The Palm Coast City Council on Tuesday got its first broad look at the city’s next-largest utility expansion–a $20 million project that will add 2 million gallons a day of capacity to its second sewer plant on U.S. 1, known as Wastewater Treatment Plant Number 2. (The pun appears unintended, at least by the city).
The plant just south of Matanzas Woods Parkway services the north and northwest regions of the city. It currently has a capacity of 2 million. It will double to 4 million by the time planned operation begins in three years.
The city plans to borrow the $20 million from a low-interest, state revolving fund to pay for the design and construction of the expansion.
“There will be no increase in existing rates to offset the cost of the expansion, which is what you want to see,” City Manager Matt Morton says. The debt will be serviced through future impact fees, the one-time fees home-buyers and new commercial businesses pay when developing a property, what the utility’s officials prefer to call capacity fees. (Combined water and sewer fees add up to around $9,000 for a single-family home.)
“The debt service will be provided by our future customers,” says Richard Adams, the city’s long-time utility director. “So the idea is growth paying for growth: you go out, borrow money, build the facility, then you have the new residents coming in pay for that facility.”
There are some caveats: future customers will pay for the expansion assuming that the growth the city expects materializes. The timing of a recession or a housing bust could affect those calculations. If, for example, the plant is in construction and past the point of no return, and growth slows, its costs, at least in earlier years of the 20- or 30-year loan, will be borne more substantially by existing customers.
It’s also not a guarantee that the city will get the low-interest loan from the state Department of Environmental Protection–whose loan for a previous utility expansion cost a mere 0.67 percent interest. The city hopes this new loan will cost in the range of around 2 percent. But while the city’s chances of getting the DEP loan are high, should it fail to do so, it would then have to borrow on the open market, at higher interest, and for a longer term. The DEP loan would be for 20 years. The commercial loan would be for 30.
“The risk of not getting the revolving loan is extraordinarily remote but it’s not zero,” Morton said.
Either way, the loan will be added to the city’s existing loans, which at the end of 2018 totaled $187,000. But none of those loans were from the general fund side of the ledger–the side paid for with property taxes. The loans are all from so-called enterprize funds, or funds that are self-supporting, like individual businesses, such as the stormwater fund, and of course the city’s utility, which is a separate operation from the general fund: the utility is operated exclusively through rate-paying customers (who pay $40 million a year or so). It is also the department with the largest debt, with loans and bonds totaling over $160 million.
But the city is also benefiting from a very high rating from Fitch and S&P Global (A+), wich means the city’s debt load is manageable and in good standing.
The expansion is compelled by expected growth. The city’s Waste Water Treatment Plant Number 1 on Utility Drive services the rest of the city. Currently, the combined capacity of the two plants is just under 9 million gallons per day. The city’s 36,000-some sewer customers combine for about 7 million gallons of use, or capacity, each day, the flow cursing from bathrooms and kitchens to pep tanks through 155 pump stations to the two big sewer plants. (Part of the project will redirect sewer flows from the Pine Lakes area to Wastewater Treatment Plant #2, so the older treatment plant can have more capacity to accommodate growth in the more southerly area of town, such as Town Center, where growth is pronounced.)
Based on the city’s calculations, more capacity will be needed by md-2023. Local governments are required to start planning for such capacity well ahead of the time when it would be needed, otherwise the lack of capacity would put a crunch on new development.
“This is the future. We have utility capacity for today,” Morton says. “We’re not even at the 80 percent mark. This is planning the next phase of capacity.”
The council had few questions, suggesting strong support. The documentation of the proposal is below.