Freeport officials will float a bond to pay for a $5.9 million financing shortfall for the new sewage treatment plant.
Council approved a letter of engagement with Piper Sandler, a national bond underwriting firm, at this week’s council meeting.
The action came after a presentation by Chris Shelby of Piper Sandler’s Pittsburgh office, who outlined how the bond issue process works since none of the council members have experience with it.
Kevin Creagh of KLH Engineering, the engineer for the $16.9 million project, said the bulk of the financing is coming from a PennVEST grant of $11 million, leaving the balance of $5.9 million the borough must provide.
The grant award was announced in January and PennVEST, the state’s public works financing agency, set a January deadline for the borough to begin the project or risk losing the grant, Creagh said.
Since the grant was awarded, borough officials have been trying to come up with ways to finance the remaining cost.
It has to be done while holding to the Environmental Protection Agency affordability index for the system’s ratepayers. Using demographic data from the borough, the index sets the monthly maximum rate at $70 per month for 3,000 gallons of sewage.
“I can try moving PennVEST (on the start deadline) a month or two, but they are starting to get antsy,” Creagh said, noting the January deadline was already an extension granted by PennVEST.
“They want to give us the money, but if we don’t get moving, they’ll give it to somebody else,” Mayor Zachary Gent said.
Creagh said the financing options include floating a bond issue, applying for a Pennsylvania H2O grant, and requesting a $1.5 million federal grant through US Sen. Bob Casey’s office.
The H2O grant is problematic, Creagh said, because the announcement of who will receive them isn’t made until July. In addition, the borough would have to match the grant amount, although Creagh said a federal grant through Casey could be used toward that.
Creagh said the borough could opt to move forward by approving the bond issue and then using the federal grant or H20 grant to pay on it should the borough be approved.
Council approved applying for a $2.95 million grant through the H2O program.
“The thing with a bond issue is you can shape it around any existing debt you have,” Shelby said.
Shelby provided three scenarios using three amounts for the bond issue: $6 million, $7 million and $8 million. He said the life of a sewage plant is around 30 years, although many last for 50 years. He said 30 years would be a good term to pay off the bond issue.
He said if the borough received an “AA” rating on its credit through Standard and Poor’s, it would not have to buy bond insurance. If the rating is only “A,” it would be wise to purchase the bond insurance, he said, which would cost about $12,000. Since it would automatically boost the borough’s rating to “AA,” it would put the borough in a position to receive a better interest rate, he said.
“Once your rate is set, it cannot change,” Shelby said.
“Ultimately, (bond holders) will look to you as the guarantor of the bonds if your rate payers fail to pay.”
Shelby said that in his 40 years of working with such projects he has never seen that happen.
Creagh said the borough would look to close on the bond issue no later than mid-February.
“I think by February, if we got started right away, we would be fine,” Shelby replied.
Council responded by approving the engagement letter with Piper Sandler.
Council President Clint Warnick said a final decision on how much debt the borough will incur through the bond issue will come at council’s Dec. 5 meetings.