TAWAS CITY – The amount of debt will be contingent on project bid results, but the Tawas Utilities Authority (TUA) is looking at upwards of a $17 million bond to rehabilitate the wastewater treatment plant (WWTP) which services Tawas City, East Tawas and a portion of Baldwin Township.
As reported, there will be sewer rate increases as a result, but the plant upgrades cannot be put off. According to the Michigan Department of Environment, Great Lakes and Energy (EGLE), most of the facility’s assets are past their useful design life and are beginning to fail, resulting in consistent violations – 11 of the last 20 quarters – of the TUA’s National Pollutant Discharge Elimination System permit.
“We knew this was coming,” said Tawas City Mayor Ken Cook, when discussing the sewer rates at the June 6 council meeting.
Information from EGLE regarding the plant enhancements reads that the TUA is seeking to finance the project with a low-interest Clean Water State Revolving Fund loan. The WWTP is owned and operated by the TUA, with expenses split 50/50 between Tawas City and East Tawas. Baldwin Township is a wholesale customer, and revenues from this municipality cover about eight percent of the TUA’s operating expenses.
EGLE notes that Baldwin Township will determine the rate impact to its residential wastewater collection system customers.
In Tawas City, the council has taken a middle-of-the-road approach and settled on an increase of $12.50 per month. As previously reported, they’ve also been preparing for the WWTP upgrades by implementing smaller annual sewer rate increases since 2016, in anticipation of the project. This way, customers can be eased into it over time, rather than be faced with a large hike all at once.
City Manager Annge Horning told the council that she has been working with Mike Engels, of the Michigan Rural Water Association, on the sewer rate adjustments which will cover the cost of the necessary WWTP improvements.
“Our calculations indicate that we need to increase the monthly ready-to-serve [RTS] fee for a 3⁄4” meter by $25.01 to cover our half of the TUA’s bond payment, with the other meter sizes increasing proportionately based on the ratios determined by the American Water Works Association,” Horning stated. “We will have a better idea of what the actual debt will be once TUA bids the project, so we worked on a worst-case scenario with a $17 million bond.”
If the project comes in lower or if some of the bid alternates are not included, she said that they can and will adjust accordingly. She provided some examples and these are listed below, with the project amount shown first, followed by what the increase would be per month:
A $16 million project; $23.45 a month; $15 million, $21.88; $14 million, $20.32; $13 million, $18.76; $12 million, $17.20; $11 million, $15.63; and $10 million, $14.07.
Horning said that they don’t have to start paying on the bond until the spring of 2024, and this first payment is just the interest. It will be about $90,000, with Tawas City responsible for paying half.
“So my recommendation, and it’s something we’ve been doing all along, is to ease into this so we’re not hitting everybody right upfront with a big increase,” she said. Therefore, she suggested going with a $12.50 per month increase right now, which amounts to $150 more a year for residents, and then adjust this in the future once there is a better idea of what the actual debt will be.
Horning gave council members a spreadsheet illustrating the proposed changes, along with a draft resolution for consideration.
The resolution also includes proposed changes to the RTS fees for fire suppression and water. “These are mostly due to adjustments to the ratios between the different meter sizes that the American Water Works Association uses,” she explained, adding that the increases in both the water and sewer use rates are based on the 2½-percent increase which is scheduled for July 1 of each year.
She said there are some additional changes in the water rates because Michigan Rural Water has different ratios that they use, so if a ¾-inch meter is the standard, then a one-inch meter should be 1.1 times higher than whatever the ¾-inch rate is. The larger sizes are then adjusted proportionately.
“So they’ve had a few changes in what those ratios should be,” Horning said, and the adjustments being made to reflect these new ratios is why some of the water rates will be going down.
Although these same adjustments were done for the sewer side, there will not be any decreases because of the $12.50 fee change. The RTS charges for water won’t change when it comes to ¾-inch meters, “but everything else was adjusted accordingly,” Horning said.
In a couple examples of the decreases, taxed property owners currently paying a monthly RTS fee of $27 for a 1½-inch meter will now pay $19.80, while costs for those with two-inch meters will drop from $43.50 to $31.90.
Going back to the sewer fees, when Horning met with Engels she asked that he do a rate study to help determine what the amounts should be, in relation to the upcoming WWTP projects. Although Engels uses an entirely different method than Horning does when she calculates it, she said that they were only pennies off from each other. This gave reassurance on the process the city manager has been utilizing, and confirmed that things were in line with where they needed to be.
Councilman Mike Russo asked if the sewer rate increases would remain status quo for a year, for example, or whether the council will revisit this once the WWTP bids come in.
Horning said that it’s up to the council. If the bids come back and the project ends up being, say, $12 million, the monthly charge to residents could be lowered. “It can go either way.”
Russo said that they know in this upcoming year there’s going to be an increase. In the second year, which would be the first year of the loan, they’re only paying for interest. So if they are going to adjust, his thought is to do so on the anniversary next year, once they know the actual prices.
“Right. And with this, we know this project isn’t going to happen in a year’s time,” Horning said, giving a reminder that they will only pay on what they draw for the loan. “So we’re not going to be paying back the whole $17 million, or whatever that number is, immediately.” It will increase incrementally through the years when they draw more against that, as the projects are completed. “So, again, we’ll have a much better idea of what this will be when the bids come in in a few months.”
While officials remarked that they hope the project won’t have a $17 million “worst-case scenario” price tag, Mayor Pro Tem Brian McMurray said he likes Horning’s idea of the stair-step approach for this. He moved to adopt the resolution for the water and sewer rates, which passed in a 6-0 vote. Absent was Councilman Chuck Klenow.
Cook said it was a great idea that Horning brought in the Michigan Rural Water Association to confirm the city’s position, which allowed them to make some downward adjustments with the water fees, as well.
Horning also shared comparisons of how Tawas City’s rates line up with others’ in the area, those being East Tawas and the townships of Oscoda, AuSable and Baldwin.
“On the sewer side, with this proposed increase, we’re $1.28 higher than the average in the area. On the water side, we’re $5.89 less than the average for the area,” she said. “And with water and sewer together, we’re $4.61 less than the average.”
As noted by EGLE, the WWTP improvements are to include Supervisor Control and Data Acquisition upgrades; concrete repair and painting; increased sludge storage capacity; rehabilitation of oxidation ditches and secondary clarifiers; anaerobic digestion system rehabilitation; headworks improvements, including new mechanical screens, solids compactor, channel overflow rerouting and grit removal/odor control system; and rehabilitation of the gaseous chlorine treatment system.
The proposed project will take approximately two years to construct, beginning in April 2023 and concluding in April 2025.
As reported, the TUA is looking at a 30-year financing option, where the state will be buying the bonds, and for which the interest rate has been set at 2.125 percent. Bond counsel representative Tom Colis said that this rate is about half of what it would be to sell bonds out to the market.
He also stated that this qualifies for principal forgiveness, at 15 percent of the project cost. So if the work does end up totaling the not-to-exceed bond amount of $17 million, the TUA would borrow about $14,450,000.