SPRINGDALE -- The city Water and Sewer Commission is looking at selling roughly $60 million in bonds to complete infrastructure projects important to Springdale. Leadership at Springdale Water Utilities said they can do it without raising rates.
The commission oversees the operations of the utility, which manages the city's water and wastewater systems. The commission met Wednesday, with most members attending via Zoom.
The utility in 2019 created a five-year master plan for developing infrastructure and paying for it at a pace the utility could handle, said Heath Ward, executive director of Springdale Water Utilities.
The utility in 2020 raised rates to help cover those costs. Ward said the utility is in the midst of an 18-month rate study by an outside firm to determine if rates need to be raised and by how much.
Ward said he does not foresee any rate increases until the utility completes its master plan for 2025. But he would like to borrow the bond money while interest rates still are relatively low.
The rapid growth of Northwest Arkansas, however, demonstrates some projects are needed sooner than later, he said, adding that fast-paced growth, inflated construction and supply costs and rising interest rates have him worried.
The utility on Dec. 31 had $61 million in its reserve funds, with $17 million allocated to projects, according to David Coleman of BKD accounting firm in Rogers, which reviewed the utility's annual audit.
This leaves the utility $44 million for infrastructure projects. Unaudited figures provided by the utility show the utility took in $5.4 million in revenue last year.
But the utility also has three vital projects that would empty its reserves: a system to deliver water to the west side of town from the western transmission line in design for Beaver Water District, estimated at $28 million; upgrades to the wastewater treatment plant, $34.7 million; and a main wastewater line along Spring Creek to keep downtown from flooding, estimated at $22 million.
Those estimates are based on 2019 dollars from the long-term plan. Inflation since then will result in higher costs, Ward said.
Crews & Associates along with Stephens Inc. put together a package for commissioners showing the path to the $60 million over 15 years.
After fees and other costs, the utility would put $60,928,071 in its construction account, said Bob Wright with Crews.
With a 2037 payoff, the utility would pay $14,779,800 in interest, which when added to the principle and other costs would raise the total investment to $73,879,800.
Interest earned on the total $60 million at three-eighths of a percent for three years would earn the utility $336,611.
Locking in the interest rate Wednesday, the utility would have paid 2.37% interest on these bonds, Wright said.
The Federal Reserve typically raises interest rates in the face of inflation, and business leaders have that expectation over the next few months, Wright said.
"But unfortunately, these are not normal times," he said. "Covid has left a lasting impact worldwide. Our crystal ball is cloudy."
Wright said he agrees with the commission's decision to borrow while interest rates are low. He noted the 90 days it takes to complete a bond application and sale might find interest rates drastically different than today's.
If that happens, the utility can stop this process, he said.
Ward said there are several paths the utility could take to use the bond money. He said his staff will work to upgrade those 2019 figures and gather more information in the next month, while the bond agents start the paperwork.
"This is a little bubble we need to get over because of the crazy times," Ward said. "The time to borrow money is not when you're out of money."
The utility's good financial position and fiduciary history will earn a top bond rating that will provide more flexibility to the utility leaders' plans, Wright said.
Ward noted the utility might decide to borrow more or less and choose a different payback schedule.
The utility has spent multiple millions from its reserve fund to update infrastructure, which included completing a sewer transmission system on the fast-growing west side of town, adding a sludge dryer at the treatment plant and working with local developers and contractors to improve pumping stations throughout the city.
The commission on Wednesday approved a construction bid to upgrade the Butterfield Coach sewer pumping station on the west side of town. The low bid accepted was from Crossland Heavy Construction of Coleman, Kan., for $3.4 million. The 2019 long-term plan estimated the project at $2 million.