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City of Huntsville Embarks on Large Utility Debt Program

Huntsville taking on $52M in new debt


by Walker County News Today staff

At this week’s regular Tuesday meeting, Huntsville City Council approved an ordinance that provides the umbrella instrument under which an unprecedented amount of future public debt for the City will be issued.

The Ordinance, Number 2018-17, is entitled “Master Ordinance Establishing the City of Huntsville, Texas Utility System Revenue Financing Program” and was passed 8-0 by the nine-member Council, with one member absent.

According to supporting information provided to council by city staff:  “The Master Ordinance will govern the issuance of any bonds or obligations payable from the net revenues of the City’s water and wastewater system. It puts in one place all the major contractual commitments to water and wastewater revenue bond holders. Each series of water and wastewater bonds issued will be pursuant to a supplemental ordinance to the Master Ordinance.”

 

The First Supplemental Ordinance

Council then approved Ordinance 2018-18 which invoked the Master Ordinance and authorized the sale of the “Series 2018 Water and Wastewater System Revenue Bonds.”

According to the ordinance the bonds would be issued in the amount of $52.83 Million (subject to change) and that money would cover the cost of issuing the bonds and paying costs of acquiring, purchasing, constructing, improving, renovating, enlarging or equipping the City’s Utility System including all costs related to:

  • The A. J. Brown Wastewater Treatment Plant
  • The Elkins Lake Dam Lift Station
  • 2MG Elevated Storage Tank
  • New 7,500 GPM Palm Street Pump Station
  • New 4,800 GPM low pressure plane water plant with 2MG ground storage tank
  • Water lines on Montgomery Road, Sycamore Ave., and SH30.

 

The City considers that these projects were approved as part of the $73 Million requested in Ballot Proposition 3 for city utilities approved by the voters in November 2016.

The ordinance also established that the bond principal and interest will be paid back by the City to the bondholders over a period of 25 years.

As part of a presentation at the meeting, Mr. Boyd London of Hilltop Securities, a long-time advisor to the City on financial debt issuances, told council that the bonds were sold on the morning of May 1 after a competitive bid process involving eight investment banks. The winner was Bank of America who submitted the lowest interest rate bid of 3.5362% per annum.

Mr. London also said that the City will receive $46.685 Million for its project accounts when the sale closes in June. The annual debt service payment will be $2.86 Million with a first partial payment in August of this year in the amount of $353,814.

 

Construction Contract for the A. J. Brown Rehabilitation Project

In anticipation of the revenue from the First Series Bond issue, council also approved awarding a proposed $20.8 Million construction contract for the A. J. Brown Wastewater Treatment Plant. This plant is located off of State Highway 19 about a mile north of the city limits. The City has completed the design for the project and conducted a competitive bid for the construction.

The competitive bid winner was Gracon Construction, Inc., a company based in Mesquite, Texas, just east of Dallas. Assuming that the bond funds are available in June of this year, the City estimates project completion by April 2020.

 

Budget Increase to cover unanticipated costs related to Proposition 3

Finally, the Council approved a two-part budget amendment related to the first series bond Issue. One part would use about $75,000 of currently unallocated reserve in this year’s utility budget to pay for unexpected fees to the Bond Rating Agencies (Standard & Poor’s and Fitch) and a filing fee to the State Attorney General’s Office. The other part would allow $353,813 of unallocated reserve to be used to make the August 2018 partial bond principal and interest payment.

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