Mn Legislature Covenes February 12th

It seems like each year the city of Becker and other communities that host power plants are involved with legislative concerns about taxation. This coming session is no different in that tax rates on utility property is still the concern it was last year. With the governors veto of the tax bill we lost the relief we had worked so hard on to solve our concerns.

So where does this put us? A little history first. The Mn Department of Revenue has implemented a rule change to adjust the way power plants are valued. This change resulted in a decrease of approximately 15% of the taxable property in the city. In implementing this change the rule provided for a phasing of the “loss” in value over a short period of time. A 20% reduction in power plant value was applied for taxes payable in 2008. In 2009 we’ll see the reduction at 50% and with taxes payable in 2010 the entire reduction is implemented. Using the tax rate and values of 2007 this means a loss of about $750,000 in taxes paid to the city by the utilities when fully implemented in 2010. Keep in mind they see a reduction in county and school taxes as well.

A two prong approach was accomplished to address this issue. The first involved a contingency plan to address the possible short fall in tax revenues. The second was legislative relief moving the tax rate on electric generation property from 2.0% to 3.0%. Making that change would negate the rule change to the extend that the loss in value with be picked up by a higher taxable value so essentially the same amount of taxes would be paid.

A bill was drafted in both the Senate and House to address the concerns of lost value on utility property as a result of this rule change. The bill dealt with both electric generation and pipeline taxes. The bills were passed by both groups and made it through to the final tax bill but as said previously was vetoed by the governor primarily for other reasons.

So we’re back working the bills that were developed last session and trying to get some relief from the rule change. This session could go well or not. We have the same group to deal with but we’re one year later. Has the issue changed in peoples minds? Certainly the rate from 2.0% to 3.0% will be an issue. We have already seen a small decrease in value which would be difficult to assume will be made up. You as tax payers in Becker continue to have a job to do in talking with your legislators. They need to address this issue with a helpful change in tax rates for utility property. This issue is very important for the city as well as other utility cities so please take the time to do what you can.

I will address this and the contingency plan in future entries.

Survey

Each year the Becker Chamber of Commerce sponsors the Becker Expo. This event gives the community a chance to get together and showcase businesses and organizations that serve our community. This event is usually attended by a great number of people and has been a success from the start.

The City of Becker has participated in this event annually. Periodically we have done surveys to better understand the views of residents of the community. In the past we have asked about what businesses the community would like to have and be used by the residents. In part this has helped the city establish the clinic, the grocery store, and a fast food establishment. Other entries such as a bowling alley have been listed and will hopefully get accomplished in the coming year.

This year we will again have a city survey. Here too we are no different in asking this question of what businesses are wanted and needed within our community. But we also are interested in knowing some additional information about residents to assist us with Economic Development pursuits. Things like how far do you travel to work, gives us an idea of the work force available within the community. Knowing this may assist us in locating new companies who will create job opportunities within our community.

One area of concern has been that of a Railroad Quiet Zone. What this is is the ability to create a corridor where the train doesn’t have to blow its whistles. Creating a zone requires a formal study of the circumstances concerning individual crossings and analyzing the safety at each. Generally if a quiet zone is to be established certain requirements need to be met. These include cross arms and sometimes median islands or 4 cross arm gates rather than the general practice of 2. The use of whistles greatly improves safety at crossings but some people and businesses feel them a nuisance. Having a better feel from the public about the issue of railroad whistle noise will help us gauge how to think about this issue.

Responses to our survey will be posted on the web site in the near future so when the curiosity of knowing how it comes out strikes you, check it out. Thank you for your participation as our intention is to create a better Becker.

We got them all

In my last entry I discussed the need for another bond to finance the wastewater treatment facility. The additional costs were prompted largely by the additional treatment we’ll be providing on wastewater which produces a cleaner effluent.

In doing a bond sale there are a number of steps involved. Some regard legal requirements and some involve providing the market place with information about the city and its finances. An Official Statement is prepared which is similar to a prospectus for a corporation. This document provides disclosure on the status of the prospective bonds among other things. Things like taxable or tax exempt bonds and bank qualified bonds or not are discussed. These items affect the interest rate that will be offered by bidders of the bond offering.

Another area that affects the interest rate is that of the rating of the bond. This is done by an outside firm to determine the degree of credit risk of the bond. It generally refers to the ability of the issuing agency to repay the bond. The cities finances play into this as well as the tax capacity of the city. The higher the rating, the less the risk and the lower the interest rate bid on the bond. If you have a good rating the interest rate is less than if you have a lower rating. With this issue we were again given a rating of A3 which is a very good rating for a city our size. It is also referred to as investment grade which means that most financial institutions can carry this within their investment portfolio.

Lastly rates are determined by the market, and the implicit timing of the market. The market, as I think we all know, rises and falls with the economy. Generally speaking when stocks are down bonds become more desirable and when stocks are good bonds become less desirable. People generally gravitate to the investment vehicle that provides the best rate of return while preserving the initial investment amounts balancing the risk reward in investing.

In planning for this bond sale we had the opportunity to determine when would be the best time of the year for a sale. We looked at historical trends and felt January would a god time to look for lower interest rates. We scheduled the bond sale to take place on January 15^th. We went to the market expecting 3-4 bids and an estimated aggregate rate of 4.15% on the bonds. It is difficult to know why bidders do what they do but the city received 6 bids on our bonds. The low bid from United Banker’s Bank came in at a true interest cost of 3.565%. This is 58.5 basis points under the estimate. A truly excellent bid! The result of this is an interest savings of roughly $7,000 per year. Not bad!

Sometimes you get lucky. Sometimes you plan effectively. Sometimes the market plays your way. In this instance I think we got them all.

Expensive Infrastructure

Wastewater treatment plants are probably the most expensive items a city deals with. These involve a great deal of equipment and structures to effectively treat wastewater to meet the stringent requirements of Minnesota Pollution Control Agency. These requirements keep our receiving waters clean.

Financing the Becker Wastewater Treatment Facility wasn’t as simple as selling bonds and applying debt service but we did do that as well. The city had taken steps to provide for these types of structures by anticipating some of the costs. We also used other funds that were available for use in lowering the debt necessary to finance the facility.

Outside of debt service the next largest funding source are SAC funds. SAC is short for Sewer Availability Charge. The city uses a system of determining the residential equivalent(s) for each intended use of the sewer system. One household is considered a residential equivalent. Presently the SAC change for a residential equivalent in Becker is set at $4000. This fee is paid at the time a building permit is issued and represents the new homeowners share of the costs for a wastewater treatment facility. $835,000 of SAC funds were used to reduce the amount of debt needed in building the present facility. SAC funds will also be used on an annual basis to write down the levy requirements on the bonds sold to finance the facility.

Other funds were used to lower the bond (loan) amount. Unspent construction funds on an earlier wastewater project were used to provide $243,000 of the project costs. $75,000 of sewer use funds were used. The project provided for the elimination of a lift station and as such some trunk funds were used in the amount of $365,000. A portion of the project involved upgrades of the industrial sewer portion of the plant. The industrial portion of the project upgrade was estimated to cost $1,282,871. Industrial user fees to cover the cost of capital were used to cover this cost. Two other funding sources were taped for an additional $1,000,000. These funds were set aside for future needs.

The remaining costs were bonded for. As we set out to accomplish the project we were faced with the question of tertiary treatment. This is a final cleanup of wastewater to bring the discharge pollutants to a very low level. Making the choice to move ahead with this was a responsible choice for the environment but added about $1.7 million in additional costs. These costs were not initially bonded for so additional debt service will be accomplished with a bond sale on January 15^th. The good news with this is the annual debt service was anticipated and already part of the city levy.

Overall the wastewater treatment facility will serve approximately 3500 residential equivalents of users. Additional expansion to the plant has not been anticipated until 2020, so we will be set for many years to come. With an overall cost of roughly $14.7 million dollars we can’t afford these types of improvements too often.