice. With the YMCA it would be city tax increase and county tax increase. With
biosolids it would be user fee increases and a tax levy.
Susie Wojchouski asked what happens if the biosolids treatment is not built and the farm could
no longer be used for spreading the biosolids. John Simola said the City could landfill the
biosolids at an estimated cost of $30,000 a month. Also because of volume ofbiosolids to treat
there would be a lack of adequate treatment time in the digester so there may come a time when
the City could not longer land spread the biosolids.
Don Roberts from Sunny Fresh stated that Sunny Fresh only found out about this project 10
days ago. This is a $10,000,000 project and the amount of impact it has on Sunny Fresh has
not yet been determined. Sunny Fresh would like to know more about the project. Don Robert
said Sunny Fresh's focus has been waste reduction and they are continuing to try to do that.
The workshop closed at 6:45 p.m.
D~ ~s."'"
Recording Secretary
f",Q. Q
<l
3