By Richard Van Winkle, News of Mill Creek.
At their regular June 25, 2019, meeting the Mill Creek City Council unanimously approved an ordinance enabling Finance Director Peggy Lauerman to issue a $3,322,000 limited tax general obligation bond to fund the city’s Surface Water Reconstruction Program.
Earlier this year the city hired Mill Creek resident Jim Nelson of D.A. Davidson’s Public Finance Department to serve as the bond’s underwriter. He assisted Lauerman in estimating the city’s budget and cash flow projections that were presented to the city council in April.
In April and May he solicited bids from a number of banks and received eight bids for a limited tax general obligation bond at the end of May.
At Mayor Pam Pruitt’s request, Nelson personally walked the bond solicitation to all of the local Mill Creek Town Center banks so that they would have an opportunity to submit bids.
Zions Bank of Washington submitted a bid with the lowest interest rate, which at 2.44% was lower that the 2.75% rate used in cash flow projections.
In a June 27th news release Lauerman stated, “The low interest rate bids are a result of the current market. The strength of our local economy and financial management of the city were also important factors for the credit review by the banks.”
The city council had planned to borrow $2,800,000, but decided to take advantage of the low interest rate by borrowing an extra $500,000 so that they could fully fund surface water pipe repairs if costs continue to rise.
The bond contract includes a clause that allows the city to prepay any amount of the bond with no penalty, so if the additional funds aren’t needed they can be paid back early.
At the June 25th meeting Community Development and Public Works Director Gina Hortillosa told the city council she currently estimates spending $1,185,000 on the Surface Water Reconstruction Program this year. This number includes the recent construction contract for large pipe repair as well as the detailed design of next year’s large pipe repairs.
The estimate is approximately $250,000 more than the budget approved by the city council last fall and many members of the city council said they believe costs will continue to rise because of the strong local demand on the construction market.
Hortillosa said that although her estimate includes a $150,000 contingency, this amount may be exceeded if additional unexpected surface water pipe damage is discovered during construction this year.
Of course borrowing an extra $500,000 even at the low interest rate will cost taxpayers more in the long run.
The bond will be paid back with the surface water fee paid by property owners within Mill Creek city limits as part of the property tax assessed by Snohomish County.
Hortillosa told the city council she and Lauerman anticipate property owners will have to pay higher fees beginning in 2022 as a result of borrowing the additional funds.
Here are the anticipated annual surface water fees Hortillosa presented to the city council on June 25th:
- 2019 - $150
- 2020 - $175
- 2021 - $200
- 2022 - $218 (was $206)
- 2023 - $238 (was $212)
- 2024 - $249 (was $219)
- 2025 - $261 (was $225)
- 2026 - $269 (was $232)
City Manager Michael Ciaravino assured the city council they would be informed of progress and cost estimates at all surface water project milestones so they can decide whether or not to prepay the loan if they wish.