The Lake Elmo city council narrowly moved forward on the Lake Elmo Avenue Trunk Water Main project despite concerns over project funding. In order to remain on schedule, the city will advertise for bids from contractors to complete the project in November 2014.
The cost of the two-and-a-half-mile water main project that runs alongside Lake Elmo Avenue from 30th Street North to the future Fifth Street North is estimated to be $2,894,000, and will be paid through a combination of special assessments and the city’s Water Assessment Fund. The city’s share of the cost — $2,691,000 from the water assessment funds — will come from issuing bonds and bond payments from collection of water availability and water connection (WAC) fees.
“We need to stay under $10 million in our borrowing, in order to stay bank qualified for bonding,” City Administrator Dean Zuleger said.
In order to secure the ability to complete bond payments, Zuleger has worked with interested developers and residents in obtaining lines of credit and WAC fees.
“We have funding for 55 percent of the project,” Zuleger said. “That will fund the bond payments for six to seven years.”
While the city council met on April 15 to approve the bidding process, the finance committee will not meet until April 18, and it left some council members concerned about the financial health of the project.
Councilmember Anne Smith made a motion to deny the resolution to seek bids.
“I don’t have the information I need to go forward,” Smith said.
Her motion did not receive a second, but she was not only in her concerns.
“I’m going to second the motion to go forward with the project, but my concerns are the same as Councilmember Smith,” Councilmember Justin Bloyer said. “I need more information. I need to be able to digest this.”
Bloyer also remarked that council members have not completed their discussion on the lateral benefit assessments to homeowners along the watermain that would receive an increased value in their home due to the new infrastructure. Following the assessment policy and recent assessment practices for similar projects, the city council is considering levying a lateral benefit assessment of $5,800 to each of the existing housing units that are provided a water service stub. In accordance with the 2013 City Fee Schedule, the city charges a $5,800 lateral benefit charge to any property connecting to the city water system that has not been assessed for a water main lateral. The council has also been presented with the option to impose a $2,900 assessment at the time of the project, and defer the remaining $2,900 until the time of connection. This option would lessen the financial impact on a homeowner who does not intend to connect to the municipal water supply but would receive the home value benefit of the water supply. The type of special assessment will affect the amount required from the city’s share.
“What it comes down to is, by April 30, the finance committee needs to have its act together and have its cash flow analysis done,” Councilmember Wally Nelson said. “That’s what we really need to do. We need those cash flows.”
If the project is to be completed, there needs to be enough cash in the city’s Water Assessment Fund to manage the debt the city will incur with this project.
“My opinion is that we move forward now, and we can say no later if we find that we don’t have the right cash flow,” Nelson said.
The approval for the advertisement for bids is not a commitment by the city to complete the project.
“Why would we move forward approving plans and specs if we don’t have the financial information we are asking for?” Smith asked. “Why not postpone the vote until after the finance committee meeting? Isn’t that a better way to do it?”
City engineer Jack Griffin said a delay in the bid process could cause the project to not be completed this year.
“With a three week wait until the next meeting, it would put awarding the bids in June,” Griffin said. “You would end up pushing the contractor to finish.”
Griffin told the council that they could take in bids and then vote to stop the project, but there’s a downside to that.
“Contractors put a lot of time and money into completing a bid,” he said. “You could, not award a project, but if you get in the habit of doing it, a contractor can choose not to pursue bids from you in the future.”
Lake Elmo has not withdrawn a construction bid in the past.
“It feels like we are pulling the trigger before we have our finances in line, and I don’t think that is fair to contractors,” Smith said.
“We have talked to residents, and a fair amount are excited for the project,” Mayor Mike Pearson. “Some are not so much. Mr. Zuleger and I have met with developers looking for water, and frankly, the only thing we are missing is information for the finance committee. We have been doing our homework, I think aggressively doing our homework. I think it is an anomaly to secure the kind of money that we have. Talking in six to seven years of funding sources, I don’t think this is reckless at all.”
The council voted 3-2, with Smith and Bloyer in dissent, to advertise for bids.
“We haven’t dealt with the lateral benefit charges,” Bloyer said. “We should have finished that six months ago. It feels like we are under the gun, and we just need to keep the ball rolling.”
The council agreed to discuss the lateral benefit charges at a future meeting.
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