Flagler Beach Approves Millions In New Debt For Sewer Upgrades Without Clear Resident Cost

Like Palm Coast, Flagler Beach is facing a mountain of debt to modernize its sewer and stormwater infrastructure. Unlike Palm Coast, Flagler Beach cannot yet tell its residents what it will cost them to repay the debt. 

Last week, the Flagler Beach City Commission approved the second of three chunks of a roughly $52 million loan to finance a new sewer plant. The commission also approved applying for a $19 million loan for other stormwater and sewer infrastructure improvements (namely, four lift stations). If the commission is approved for the $19 million loan, it may be eligible for forgiveness on half of that. But it would still be left with a total principal debt of over $65 million, not including interest. 

The city will have to make $2.1 million in loan repayments per year, starting with the first semiannual payment by Aug. 15, 2028. The payments will be higher once the city takes out the third chunk of the $52 million loan. The documentation before city commissioners last Thursday did not include the term in years of the loan repayments, nor the interest portion of the repayments. 

$2.1 million a year loan repayments will amount to a shock to a system that generates a total of $6.9 million in ratepayer revenue, according to this year’s budget. One way or another, ratepayers are likely to get an unpleasant jolt that the commission is only making more violent by delaying either more clarity on the burden of loan repayments or, as Palm Coast did, raising rates.

The city doesn’t have much choice. Like Palm Coast, it’s under a consent order by the Florida Department of Environmental Protection to upgrade its wastewater infrastructure. But the city cannot yet tell its residents how its base rates will increase to pay for it all. 

Commissioners hope development impact fees will defray the cost. Impact fees are charged for new water and sewer connections on new homes and businesses, and hundreds of new homes and some businesses are expected in Veranda Bay and Summertown, the two developments on the mainland the city just annexed. But those fees are not paid to the city until a development order is issued to each new structure, and buildout could take 20 years or more. 

The city can use impact fees to repay some of the loan financing the building of the new sewer plant. It cannot use impact fees to repay the $19 million loan–assuming the city takes the loan– that would finance the lift stations and other stormwater improvements. That means residents must pickup the cost. 

“Obviously, this is a lot of money,” Commissioner John Cunningham said of the new loan the commission approved for the sewer plant. 

The city had already received the first $17 million from a state revolving fund. Last Thursday it approved an additional $20 million. “Have we already done a rate study to see how much the cost is going to be to the residents that are going to have to pay all this money back?”

There was a study, Martin said. But it may be outdated. It was based on a much lower estimated cost of the sewer plant reconstruction. In effect, the commission is currently operating in the dark. It is borrowing money that it will have to pay back, but it cannot tell its residents what they will be expected to pay in increased water and sewer fees once the bills come due. 

Palm Coast is starting a five-year, $600 million capital improvement plan to its water and wastewater system. It also took on $582 million in debt. To prepare, the city raised water and sewer rates 31 percent over the next three years. Though the council hopes otherwise, additional rate hikes are more likely than not after that to pay down the debt, especially if the city’s bet on a continued flood of new residents doesn’t pan out. The city was in that situation in 2013, when it had to raise rates to placate bondholders after losing that bet at the time. 

Palm Coast can generally depend on a substantial increase in its population base. The majority of the 25,000 net new residents who moved into the county between 2020 and 2025 moved into Palm Coast. Flagler Beach has not seen a similar surge, though it’s hoping for one from Summertown and Veranda Bay. 

 “My thought would be if we can,” Commissioner James Sherman said, “use as much of those impact fees as possible to help pay down some of this debt before we have to burden the tax base.” But there’s no clarity about the gap between what impact fees could pay for and what ratepayers will be left with. 

“We need to charge more fees to help fund this,” Commissioner R.J. Santore said, referring to impact fees. But the city has essentially maxed out its impact fee capacity for four years. In April 2024, the city approved substantially higher impact fees, adding more than $5,000 to the construction cost of a single-family house. The new rates included a $723 increase in the sewer impact fee, which now totals $3,806. By law, the city cannot raise fees again until after 2028. 

That’s why commissioners had some trepidation when they were presented with the $19 million loan proposal for the lift stations and other improvements–and no guarantees that half the amount would be forgiven, if the city took out the loan. 

“I heard the word assume, and that scares me,” Sherman said. “I’d like some word more like a guarantee here. This isn’t a little bit of money.” 

“This is an application to make us eligible and approved to sign the loan documents, which would then come back to you,” Martin said. At that point the city might get more of a “concrete reassurance” of forgiveness on half the loan. But even then, that’s not certain. 

To Santore, the city had no choice but to try to get the additional loan. “We’re under a consent order from FDEP on some of these,” he said, “and there is a 50 percent loan forgiveness, and this is only at the application stage, so still at a later stage, we can reject this if we wanted to.” 

Commissioners approved both the additional $20 million loan for the sewer plant and applying for the $19 million loan in unanimous votes. There was barely any discernible public comment.