Purdy receives ultimatum from DNR

Wednesday, August 12, 2015

City to rush $4.6 million bond issue to voters Nov. 3

After years of talks and negotiations, the City of Purdy faces one final hurdle to resolving its conflict with the Missouri Department of Revenue (DNR) over its sewer system.

Chris Erisman, the city's engineer with Allgeier, Martin and Associates, announced Monday that the state agency has lined up a grant and loan deal to accompany the city's plan to send its sewage to Monett for treatment.

However, to secure the deal, since money is available on a first-come, first-served basis, the city must act with haste, taking the proposal to the voters as soon as possible. That means calling for a special election on Nov. 3. City officials had hoped the matter could wait until the annual city election in April 2016.

In addition, Erisman said the Environmental Protection Administration (EPA), which controls grant money, has changed the rules for funding. Now, instead of the city seeking voter approval for the leftover amount of the project, after the grant and the loan, EPA is insisting that the city ask voters to authorize a bond issue to cover the entire project. If secondary funding fails to materialize, then the city will have the resources to carry on anyway.

The entire project costs $4.5 million. To cover construction contingencies and interest on the bonds, the city will have to seek authorization for $4.6 million in bonds, whether the city has to sell them or not.

This did not sit well with city officials. Mayor Steve Roden said the city could ask DNR to reconsider its timetable, but would run the risk of losing funding. Failure to act now would also put the city in line for penalties from DNR's enforcement division, which this time was prepared to act.

According to documents provided by Erisman, if the city can meet the requirements, state and federal funds will cover almost the entire cost of the project. Community Development Block Grant (CDBG) money of $500,000 is available, along with a grant from DNR for $3,010,725. DNR is also prepared to loan the city $1,003,575. If the State Revolving Fund (SRF), managed by DNR, accepts management of the city's bond issue, the city would qualify for low interest on its loan of 2.64 percent on its bonds. The SRF also only charges interest on money as it is spent, rather than a conventional bond issue, where the city must pay interest on the entire bond issue from the day of its issuance.

Passage of the bond issue on Nov. 3 provides no guarantee of acceptance for funding. The city must then undergo a financial feasibility study by DNR officials of its qualifications. According to previously declared criteria, to qualify for grants and loans, Purdy must charge its sewer customers in line with national standards.

Under guidelines determined from the federal census, people generally pay 2 percent of their income on sewer service. Since the 2010 census, Purdy officials have gradually raised sewer rates to reach that 2 percent threshold. Right now, the average sewer customer pays $53 a month. To reach the 2 percent requirement, the city will have to raise the average rate to $65 a month, a 23 percent hike, before submitting its application for funding.

To further confuse the situation, city council members did not know if the bond issue they had to request would be a revenue bond or a general obligation bond. A revenue bond would require only a simple majority for passage. A general obligation bond in November on an off-year election would require a four-sevenths majority.

Monett's bond issues accepted by the State Revolving Fund have all been revenue bonds.

The requirement to call a special election would cost the city as well. The city's share of an April election, shared with the school district, generally ran $500. In the last two months, the city council adopted its budget for it's new fiscal year, beginning July 1, without the knowledge of the need for additional revenues.

"This is going to be a tough sell when we don't know what we're selling -- again," Roden said.

DNR's proposal offered funding to the city for building its own mechanical plant to treat its sewage. That package includes $500,000 in a CDBG grant, a $3 million grant and $3 million loan through the U.S. Department of Agriculture's Rural Development program. The loan, and accompanying interest, would run three times the amount of the plan to build a six-mile sewer pipeline to Monett. City council members preferred the Monett option because operational costs would run a fraction of the ongoing expense in personnel and equipment, compared to building a new plant.

Council members authorized drafting of ballot language. The deadline to place a proposal on the Nov. 3 ballot is Aug. 25, giving the city council two weeks to sort out the details. Roden expected calling a community meeting to explain the initiative, and was hopeful that a representative of DNR's enforcement division would attend as well as the city's engineer.

The sewer issue came to the forefront after DNR changed sewer standards when the city's sewer permit came up for renewal in 2009. At that point, the land application system no longer met requirements for reducing nitrogen from the effluent. There have been questions whether the city's system, built in 1991, ever reduced chemical content. Since then, DNR banned expansion of the city's system, effectively shutting down any new construction in town or annexation of outlying subdivisions or trailer parks.

The last time Purdy voters considered a sewer fix in 2010, the main issue was capacity of the lagoon-based system. Voters questioned whether enough effort had gone into reducing inflow and infiltration to justify a multi-million dollar expansion of the system. The $2.5 million bond issue failed by a 53-40 vote.

If the bond issue fails in November, Roden said the city will have to go back to voters in April 2016, without any prospect of still getting state and federal funding. Roden stressed the cost of raising sewer rates to meet the federal 2 percent threshold in itself stretched affordability for this solution to its limits. Without federal and state funding, the city could not afford to undertake the project.

"We're up to the crunch line at nobody's fault," Roden said. "We'll try to educate the public and get the funding. We're kind of up against the wall again."

A special meeting has been scheduled for 6 p.m. Aug. 19 to pass the ordinance containing ballot language for the special election.

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