[0:04] First thing is stand for pledge of allegiance or moment of silence.

[0:10] » I pledge allegiance to the flag >> of the United States of America and to

[0:14] the republic for which it stands, one nation under God, indivisible, with

[0:20] liberty and justice for all.

[0:28] » Thank you, everybody.

[0:33] Okay, tonight's meeting consists of funding analysis from Shannon.

[0:40] And I guess all these papers are from you.

[0:43] » Yes, I got a revised one. >> Oh, more.

[0:46] » It's sent to you this afternoon. >> Oh, yeah.

[0:48] » So, I think you got it. I sent it out. >> So,

[0:56] » We had the one-pager in there. >> It was the one that was no good.

[1:00] » I know. >> Yeah, we needed to make the correction,

[1:03] so I'm sorry.

[1:06] » Here's some [clears throat] extras. >> Thank you.

[1:09] » So,

[1:12] we have three projects that consist of a well for $735,000,

[1:18] water main reconstruction for $827,040,

[1:23] and treatment plant, which is the big one that's is $2,835,000.

[1:27] And what I had indicated in the letter is that ultimately the public facilities

[1:33] authority's view of the world is that they look at your median household

[1:37] income and they indicate that uh the residents on water projects are able to

[1:42] afford 1% of your median household income on water projects

[1:47] and you have to reach that level before you're grant eligible.

[1:51] So, they're saying that we're only going to give you a loan until your water rate

[1:55] gets to $81.67 per month.

[1:59] And after that, if your project costs are enough and you're taking loan

[2:04] uh to such an extent that you're going to exceed $81.67

[2:07] per month, and that's including your operating costs and all those things,

[2:12] that then you're grant eligible. And they say that that grant eligibility is

[2:17] up to $10 million for $20,000 per connection.

[2:22] That first draft of the letter I just relied on the 10 million, but ultimately

[2:27] you're capped based on your number of connections at $4,420,000.

[2:34] You know, when you put a project together and they evaluate it, that's

[2:37] how much grant you're you're capped at. By state statute, they won't go beyond

[2:41] it for any good reason.

[2:44] The only way you can exceed it is if you were successful in getting a state

[2:47] appropriation. And so, I looked at two different ways,

[2:53] you know, of uh well, I looked at two scenarios for your three projects that

[2:58] total uh

[3:00] it's about 8 million per

[3:03] It's 8 million 397,000 for all three projects. So,

[3:08] the first scenario I looked at, well, what if we got just to the affordability

[3:12] level, and since they weren't going to give us

[3:15] any more grant, and we, you know, maxed out our loan to get to the 8167, where

[3:20] does that get us? And that would get you the water

[3:23] treatment and well project, but not the water main project. So,

[3:28] they they they tied almost exactly based on the cost

[3:32] estimates to uh

[3:35] based on the terms that you'll get on the PFA loan, which will be

[3:39] it'll be a state loan of 30-year term between 2 and 2 and 1/2%

[3:44] interest. I've used 2 and 1/2% interest in this estimate.

[3:47] And so, that annual loan payment that puts you

[3:52] at that affordability level is $150,350,

[3:57] which you know, is a loan of 3,146,000.

[4:03] So, I'm what I'm telling you is the state will say

[4:07] this city can afford a loan of 3,146,000 over 30 years at 2.5% interest because

[4:14] that gets you to 1.2% of your median household income, which is their

[4:18] affordability threshold before you're grant eligible.

[4:22] And so, after [clears throat] that, to maximize

[4:25] the grant, you know, you got another 4,420,000

[4:30] dollars in project costs that you would want to incur [clears throat] because at

[4:33] that point you're grant eligible and you can cover that amount with free

[4:37] dough from the state. And so, that means the optimal sized project for maximizing

[4:44] our grant loan combination, minimizing the loan, maximizing the grant is about

[4:48] 7,570,000 dollars.

[4:52] So, that means well or uh well and treatment almost are exactly

[4:59] that amount or within 4,000 dollars. If we throw on the water main instead of

[5:04] the well, you're going to have a little bit more

[5:06] loan because what the state will tell you is

[5:09] uh we'll fund you to your affordability

[5:14] level. You can choose to exceed it by taking more loan if you want to.

[5:19] But, you know, once you reach the cap on your

[5:22] grant, you've reached the cap on your grant and they're not going to

[5:26] that 4,420,000, they're not going to go up any beyond

[5:30] that. >> Any other improvements would be on us.

[5:33] » Yeah, but they would they would do it in the form of a

[5:36] long-term low-interest loan, but you'd have to decide that you want to increase

[5:40] your rates beyond that 8167 dollar level in order to do it. And so,

[5:47] the second page of this two-pager to do all three,

[5:52] I'm telling you that the supplemental loan that you have to take would make

[5:56] your take your own payment from 150,000 to 190,000.

[6:01] And that per user per month per average user would be $96.62

[6:07] rather than uh $81.67.

[6:12] And that estimate is based on your annual operating cost. You have a

[6:16] reserve requirement that the state will impose. It's called We call it a whiff

[6:20] reserve on this worksheet. They say that you have to set aside cash

[6:26] equal to 50 cents per thousand gallons pumped each year in your system

[6:32] uh as a cash reserve to maintain the stuff that they're funding. So,

[6:37] particularly the water treatment plant, you're supposed to accumulate that 800

[6:42] $8,500 each year. And over time, you use it to replace

[6:48] pumps at the water treatment plant and you know, critical assets that that wear

[6:52] out. It's a It's a short-lived asset reserve is what USDA calls it, but

[6:58] ultimately, it's a reserve that you're required to

[7:01] uh accumulate in order to pay for maintenance on this stuff.

[7:05] » Well, you know, that money is accumulated every every month now, you

[7:09] know. >> Yes. It already is, but

[7:12] » They want a like a little extra cushion or something?

[7:15] » Well, you mean ultimately, it would be uh

[7:20] We've used operating costs that should reflect what you're actually going to

[7:24] pay for operating costs. We've looked at audit data, you know, and

[7:28] what the new treatment plant work means with regard to what maintenance will

[7:33] cost. And so,

[7:35] uh based on your history, you may

[7:38] accumulate more than that $500, but the state requires you to accumulate that

[7:43] $8,500 a year. Uh

[7:46] » And that's throughout the entire the loan period, 30 years?

[7:49] » Yeah. Yeah. They're I don't I I haven't seen many letters go out on

[7:55] you haven't accumulated it, but it's it's a requirement of the loan agreement

[7:59] that you sign, and so, you know, you should be mindful of it.

[8:03] And I understand that that's part of this rate I'm communicating to you, but

[8:07] it's cash that stays in the city instead of going for a loan payment or operating

[8:11] costs. It's right accumulating for maintenance. So,

[8:16] So, for me, the decision is uh

[8:20] what approach to take with the public facilities authority on this, and I

[8:24] thought of a few different ways. Um You know, ultimately, if your bids came

[8:30] in better than expected on these three things, you may choose to do one as an

[8:34] alternate, which, you know, if your bids came in

[8:38] low, maybe you're doing all three because it's close enough to the funding

[8:41] package and maximizing the grant that uh you want to proceed. Uh otherwise,

[8:48] you know, this with consideration uh

[8:51] isn't a one-time lifetime deal. It's each time you have a project that you,

[8:57] you know, of significant size that you bring to the state. And so, if you have

[9:01] supplemental phases that you're going to be doing stuff in,

[9:05] maybe it becomes part of the second phase where you're eligible for that

[9:09] grant again because you've already brought your rates up to that

[9:13] affordability level. Those will continue to go up as the median household income

[9:18] rises, if that's the case. And so, but you're much closer to it

[9:22] than you are today, you know, with regard to what you

[9:26] what you'd be charging, and you know, your eligibility would be much closer.

[9:30] It wouldn't be this uh

[9:32] this uh significant increase that's required to get to the point where it's

[9:36] affordable. That's 96 bucks. That's just the cost of the water.

[9:40] » Yes. >> You know, what is the minimum now?

[9:44] What does it cost a month >> Like $12 or $13 a month just for the

[9:48] connection fee? >> Well, but the water

[9:51] » The water >> How many gallons do they get for the

[9:54] minimum?

[9:57] » I don't know. Give me a second.

[10:00] » I was just wondering how much that would basically and then we have contingencies

[10:04] fees on water and the sewer, but none of that would ever account for any of this,

[10:10] right? >> Well,

[10:12] that stuff, you know, this this rate I'm giving you is meant to include

[10:17] everything in your water system and completely cover operating, maintenance,

[10:22] asset reserve and loan payment that you'll have. So,

[10:27] you shouldn't have other expenses if we're doing this right at the end of the

[10:30] day outside of what I'm telling you your rate needs to be at to support it. If

[10:35] there is additional cost, we should be aware of those now so that we can throw

[10:40] those into the rate because it would reduce our loan amount.

[10:44] » I was wondering how much we have to go up

[10:47] by next summer, right, to be in compliance?

[10:50] » Well, they would make you Yes, they would make

[10:54] you adopt when you bid the project, you're going to close on your loan with

[10:58] the state and they will make you adopt uh a

[11:02] resolution establishing rates that are sufficient to pay the debt service on

[11:06] the loan. So, next summer is when you'd have to

[11:09] adopt a rate resolution when you bid the project uh

[11:14] establishing the new rates. They will allow you to phase it in over

[11:18] a couple of years if you choose to do so.

[11:20] » But >> Uh I was just working on a project

[11:23] yesterday where we were looking at phasing in that rate over 3 years, for

[11:26] example. And on a 3-year loan, which is what you're going to get when you get

[11:31] your grant eligibility. They'll be flexible on that. So, you

[11:35] don't have to do it all at once. >> That's what I was wondering. Do do we

[11:38] need to start the next quarter to go up a little bit and then each quarter keep

[11:41] going up a little bit or you say they got 3 years, so that helps.

[11:46] » 3 years of phasing it in, but you'll have to adopt a resolution that

[11:49] establishes those rates next summer. >> At the end of 3 years, we're up to that

[11:54] rate. >> Yep. And that resolution will have to

[11:56] state that. You'll have to state year one we're doing this, year two we're

[11:59] doing this, year three we're going to be here.

[12:01] » And hope to go up to the $81. >> Yes.

[12:06] » That's going to at least double our water bills for what

[12:10] people are paying right now. >> Oh, it's going to triple some of them

[12:12] like yours. So, right now our monthly is $12.83 for just for the contingency

[12:17] charge. And it's $4.08 up to 1,246 gallons.

[12:22] » How much? $4.08? >> $4.08. So, a lot of we have a lot of

[12:26] users that are that. >> So, you're probably

[12:29] » So, you're talking up in 60, 70 bucks.

[12:34] » Yeah. Yeah, we

[12:38] based on what it is started it's on like $20 would be a

[12:41] medium-sized customer. >> Right. Yep. I think mine is roughly

[12:44] around 20 bucks a month just for the water.

[12:47] » Yeah. What does >> [clears throat]

[12:49] » You This has nothing to do with waste waste water though.

[12:51] » No, this is just water. And they they view waste water they

[12:56] actually your affordability threshold is even higher and they would tell you that

[13:00] your rate would be need to be higher because it's based on

[13:03] 1.4% of household income versus 1.2%. So,

[13:08] » What does that make that going up per gallon on something like that? If you

[13:12] had to have that at 80 at 80 what 80 >> 8167

[13:16] » 8167 and you did but the by that gallons

[13:21] What does that make that per per gallon?

[13:25] » Our average customer is probably in that 4,000 gallon per month range.

[13:30] » 3,000 >> No, I think our No, our No, we're

[13:35] » I don't know what our average >> Somewhere I want to say somewhere

[13:36] between two and three. >> Okay.

[13:38] » Our average cuz we have a lot of elderly or single

[13:43] um homes that just in the bare minimum is like 66, 36 for everything.

[13:47] » You see a lot of 35 gallons. >> Yeah. Yep. Yep, that's roughly right

[13:51] around there. >> Oh, boy.

[13:55] » Yeah. That's going to be a hard pill of to swallow for everybody.

[13:58] » Mhm. >> Yeah.

[14:00] » Holy cow.

[14:04] » Cuz if you're going to put the water up just to that, the rest of it is

[14:09] it's going to be $140 to $150 a month. >> So, how does Do you know how contingency

[14:15] fees work? You know, that was kind of a little

[14:18] fee to help create money for the operation of water and sewer.

[14:25] So, would we still want to keep that contingency fee on there that we're

[14:29] raising the water so much or could we drop the contingency fee on the water to

[14:35] help compensate for the big increase in the

[14:39] cost per gallon? >> So, how do you charge the contingency

[14:42] fee and what is it used for? >> It's

[14:45] » goes just to the water fund just to >> accumulate cash.

[14:48] » Right. >> That's kind of like for the maintenance,

[14:51] you know, pumps and and stuff. >> So, you you

[14:55] if it's just accumulating cash and it's and it's not going for standard

[15:01] operations and maintenance on an annual basis. So, if it's not paying your

[15:05] employees, it's just paying for big projects or repairs as they come along,

[15:10] you would not need to include that in your rate.

[15:12] » You could drop that. >> Yes.

[15:14] » To make >> of the $8,500 you'd be relying on at

[15:17] that point. Um but you wouldn't have if that

[15:21] contingency fee is large, you'd be able to reduce that and but you're adding on

[15:27] a bunch of other, you know, basically loan payments is what you're really

[15:30] adding on next. Of 150 grand.

[15:34] » How much is the contingency per month right now?

[15:36] » 1283. >> 1283 so that's

[15:39] 123,000

[15:42] » That just goes into the general water. >> $50 a year.

[15:45] » But for whatever. >> Per per household

[15:48] the contingency would add up to 150 dollars a year per

[15:51] » Roughly. Yep.

[15:52] » But holy cow what we're going up on the rate is going to be

[15:55] » But you know another thing is two to think about is there's a lot of cities

[15:58] that if you're connected whether you actually have water in your home or not

[16:02] or whether your your water is shut off you're still paying that fee.

[16:06] And we do not Correct. We do not charge that.

[16:09] » Yeah. >> We don't have a lot of homes like that

[16:12] but that is something to consider as well.

[16:15] » Yeah.

[16:18] Oh my.

[16:23] So we would have to be up to that 8167 at

[16:26] to get grant eligibility. >> To get the

[16:29] » But you do a smaller project and just take the low interest loan. Yes. You

[16:33] have the ability to do that. But generally if you're getting close to

[16:36] that 8167 you're going [clears throat] to want to

[16:39] maximize your grant and then do as big a project as you can to max out that

[16:43] grant. >> Cuz yeah cuz the funding

[16:46] well what we were awarded through the state I'm hoping You're saying that's

[16:51] what the state will come back in and say you

[16:54] know we're going to grant or I don't know it's not award is a better term.

[16:59] » Yeah and they they wait till they >> [laughter]

[17:02] » They wait till to do their final commitment until you have the bids in

[17:06] and for your project which stinks. >> You wish you would

[17:09] » have it right now so you'd know what you're getting into but

[17:12] that that award is made essentially when you're bidding your

[17:17] project and at that point they're about based on these factors to see what the

[17:23] grant loan combination is.

[17:27] » If I get my figuring right, it's about $68 for I think I took

[17:33] I just took a 68 * 12 that's $816 a year more just for the water.

[17:40] You know, so I sort of be done for the minimum to be $816 more per year per

[17:47] meter you know as a minimum usage.

[17:58] So if you added all the stuff up and just the water right now, the water and

[18:03] the contingency. What did you say the water was uh

[18:08] » $4.08 up to 1246 gallons.

[18:18] » Yeah, well we're getting in order we have 3

[18:21] years to get it up to there, right? Just got to have a plan.

[18:24] » Yes. >> Okay.

[18:25] » And we got to understand where you're going, you know, and

[18:29] how you want to get there. So typically I see the rate increases,

[18:35] you know, being in you know, some some communities start in advance but by and

[18:40] large most are when we're awarding a construction

[18:43] contract or adopting rate increases because the people are going to see the

[18:47] work happening in the community and you know, we're increasing rates so they can

[18:51] tie the two together. >> Does it sell sell the project better

[18:54] doing it that way? >> It always

[18:57] there you know, nobody wants to pay three times their water bill and so

[19:01] people are going to be unhappy about that but

[19:03] » [clears throat] >> you know, if you're also telling him

[19:07] that we maximize our grant to do these other things the well, you know, part of

[19:10] the treatment plant project, and we got $4,420,000

[19:14] in free money. Um

[19:16] you know, it I would just say it could be worse.

[19:21] If that wasn't available, we didn't maximize that.

[19:23] » Yes. Um

[19:28] » But, I understand the the politics of of making that kind of an increase. It's

[19:33] not pleasant. So,

[19:40] » [clears throat]

[19:47] » So, you're talking raising it like three times. I just

[19:51] pulled my bill cuz I haven't brought it home yet.

[19:53] And I'm on the lower I'm around average, but my bill just for the water is $23,

[19:57] $24 a month. >> You pay another 12 for that contingency?

[20:01] » No, that's including that. That's That's the contingency and my gallons.

[20:04] » Yeah. Okay. And you're

[20:07] » And we just need to get that 24 up to the 81.

[20:11] » Yes. >> Well, we know that

[20:12] contingency is free we can leave in there then.

[20:15] » Well, you're you're going to $81, you're probably reducing what you're set aside

[20:21] in cash because you're only going to be set setting aside $8,500 a year at that

[20:26] point. Your contingency fee is probably accumulating more than that.

[20:30] And so, but the thought is is if we have a new

[20:33] treat or you know, like new treatment facility and we've replaced some stuff

[20:38] that's been breaking, hopefully our our uh maintenance costs aren't going to be

[20:42] as far as having repairs and such aren't going to be as bad. We can get by on a

[20:46] lesser contingency amount. >> Well, people need to understand that

[20:50] that backup well over here

[20:53] is probably man, I mean, it originally was sunk in

[20:57] the ground probably almost 100 years ago.

[21:00] 80 years ago for sure. >> Yeah.

[21:02] » And it doesn't only pump about 60 gallons a minute, I believe it's

[21:06] something like that. So, and you know, if the main well went down really bad,

[21:11] it has a hard time to keep up. People need to understand that we are making

[21:15] things better and it cost money to make things better.

[21:19] You know, the other well has been there for many years already, too.

[21:25] And the treatment plant, that needs a lot of work inside, so

[21:29] » $6.8 million worth is what the engineer estimated to that.

[21:32] » How much? >> $6.8 million.

[21:34] That's the bulk of the cost of all of this stuff. He said treatment project is

[21:39] the expensive one. >> Yeah, right.

[21:40] » And >> [clears throat]

[21:41] » cuz everything the infrastructure in that building is right across the

[21:44] street. It's It's at end of life, you know, it's

[21:48] » [clears throat] >> And people got to understand there's new

[21:50] regulations like the chlorine and the other stuff. It has to be isolated. This

[21:55] one's sitting out there in the same building and that's why all the

[21:58] electrical gets corroded up and everything. So, you know, we're

[22:02] updating a facility that's probably been there since

[22:06] Oh, man, who knows? >> I think it's 100 years old, wasn't it?

[22:09] Or close to 100. >> Yeah.

[22:12] » The building >> You think so?

[22:13] » Yeah, I think >> I think that's what they said, yeah.

[22:15] » I I think it was >> That's what Brian said.

[22:17] And really, the the brick itself is in beautiful shape, but it's the equipment

[22:22] inside that's >> Yeah, that's looking good shape.

[22:25] » It does. There's nothing, you know, really that bad on the exterior. It's

[22:30] all interior. >> But it's on

[22:33] borrowed time for the last 10 years. >> Oh, yeah.

[22:37] And we're just hoping we can get by another

[22:39] 12 months. >> Just working on one in Howard Lake,

[22:43] that's $21 million and their rates are going to 90 some

[22:47] dollars and they're not happy about that, either. So, it's uh

[22:50] » How big a town is that? >> Howard Lake.

[22:53] A little over 2,500, I think. >> Yeah, so they got more people to spread

[22:57] it out on, too. That helps. >> But the loan they're taking is

[23:00] uh I think it's closer to 17 million.

[23:04] » Oh, wow. >> Well,

[23:06] » 30-year 30-year there, too? >> It should be, yeah.

[23:10] Right now, they've shot them 20 cuz they didn't think they were above their

[23:13] affordability level, but they are, and which we can get a 30-year there.

[23:17] I don't think you should worry about that.

[23:20] » So, for us then, that's the main thing is just getting up to that 8167 a month?

[23:24] » Yeah, just understanding that that's what you have to get to, you know,

[23:27] before you dive even deeper into our construction contract.

[23:32] It's it's important to know how the state's going to view this, and

[23:37] you know, over time the two things that work against you are

[23:42] most likely median household incomes will continue to rise, which means their

[23:46] affordability level would go up, and construction inflation is horrible. Um

[23:51] these water treatment plants have through COVID doubled, you know, almost

[23:56] in cost. And so, I don't expect we'll see a doubling again, cuz then nobody

[24:00] will be able to afford to do anything at all, but they they went up

[24:04] significantly, and so generally, we think the projects are

[24:08] going to get only more expensive. Um so,

[24:11] that's that's the thought on it, so.

[24:15] » But, if we sealed the deal, we have to have we got 3 years to get up to that

[24:19] eligibility. >> Yeah, they'll give you that amount of

[24:21] time. >> Okay, so we could take that $68 or

[24:24] whatever, 70 say 70, and divide that out per quarters, you know, we'd have 12

[24:30] quarters in that 3 years, or we could start the last quarter of this year, you

[24:35] know, and it won't be a such a

[24:39] shocker, you know, if you only went up Well, if you have

[24:43] 12 quarters, and you went up $10 a quarter, it'd be 100 one year, right?

[24:47] So, you could make it phase in, and not hurt quite as

[24:52] much. >> So, is your just to be clear though, is

[24:54] your 20 bucks a month, or is that a quarter?

[24:57] » That's a month. >> Okay.

[24:58] » Yes. Yeah. >> [laughter]

[24:59] » Yeah, we do monthly billing. He's talking quarters, but yeah.

[25:01] » Yeah, that's right. I'm talking to the old way. Yeah, I'm still

[25:05] Yeah, thank you. Just want to make sure I wasn't

[25:09] » Just Yeah, just uh transitioned over to that. It How long

[25:14] has that been? >> Yeah, almost 2 years.

[25:16] » Is it really?

[25:19] » I'll have to give that some thought. See if we'd want to start it in September

[25:23] maybe. Of course, I don't know if we can even do that.

[25:26] » That's That's too soon on the >> Too soon, yeah.

[25:28] » I I try to have a community mailing or meeting as the project starts to develop

[25:33] if you're proceeding, you know, make everybody aware that, you know, we're

[25:38] going to be building a or bidding a water treatment plant project along with

[25:42] other stuff uh in the, you know, early spring or

[25:46] early summer. And uh once we do that, we're going to [clears throat] be

[25:49] committed. Uh most likely, you know,

[25:54] the state's going to the state's going to essentially tell us

[25:57] this is where we need to be in order to uh

[26:00] » [clears throat] >> fund the project. So

[26:06] » And this basing it on the median household income, that must just be a

[26:10] formula that the state came up with on how to

[26:12] » Yes. They've been using it for a long time.

[26:14] Uh What they

[26:18] What they should did a few years ago though is they

[26:20] they were using 2010 median household income for 10 years.

[26:26] Which was really nice because it was much lower. And uh

[26:31] the demand for the funding shot up significantly with construction

[26:36] costs doing what they're doing. And ultimately, they had to make that more

[26:40] current in order to temper some of the demand for their funding and funding

[26:44] particularly the grant funding cuz that triggers the grant availability.

[26:47] » Right. >> So now they're using current relatively

[26:50] current. They're using 2024 right now, median household income data. And so

[26:56] » Yeah, our our our engineer they had suggested that we

[27:01] I remember this conversation before. And we we actually they helped us do a

[27:07] survey that was sent out to the residents and Sure. It it was basically

[27:11] yeah, that 80-some thousand whatever number two that it worked out to be. So

[27:15] » Okay. They're probably trying to determine if

[27:18] you're below Right. >> Right.

[27:21] » met some additional requirements to trigger some additional rates. So

[27:26] » Like small cities and >> Mhm.

[27:30] » Yeah, that was like three summers ago.

[27:35] So then as far as the money

[27:39] They were talking about grant when we were going through this with our with

[27:42] our engineer well >> Yeah.

[27:44] » Um The well move we're but I we're going to

[27:47] put out a little over a million dollars in engineering costs to them to get this

[27:51] so we can get it out to bid. >> Yes.

[27:54] » Are you on the side that does any grant dollars to refund us for that or is that

[27:58] » No, I I what I have here tonight is a loan and to help get you through and the

[28:04] loan is eligible to re- be repaid from this PFA funding.

[28:10] Uh Sue had to submit an email to the public

[28:13] facilities authority indicating we're intending to do some temporary financing

[28:17] and PFA had to respond that we're okay to proceed with it. Uh

[28:23] meaning they recognize that you have a project that's more imminent. Uh You're

[28:28] designing it so it moves on to the other funding list uh because they know you're

[28:32] about to bid it. And uh And so

[28:37] it triggers some final scoring and engineers would probably argue that once

[28:41] you've designed it and certified it in the next phase that the scoring

[28:45] typically improves, but your scoring was already in the funding range,

[28:49] traditional funding range for projects. So,

[28:53] Oh, my.

[28:56] But, that's the next stuff I had to talk about when we're done with this portion

[29:00] is the loan stuff. So, let me know if when you're ready for

[29:05] that part. >> You're not going to blow our mind on

[29:07] that one, are you? >> Okay, so

[29:11] It's not my intention. >> [laughter]

[29:15] » I want you to understand the state's view of the world is how they're going

[29:19] to approach your funding. You know, I think you got to really focus on that.

[29:22] So,

[29:28] So, the next letter I want to refer to is it's

[29:31] our preliminary recommendations letter, and it You'll see a number in the middle

[29:35] of the page that says $576,000.

[29:39] And that's our That's the loan amount that

[29:44] uh based on an input from your engineer, they've said you need in funding in

[29:48] order to get to uh

[29:51] basically the bid process in order to bid the project.

[29:55] And so, they're saying that you need $500,000.

[29:58] Uh we have issuance costs that are $16,250

[30:03] that includes legal work, my work, uh a small program fee to the Minnesota

[30:09] Rural Water, and then capitalize interest of $59,040.

[30:15] So, you're borrowing interest payments so that you don't have to make those out

[30:19] of pocket uh for a period of 2 and 1/2 years. And so,

[30:26] ultimately, uh you're going to still accumulate cash in your

[30:30] water fund based on uh you always been because you're not going to have

[30:34] additional out-of-pocket expense due to this loan.

[30:38] Uh It's a temporary loan. There's no

[30:40] principal due for 3 years. There's interest only payments due for

[30:45] uh that 3-year period and we're borrowing the money to make 2 and 1/2

[30:49] years of those payments cuz we expect by well before, but it gives us some

[30:55] additional time in case we have to go through a second funding cycle with the

[30:58] state to

[31:00] uh have our bids in hand or at least have

[31:05] the project designed and be ready to bid.

[31:07] Um The interest rate on the loan, so it's a

[31:11] 3-year term which is which is the maximum that's allowed for a temporary

[31:15] under state statute. Uh

[31:18] the interest rate provided by the program lender is 4.1%. That's fixed for

[31:23] the duration. Uh the first opportunity to pay it

[31:28] is March 1st of next year, which is about the time that you'll be gearing up

[31:33] to bid a project. And so, as soon as your PFA funding comes through, we'll

[31:37] use that to pay this off. And the interest will be eligible as

[31:42] well as the principal cuz it's gone for project-related costs.

[31:48] And so, uh

[31:52] ultimately, it's those terms that are then memorialized in this giant

[31:57] resolution that you received, which is an award resolution for a bond

[32:02] for a city. Uh we call it an note in this instance.

[32:05] It's being placed with a program lender. Again, the amount is $576,000.

[32:12] The term is 3 years, which is the maximum we can do for a temporary.

[32:16] And ultimately, uh

[32:20] the interest rate is that rate I quoted you uh 4.1%.

[32:26] Um First opportunity to prepay again is

[32:31] March 1st of next year, uh which should align with your funding.

[32:36] And then, anytime after that it can be prepaid without penalty.

[32:41] Uh >> [clears throat]

[32:42] » and it's the expectation that we'd be closing out a PFA loan

[32:46] uh in 2027 I think is the goal

[32:50] in order to implement the project.

[32:57] What questions can I answer on that stuff? There's a

[33:00] There's a debt service schedule attached that shows you the principal and

[33:04] interest principal's just the new in the final year September 1st of 2029.

[33:11] So worst case scenario the state of

[33:14] Minnesota has issues where they

[33:19] they they can't fund grants for example through their public

[33:23] facilities authority. Not aware that that's ever happened but

[33:28] let's say it did. Uh

[33:30] you would have 3 years for them to get things figured out to participate in

[33:35] your project or at that time you could choose to

[33:37] either pay off or refinance that temporary note an additional time to try

[33:42] to work through their process. I've never had anybody that had to do

[33:46] that. >> [laughter]

[33:48] » I don't expect that you're going to be the first so

[33:52] but we want to make you aware of all the risks.

[33:57] You know all the terms that are applied and uh

[34:01] make sure you understand them so

[34:07] Again we do an awful lot of these for small communities for both USDA and

[34:12] PFA projects. USDA is just not the funder of choice of late because their

[34:17] grant funding is very limited and so the state of Minnesota through its public

[34:21] facilities authority is getting more traffic these days. And

[34:26] so I would tell you that you're going after the right funding source. Now

[34:31] » How does the First Independent of Russell get involved or

[34:34] » Yeah, they're a they're a relatively large bank. Actually, they have both the

[34:39] First Independent Banks and the Northview Banks north of the cities and

[34:45] uh they

[34:47] have been a pretty aggressive purchaser of small bond issues for

[34:53] uh 15 years now.

[34:55] » All right. >> Yeah.

[34:57] They uh they understand what they're purchasing

[35:01] which means they're pretty competitive on interest rate. Not pretty, they're

[35:05] they're First Independent Bank was probably our best lender for quite a

[35:08] while. Uh then they quit purchasing bonds for about 2 years, but now they're

[35:15] back at it again. We use both them, Security Bank and Frandsen Bank uh for

[35:21] the program and we always go to the lender that is

[35:26] providing the best interest rate at the when we're asking and so

[35:30] » Okay. >> And we we actually price it you know,

[35:33] part of the program is we price it uh comparable to something that would have

[35:39] an A credit rating. Uh

[35:42] so it's a it's generally a little bit better than what you'd be able to get uh

[35:48] by selling an unrated bond issue. Uh And so

[35:54] we do a lot of them because the pricing's competitive and and uh we have

[35:58] lenders that understand the nature of what they're doing. There hasn't been a

[36:02] default on general obligation bond that we're aware

[36:05] of uh and so it's pretty secure, you know,

[36:10] cities pay their bills >> [laughter]

[36:12] » and ultimately uh they're priced accordingly because of

[36:16] that. [clears throat] >> They're probably more familiar with

[36:18] small cities small towns versus >> Yes, yes.

[36:22] » other of the cities or even Mankato >> Agreed.

[36:25] » you know. >> Yep.

[36:27] » Yep. >> Agreed. Uh the

[36:29] bank [clears throat] owner actually is involved in the pricing and

[36:33] purchase. We communicate with him directly and

[36:37] he knows what he's buying. So, and he knows that he knows where

[36:42] where we should be at with the rate we pitched him and where he wants to be at.

[36:46] So, ultimately the conversations are usually pretty short short. We tell him

[36:51] that this is what today's market conditions are. This is

[36:54] what we think the rate should be and then

[36:57] And we we do uh

[37:00] in this instance we you are rewarded for your financials.

[37:05] Uh We suggested a rate that's typically

[37:07] lower than a community your size because you have good financials.

[37:12] Uh and the banker agreed and gave us I just did one of these the other day at

[37:17] 4.7% who didn't have as good financials and so

[37:21] you got credit for that. So, you know, pat yourselves on the back for having a

[37:25] good audit and keeping some cash in reserve and taking care of things. So,

[37:36] Hm, cool.

[37:39] The the resolution that goes along with that

[37:44] also authorizes execution of a loan agreement which says

[37:49] the exact same stuff I just told you. 576,000

[37:53] 4.1% can be pre prepaid on or after March of next year.

[37:58] And then it authorizes execution of that compliance policy.

[38:05] Which is a nine-page document that Sue ran through today and asked me a

[38:10] question and and it was on the last page that she was asking me the question and

[38:13] I said I'm like, "Oh my gosh, she read the whole thing."

[38:16] Um So, when we issue tax exempt bonds,

[38:21] there's specific IRS regulations that we have to meet.

[38:25] Most of them don't apply to anything that we're doing today because this is a

[38:29] temporary financing for, you know, preliminary costs that are going to

[38:33] ultimately be paid off in the near future by the state of

[38:37] Minnesota with long-term loans. Uh but with this and other financings

[38:42] that you do, including your state loans, you have to file an IRS form that's

[38:47] called a 8038-G. Because these bonds are tax-exempt and

[38:51] the federal government pays attention to that tax-exempt status to make sure

[38:55] everybody's complying with the law because you're getting a benefit of them

[38:59] not charging tax on the interest earned on this. So, your interest rate's lower.

[39:03] Uh On that form 8038-G, there's a box that

[39:08] says, "Do you have a compliance policy?" And all the attorneys now are sending

[39:13] out these compliance policies so that they can check that box cuz they feel

[39:17] it's uh you're less likely to be audited by the

[39:20] federal government because you have a compliance policy.

[39:24] The compliance [clears throat] policy basically

[39:27] does a fair amount of it is just regurgitating federal law that we have

[39:31] to meet regardless. Uh And again, uh

[39:36] the primary reason is so that they can check the box so that they think it's

[39:40] going to help you avoid audit. I've only had one

[39:44] issue audited in 26 years. Maybe two.

[39:49] And uh

[39:52] It wasn't for any particular [clears throat]

[39:55] reason. One was a state loan that you can't do anything wrong with cuz the

[40:00] state disperses it. It's a PF There was a PFE loan that

[40:05] they don't want you to earn extra profits on this bond proceeds. So, they

[40:09] don't want you to borrow this 576,000, put it in the bank at a higher interest

[40:14] rate, earn money on it, and just sit on it. That's That's not legal beyond a

[40:19] certain period of time. And so it's those types of situations that

[40:23] they're really trying to determine if laws were broken or if you owe the

[40:28] government money. Cuz if you earn excessive interest on

[40:32] the reinvestment of these proceeds, they want some of that money. Um

[40:36] you're not going to be in that situation.

[40:39] Just so you understand with this temporary note,

[40:42] uh we have we can earn unlimited interest

[40:45] during a construction period and we don't have to pay it's called rebate to

[40:49] the federal government. So, uh

[40:52] getting deep into the weeds on a policy that will never apply to much of

[40:56] anything that you do. So, uh and I appreciate you reading it, too.

[41:01] » [laughter] >> But, this this would would be considered

[41:05] just a regular municipal bond and it was under a kind of a some kind

[41:08] » Technically, it is. Um it technically is. Uh and that's the

[41:12] only way cities can really borrow money. >> I've fractured being some instances, but

[41:18] » It's technically a bond and a note in this instance. Um

[41:23] It's because it's one bond. Uh it's not being sold to multiple

[41:27] investors. Um and so, it and it's being bought and

[41:30] held by one lender with no intention to resell it. So,

[41:35] you'll be dealing with First Independent Bank until you pay off. So.

[41:41] » And nobody else.

[41:45] » The other thing we avoided on this, uh because of your finances again, is

[41:51] for a lot of these, we have to seek the state credit enhancement program, which

[41:56] is a program through the public facilities authority

[42:00] that requires us to use a paying agent that would cost $450 a year.

[42:05] Uh And would

[42:08] indicate that the state would step in in the case that we didn't make the payment

[42:12] on very small communities. Our lender requires that credit enhancement a lot

[42:16] of times and again I think wasn't it wasn't required on this one.

[42:21] So, we're saving that 450 bucks

[42:24] a year on paying agent fees and with the $750 setup charge. So,

[42:30] again that's because of your financial condition. So,

[42:39] » So, for small towns like us, you go to present this to them on a night like

[42:44] this, do they ever want time to have a attorney look

[42:49] at stuff like this or this is your job. You know what you're doing. We don't all

[42:56] know. I mean, how do we treat this? >> So,

[43:01] everything that's presented tonight is based on

[43:04] an award being made tonight. And so, if you were to approve this

[43:09] tonight, you'd probably have to redo some of this

[43:12] stuff, which isn't the end of the world, but we would.

[43:15] The attorney that's drafted this and all they're out in Duluth and

[43:20] they're not close by, but they're paid to act in your interest in drafting

[43:24] these documents. I'm here to act in your interest and

[43:27] tell you whether or not it's a good deal and I would say this is as fair as it

[43:32] gets. And so, I think it's more along the lines of

[43:37] mayor uh

[43:38] if you think you're going to proceed with the project,

[43:41] it's probably most efficient to act tonight, but if you're not sure if

[43:45] you're going to proceed with all this stuff and you need more time to talk

[43:48] about it, I respect that completely. So, it's up to you guys.

[43:53] » Pretty well spelled out, isn't it? Pretty well spelled out. I mean, you

[43:56] know, I think you've covered everything very well for us, you

[44:00] » I try to cover any question you have as best I can. So,

[44:08] and I'm not here to push you into a project either, so that's not my deal.

[44:11] » Well, projects, some of them need to be done,

[44:15] so. >> Yeah, yeah, that's pushing it on its

[44:17] own, so. >> Understood.

[44:19] » Yeah, we're just giving you the keys. >> Look out the window and see that reminds

[44:23] you that it needs to be. So, do we have to have two

[44:27] motions tonight, one for the loan agreement or the resolution or just the

[44:31] resolution? >> Resolution handles everything else.

[44:33] » Okay. All right. So, would somebody like to make the

[44:36] motion to approve resolution 2026-07?

[44:43] » I will make that the motion. >> Someone to second?

[44:47] » I will second the motion. >> favor?

[44:49] » I. >> Motion carried.

[44:53] All right. Probably want some of these signed

[44:56] tonight, too, then, buddy? >> Actually, you're going to get signature

[44:59] packet from Freiberger. >> Yep.

[45:01] » And so, I don't need to pick any. >> Oh, okay.

[45:04] » So. >> All right.

[45:07] » And next important date

[45:11] back over there. Uh

[45:18] We have the closing date, uh

[45:23] » It's September 1st. >> Yeah, that's what I think. It's better

[45:25] when I see the statement in black and white there. Verified.

[45:28] » The one I have is September 1st, and so closing is when funds are transferred to

[45:33] the city either by check or by wire. And uh

[45:38] the only thing that happens between now and then is signature pages. If you

[45:42] change your mind and you didn't want to close,

[45:44] uh you can call and say we're not going to close. And uh

[45:48] we don't close, so. We just want you to understand that.

[45:52] Uh we've made people aware if you

[45:55] right up to the closing date, you can choose not to do something, so

[45:59] So, that's on your side, and if you have questions in the meantime, I'm

[46:02] available. So.

[46:10] » So with our our finances [clears throat]

[46:12] being in pretty good order, I think you said the other guy was paying 4.7 and

[46:16] we're paying 4.1. And we got over over a half percent off.

[46:23] That helps. >> Yeah.

[46:25] » All helps. >> It does.

[46:26] » That's

[46:29] » Means more is going in the ground versus going out to banks and

[46:32] » Yeah, right. Yeah. [laughter]

[46:36] » Which is good.

[46:42] » Well.

[46:45] I think I got it explained good enough for everybody.

[46:47] » Yeah, I don't think I could explain it to everybody else.

[46:50] » Yeah. Yeah, I know I didn't. >> It's uh just that the water rates are

[46:53] going to have to go up because >> Yeah.

[46:56] » we're we're dealing with an aging system and an aging treatment plant and uh

[47:02] a very old well and a not so new well other well. So.

[47:06] Um And there's there's steps to

[47:11] everything to improve or to >> Yeah.

[47:17] » All right. Well, I guess that should do it then.

[47:20] Thank you very much. >> Good luck.

[47:22] » All right. Would you like these extra copies I

[47:25] brought along? >> Um yeah, if you want, I'll put them

[47:27] » Sure. >> Just in case the other council wants

[47:29] them or I'll put them in. But thank you. >> You're welcome.

[47:33] » That wrap your brain around all these numbers.

[47:36] » [laughter] >> I know.

[47:39] I I hope I make it clear enough in writing.

[47:42] » Yeah. >> It's in there.

[47:44] You know, jog your memory when you need to, but if it's not, just call. I'm

[47:48] happy to help. >> Yeah, as it sinks in, I may have more

[47:51] questions, too. So. >> Yeah.

[47:54] I think my email's on there as well. So. >> Mhm.

[47:57] Happy to answer questions. >> So, that's good.

[48:00] All right. Thank you. >> Thank you.

[48:02] » Thank you.

[48:22] You want me to comment? Anything? Um we supposed to just look at this or

[48:32] » That I don't know.

[48:35] I'm not sure what that is, so we can discuss that as a part of your packet.

[48:39] So, >> You see it there?

[48:43] I don't know why it's not in here. >> Oh, because I put packets together today

[48:46] and I evidently did not pick that up. It's all Everything is in your packet. I

[48:52] was putting packets together for Monday, so that must have I must have left that

[48:55] laying there. >> Okay. So, sorry about that. All right.

[48:58] » That's my fault. >> This side

[49:01] Resolution 2026-06 is dated Monday, so it's in that for

[49:05] Monday's meeting. >> Yeah, I put it in here, but I'm thinking

[49:07] we need to I'm not even sure if we actually have to. Okay, so the one I

[49:11] have cuz I corrected the date because this came with the packet. I created

[49:15] this one cuz I wasn't sure if we needed to have a resolution for that policy.

[49:18] Normally when we when we approve a policy, we do a

[49:21] resolution with it as well. >> Okay.

[49:23] » So, the one I have is dated for today. >> Okay, this one is

[49:27] » That one's dated because that yeah, I had put it in there, but I changed the

[49:30] date on it. But if we could get that today, then we can just tie it with

[49:33] everything else. >> Do you have the same one I have?

[49:38] » Resolution 2026-06 for today, May 5th or August 5th, sorry.

[49:44] » So, this is just for the

[49:48] » the pre and post compliance, that policy, yep.

[49:51] » Compliance with what we just went over. >> Correct. That's what I thought.

[49:54] » I'll make a motion to approve resolution 2026-06.

[50:00] » I'll move to second. >> Yeah, it's a short one, page one.

[50:04] » That one >> All in favor? Motion passed.

[50:07] » [clears throat]

[50:10] » All in favor? >> Aye.

[50:12] » That's right.

[50:17] » I'm going to second that. >> I can second that.

[50:20] » All in favor? >> Aye.

[50:22] » Motion carried. All right, nothing else, no community

[50:26] comment. Make a motion to adjourn. >> I'll make a motion to adjourn.

[50:31] » I'll move to second. >> I'll second that.

[50:33] » All in favor? >> Aye.

[50:34] » All those motion carried. Thanks everybody.

August 5, 2026 Special Council Meeting

Transcript