KENDALLVILLE — With some help from other city boards providing $1 million in tax dollars, Kendallville City Council members are more comfortable with borrowing the remainder to fund a new solar field on the site of the former McCray Refrigerator factory.
The city is now looking at a five-year financing plan that shouldn’t impact local taxes or wastewater fees, meaning residents won’t need to provide anything extra to afford the green energy development.
City council members received an update about possible financing options for the project during their meeting Tuesday evening.
The proposed solar field would take up most of the 11-acre McCray site off Wayne Street, one block west of Main Street, stretching from the west end of the property all the way to Mill Street.
The solar field would include 1,174 tracking panels — the small, reflective blue-colored glass that sits on the arrays — and 2,702 fixed panels for a total power generation of approximately 1.55 megawatts.
The project is expected to cost about $2.35 million to build.
The power generated by the solar field would help to reduce annual operating costs at the wastewater plant by a significant margin.
Currently the city is spending about $216,500 per year on electricity at the plant, but the expectation is that a solar field could reduce that by about 82% to around $38,000 per year.
The city estimates it could generate approximate $6.7 million in savings over the first 30 years of use at the solar field.
The total cost of the project was originally estimated at slightly over $2.4 million with bonding costs taken into account, but the city recently received some commitment of $500,000 each from the Kendallville Local Development Corp. from Economic Development Income Tax funds and from the Kendallville Redevelopment Commission, from its tax increment financing dollars.
With the cost of the project now down to about $1.4 million, Eric Walsh of financial consultant Baker Tilly said Kendallville had two possible funding options available to it — either a typical bond or a specialized short-term bond-anticipation note.
The bond anticipation note is a financing option up to five years in which the city basically says it will borrow now with the intention of taking out a bond for repayment in the future.
However, if the city is able to pay off that anticipation note before it’s expiration, it doesn’t actually have to take out a larger bond in the future.
Bond anticipation notes are capped at five years, but Walsh said that even if the city needs slightly longer, it can re-borrow at the five-year mark with another note to get to the time frame it needs.
With approximately $1.4 million needed, Walsh said the city would want more of a seven- or eight-year payback period.
“If you’re targeting the seven, eight years, you could do it for five years then roll it over for two to three years,” Walsh said.
Council members asked whether the city could utilize its general fund money to pay off the loan at the end if needed instead of extending another loan, to which Walsh said the city probably could.
Bond anticipation notes also have some speed and cost advantages over typical bonding, Walsh explained.
First, the notes don’t need to be competitively bid on the market, although they can be if the city so chooses. That can allow the city to either work directly with a lender they want or quote or bid from local institutions instead of putting it out to statewide and national lenders. Bidding competitively generally results in the best interest rate, but staying local can help support area institutions.
Interest rates are currently running at 2% or even lower for municipal bonding, so Kendallville is likely to incur low borrowing expenses over the term. That rate would be locked it at the time of signing for five years, so even if interest rates rise in the near future, the city would enjoy the lower rate.
“You also may want to check with some regional or state banks to see what’s out there. Rates are historically low so you’re probably going to get a good deal wherever you go,” Walsh said. “If you want to bid it competitively, you can, but it’s not required.”
Bond anticipation notes also don’t incur other preparation and legal costs associated with longer-term, tax-backed borrowing, so the city saves on those ancillary expenses, too.
The note can also be structured however the city likes, Walsh explained. For example, if the city wants to make interest-only payments in the first few years during construction and early operation of the solar field, it can set up a large balloon payment at the end of the term.
The city anticipates it will be able to cover the cost of the loan from current wastewater department revenue and won’t need to raise taxes or raise sewer fees in order to afford the project.
City council members were encouraged by the updated financing information and opted to press ahead with pursuing the bond anticipation note.
“When we first started this project, (Councilwoman Amy Ballard) and I and the mayor listened to what you had to say, at that time we were looking at $2.4 million. I did not want to see another bond issue to the city on top of the $8M bond issue that we presently have at the wastewater treatment plant,” Council President Jim Dazey said. “With the generosity of the KLDC and the RDC, I think it makes it very possible to do this through a bond anticipation note and paying it off in five years. I’d like to pay it off in five.”
Councilman Regan Ford questioned whether the wastewater department could afford both loan payments and still have money needed for some upgrades around the plant to address some recent issues with sewage treatment.
Dazey and Mayor Suzanne Handshoe both said that, with the help of an engineering firm, the recent issues have been addressed short-term and permanent fixes should not be too costly.
That satisfied Ford, who also agreed that the city should seek the five-year note and aim to pay it off in that time frame.
“I like the influx of new money into this project,” Ford said. “That makes me feel comfortable. If we can get it done and paid off in five years plus take care of any other issues at the wastewater plant, I’d be thrilled,” Ford said.
The council voted 4-0 to advance with securing financing for the project. Councilman Steve Clouse resigned from the council earlier in the day and was not present at the meeting.
Walsh said the process could take 45-60 days to complete at the quickest. A bond ordinance will still need to be drafted even though the city may not ultimately end up bonding. A public hearing isn’t required and the council could opt to suspend its rules and approve the bond ordinance in one sitting, if it chooses.
Since the project will be secured with wastewater funds, the city must allow a 21-day objection period to the project, even though the loan won’t impact sewer rates.