[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.