When it comes to Cartersville's water infrastructure, Mayor Matt Santini knows the city has some issues.
"We have some areas of our system that are aged and need to be upgraded," he said. "We have some 100-year-old pipes out there."
The political challenge, of course, is finding the best way to pay for those infrastructure investments. In April, the city council approved a measure authorizing a new "master bond ordinance," which City of Cartersville Water Department Director Bob Jones said is essential to keep the municipality "in better shape for any future issue we may need to undertake to keep the system up."
While the numbers aren't official quite yet, Jones said the city is on the verge of borrowing about $56.5 million as part of its 2018 water and sewer revenue bonds series.
"That will be repaid over a period of approximately 30 years," he said. "We really don't know what the total costs will be ... a lot of the real, final numbers on the total cost and what the rate will be, those types of things, will be determined over the next couple of days."
That repayment, Jones said, will come exclusively from department revenue such as water and sewer sales.
"The bonds themselves will be a public issue, so they will go onto the bond market and be sold as investments to absolutely anyone in the country who would like to invest in our issue," he added.
Proceeds from the 2018 series will also be used to refund about $6 million borrowed during the 2012 bonds series.
"You occasionally do this when interest rates are favorable, just like refinancing your house," he said. "In this case, the interest rate is not really the prime motivator for refunding and retiring those 2012 bonds ... we're at a point where there is very little debt in the water department currently, and in retiring that 2012 debt, we're able to implement a completely new and modern bond ordinance that is more in tune with what the market wants now, and we could not do that, provided we had outstanding debts."
Jones admits the new bond ordinance is extremely complex — "There are a lot of nuances in that thing that even I don't understand," he said. But basically, he said the ordinance lays out the terms for those who are looking to purchase Cartersville's debts, quantifying the risks and giving them assurances for repayment.
"It essentially places 2018 debt as senior securities, so they would be repaid if there were some problem before other debts would be — the future debt would be issued as subordinate to the 2018 bond," he said.
The ordinance also establishes different accounts for funding, including a debt reserve account and a hedge fund account.
According to a plan of finance memorandum prepared by Raymond James Financial, debt services for the 2018 series will be "wrapped" around the city's 2013 Cartersville Building Authority revenue bonds series — which, despite being paid by the city's water sewer enterprise fund, is not secured by system revenue.
Long story short, that means that when existing debt is outstanding, fewer 2018 series bonds will be sold.
"We use the 'wraparound' feature to levelize our debt service payment, to keep the peaks and valleys out of it," Jones said. "We do so to essentially take pressure off rates so that we don't have these sharp increases. We like to apply a steady, smaller rate increase over time ... [companies] would rather see incremental, more frequent and smaller rate increases than maybe taking a multi-year holiday in rate increases and then you clobber somebody with a 15 percent rate increase or something like that."
The bonds are expected to finance several projects, including some that are not only already underway in the city, but some that are already completed — such as the pump replacement project for the High Service Pump No. 1 building, which wrapped up in February.
That revenue stream is also expected to pay off the ongoing repairs at the High Service Pump No. 2 building.
"The building's had some foundation problems," Jones said. "We needed to get it fixed and we didn't want to wait until the bond proceeds are available to start, so we're financing that out of reserve funds, which will be refunded by the bonds."
Far and away the biggest ticket item, however, are plans to upgrade the city's wastewater plant. Jones said the "talking number" for that project is $33 million — about 60 percent of the money the city anticipates borrowing via the 2018 bonds series.
"Those [upgrades] are being driven by more stringent environmental regulations from the state, specifically, the plant will be required to remove nitrogen and phosphorous from the waste stream," he said. "Designed in the late '60s/early '70s, when the plant was originally built, that was never a consideration, so the plant is not designed to do that and it doesn't. In that regard, we're essentially building a new plant within the current plant we have."
Even if it wasn't an unfunded mandate, Santini said the investment is still a smart one for the city in the long haul.
"The long term implication is when we get the new water treatment plant in place," he said. "This provides for the next 30, 40 years or so that we're going to have a facility in place that can handle the growth and have the capacity to be able to serve our growing community."
So how will these projects affect water utilities costs for city customers?
Santini said the city has consistently implemented rate increases in the 4 percent to 4.5 percent range each year — which he said was much preferable to going six or seven years with no increases, only for customers to have a 30 percent to 35 percent utility hike sneak up on them.
"Nobody likes increases — I pay the same thing for water everybody else does," Santini said. "But we're still proving a very competitive rate for our water and our structure is set that we'd rather give small adjustments upward along the way than hit somebody with a tremendous increase."
Jones said the city has no plans to "shock" water rates.
"We're going to address critical projects that need to be done, and hopefully, we're going to keep ourselves out of that management scenario you've seen played out time and time again, typically in larger municipalities, where you defer and delay and put off and get yourself in a situation where you just have to throw tremendous amounts of money at the problem in order to pacify regulators and keep the system held together," he said.
Under the 2018 bonds series, Jones said he expects annual debt service payments to dip. Pending the market doesn't take a wild turn over the next 12 months, he said he anticipates the annual payments, with the borrowed funding, to decrease from $3.8 million to $3.5 million next year.
"To me, that's the biggest selling point on borrowing that money now," he said. "It's never going to be cheaper to address these things than right now ... we know they need to be done [and] we know that we can afford it."
Jones said he anticipates the closing of the 2018 series bonds to take place in late June. The payoff of the 2012 bonds, totaling $6.62 million, is tentatively scheduled for July 2.
"That's when the money will be in hand and when the refunding will take place," he said. "And the balance of the funds go into a construction projects account, from which the suite of projects will actually be paid for and funded going forward."