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Posted October 10, 2013 | Leave a comment
State offers zero percent financing for town loan
By Alex Bridges
Strasburg officials came back from Richmond with good news Wednesday.
Virginia Department of Environmental Quality officials have agreed to loan Strasburg the money it would need to upgrade the town's wastewater treatment plant at zero percent interest for 25 years, Town Manager Judson Rex said Thursday.
"That was a huge step for the town as far as financing the project," Rex said. "It was very good news for us. We were happy. It was worth the trip."
Financing terms reached a year ago for a different project called for the town to pay off the loan at 2 5/8 percent over 40 years, Rex said.
The difference would affect what the town pays each year on the loan for debt service. Town Council has set the sewer rates to reflect the debt service payments Strasburg would pay. Rex said he and staff expect the debt service payments to come in lower than the town included in the budget given the reduced interest rate.
"With the path we're going down and getting the zero percent financing for 25 years, we feel like we're in a much better position to make a rate adjustment, if that's the direction that council wants to go," Rex said.
It's too early to say the rates would drop, but Rex said he doesn't expect levies to increase given that the town planned for the highest-cost scenario.
The loan would cover the cost of the project not handled by grants the town expects to receive, Rex said. Town officials hope to receive $3 million to $5 million in grants.
Department of Environmental Quality representatives agreed at least verbally to the financing terms. But the agency can't put the terms in writing until the town settles on a project with one of the design-build teams that have submitted proposals, Rex said.
"Over the life of the loan, it's considerable savings," Rex said.
Rex, Public Works Director Mark Gundersen, Finance Director Dottie Mullins, the plant's Chief Operator Jay McKinley and William Johnson, a private engineering consultant working with the town, met with DEQ representatives Wednesday to discuss financing the project.
The DEQ offers the zero percent financing option in certain circumstances, though usually the term covers 20 years, Rex said. He called the extension a "good blessing for the town."
The grant the town can expect to receive comes through the DEQ's Water Quality Improvement Fund. Rex said the town benefits from having the loan and grant coming through the same state agency. The DEQ used the town's median household income and its water and sewer rates to determine Strasburg's eligibility for the grant. The agency looked at the same demographics as well as the usual criteria, such as credit history, to come up with the town's loan package.
A year ago the town received bids from construction firms seeking to build a new wastewater treatment plant. The lowest bid submitted came in approximately $11 million higher than the $20 million estimated cost provided to the town months earlier.
At that time the town had secured grants and loans from the DEQ. Strasburg also received confirmation of $1.5 million in grants from a rural development program through the federal government.
As the town officials and leaders mulled their next step, Strasburg received an unsolicited proposal from a design-build team seeking to construct wastewater treatment plant upgrades. The team submitted the proposal through the Virginia Public-Private Educational Facilities and Infrastructure Act under which firms can offer to build projects and, during the negotiation process, may require that certain information remain proprietary. The town opened the process up to other interested parties and officials remain in negotiations with two design-build teams.
The cost of a project won't be known until Strasburg officials make a recommendation to Town Council and leaders decide to move forward in the negotiation process, reaching a comprehensive agreement with one of the proposing teams. The town would close on the financing shortly thereafter, Rex said.
"Everything's in place and I don't expect it to kind of go away," Rex said.
Contact staff writer Alex Bridges at 540-465-5137 ext. 125, or firstname.lastname@example.org
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