County, users want best possible dealBy Steve Estes
Property owners in both the inner and outer service areas of the proposed Cudjoe Regional Wastewater system have some pointed questions for county officials on financing issues for the system development fees.
Property owners included in the inner service area of Upper Sugarloaf, Cudjoe and Summerland Key were assessed their first yearly installment of the development fees on the tax bills that came from the county this year. And just over 18 percent of the folks in that proposed service area have already prepaid their fees of $4,500 per EDU.
That being the case, why does the county still base its financing on $40 million for the entire Cudjoe Regional system, when it will only have to borrow $36 million for the revenue estimated from that source?
Bill Hunter, public policy chairman of the Sugarloaf Shores Property Owners Association, questions that thought process as well as why the number seems to be stuck on something approaching $40 million.
The county has as yet borrowed no money for the Cudjoe Regional, meaning there has been no interest to pay. The amortized payment is estimated to be $402 per year per EDU (equivalent dwelling unit) and that includes an interest payment yearly based on five percent of the total borrowed.
“It stands to reason if we borrow less, the interest payment is less, and the yearly assessment drops accordingly,” said Hunter.
He is also concerned that the county plans to charge residents the estimated revenue from assessment fees instead of the actual revenue from those fees.
Officials levied the $4,500 per EDU charge as part of a three-phase financing plan. The total amount to be financed has been set at $146 million, and the assessments were to contribute just under $40 million of that total.
But that’s probably not a true number, says Hunter. The original estimates were based on 8,800 EDUs. Commercial appeals have already decreased that number, and officials are only planning on using a 95 percent total anyway, bringing the revenue estimate below the original by at least five percent.
“If we were to borrow from a cheaper source, and borrow the actual number, the yearly assessment could be brought down and make it easier on the property owners,” said Hunter.
The difference, he suggests, can be made up with higher-rate borrowing paid for by the infrastructure sales tax extension that voters approved in November. “It would just mean an extra half-year or so of sales tax money on the back end.”
And why, questions Jan Diamondstone, who is located in the outer island service area of Lower Sugarloaf, Ramrod, the Torches and Big Pine, is the county anticipating five percent interest for the assessment financing, when all the money it needs in bridge loans backed by the assessment fees can be, she’s told, borrowed from the state’s revolving loan fund over the next three years at a rate of less than three percent interest.
While financing plans right now claim five percent interest for the fee paybacks, the actual rate is closer to 6.3 percent, says Diamondstone, by the time administrative fees, loan origination fees, consultant fees, staff oversight fees and all other manner of fees are tacked on.
And with the state revolving loan fund lending at less than three percent, her question is why the county can’t secure that money to cover the assessment fees, and use higher-rate money to cover the bonds that will eventually have to be issued to cover the shortfall.
The county has $20 million in unspent sales tax money in the bank it plans to use for the Cudjoe Regional system, has secured $30 million in a state grant, and has begun the process of collecting the $40 million from the residents.
Pledging state loan funds backed by the assessments is part of the suite of options that the county is looking at right now, said County Administrator Roman Gastesi.
“We want to put together a final financing package that requires us to pay as little in interest charges as possible. And also charges the residents as little in interest charges as possible,” said Gastesi. “We can get potentially $10 million per entity per year from the state. If we take $10 million and the FKAA takes $10 million, that’s $60 million in low-interest money before the deadline.”
That leaves about $46 to $56 million in higher-rate money that has to be borrowed.
Timing is part of the problem.
The state has given Monroe County a December 31, 2015 deadline to have the all wastewater systems in the Keys at least ready to accept hook ups as soon as they can be arranged.
The sales tax money doesn’t start to flow until the current levy expires in 2018 and nearly all of that money until 2018 is pledged to pay off existing wastewater debt. To free up the money to borrow for Cudjoe Regional, officials have already said they will have to restructure existing debt, either to a longer term or a cheaper rate, to free up the money to pay debt service for the Cudjoe Regional, and have a few bucks left over to start tackling a $30 million backlog in road and bridge projects.
“I don’t know if the county can earmark state revolving loan funds for payback from assessment revenue, but it would make things cheaper on the residents,” said Diamondstone.
The first homes won’t be ready for hook up for the better part of two years. It’s anticipated the construction of the central treatment plant on Blimp Road in Cudjoe Key will take that long, if the project breaks ground in February as has been announced.
“That’s as much as $30 million the county could qualify for from the state loan fund before a single pipe goes in the ground. Give us that break,” she said.
And if the county doesn’t get the money from the state loan fund?
“Then we pay the higher rate. But at least try,” she said.
With the nearly $4 million the county has already collected, or will collect by the close of tax-paying season in May, from assessment fees, the $20 million in existing dollars and the state’s $30 million, due to arrive as long as contracts are signed by March 1, officials will have to borrow very little money to complete the inner island collection system and the plant. Most of the money needed will be to pay for the $76 million outer island collection system.
And those users won’t even have a chance to hook into the system until the mandate deadline is almost upon us.
But they will begin paying assessment fees, estimated at $401 yearly per EDU, in November if they opt for the 20-year amortization, or the entire $4,500 bill if they opt not to finance.
“Borrow the state loan fund money, use it for the inner and plant, pledge the inner island fees for payback, then get a real number on fee revenue for the outer system and borrow that from the state fund in subsequent years,” said Hunter.
“If we are able to secure cheaper financing, we have a decision to make,” Gastesi said. “It is better for us to discount subsequent years in assessments or just lop off a couple of years at the end of the run. We’re not that far along in the process yet, but when we know, we’ll make that decision quickly.”
“We won’t borrow more money than we need from any source,” said Gastesi. “If we can get SRF money we’ll use it backed by the sales tax. We can’t borrow money without a revenue stream to pay it back.”
But using SRF instead of bonds isn’t always the cheapest course, he said.
“Because of some of the rules attached to state loan money, if we get a good deal on the bond market, we’ll take that instead. What ever it takes to make this as cheap as possible on everyone concerned,” said Gastesi.
The county has hired former County Clerk finance guru Kevin Madok to shepherd the financing issues through to completion, he said. “He’s a talented guy and his job is to get us the best deals he can and work the financing plan so the users pay as little in interest as possible.”
The group the two are part of plans to ask these questions to the Board of County Commissioners maybe at the January 16 meeting in Key West, but definitely before the March 1 state deadline arrives.
“We’d feel better if we got some answers. None of us would borrow money at a higher rate than we have to. If the rate is lower, more people would probably choose the 20-year option,” said Diamondstone. “If the rate is higher, more might opt for single payment. It’s those choices we need to be making for ourselves.”