SENDD - Louisville Municipal Water System Upgrades

SOUTHEAST NEBRASKA DEVELOPMENT DISTRICT
2631 "O" Street
Lincoln, Nebraska 68510-1398
Telephone: (402) 475-2560
FAX: (402) 475-2794

RE: Louisville Municipal Water System Upgrades

Dear Mayor and City Council members:

At the request of the Louisville City Clerk, I am pleased to present a fact sheet that summarizes information pertaining to financing of municipal water system upgrades. I typically prepare these fact sheets so that Village Boards/City Councils can understand what potential funding sources look for in terms of "reasonable" user rates, borrowing capacity and general assumptions.

Based upon information that I obtained from the City Clerk, the City's current use and water user rates are insufficient to make the City eligible for "outside" financial assistance for water system upgrades (see calculations below). According to my calculations, the City of Louisville would need to raise their water rates to an average of $28.65/month/user (or an annual revenue total of $177,744) before any grant funds would "kick in". Again, this is an average; a graduated rate for higher users may be considered to offset the cost for lower users.

This "reasonable rate" would allow the City to issue/repay a water system improvement bonds, pay for operation and maintenance (O&M) costs, and establish a Water System reserve account.

Assuming the City would raise their water user rate to $28.65/month/user, the City would then become eligible for $1,849,827 in "outside" financial assistance, including $1,129,905 in grant funds. The balance, $719,922, would be a low-interest loan (5,2% for 20 years) to the City.

To reiterate, the City of Louisville must borrow $719,922 for water system improvements, before becoming eligible for grant funds. Therefore, if total project cost was $800,00, the City would receive only $80,078 in grant funds ($800,000 - $719,922 = $80,078). However, if the total project cost was $1,500,000, the city would be eligible for up to $780,078 in grant funds. In either case, the City would need to borrow the full $719,922.

I trust that this information clarifies the policy position of federal and state funding sources. Please feel free to contact me if you have any questions regarding this information. I look forward to working with the City on this vital community betterment project.

Sincerely,

Terry M. Meler
Community development

Louisville, Nebraska
Water System Improvement

Definitions:
Median Household Income:	$25,000
"Reasonable" User Rate:	11/3 % of the Median Household Income
Louisville's "Reasonable" Annual User Rate:	$343.75 ($25,000 X 11/3 % = $343.75)
Louisville's "Reasonable" Monthly User Rate:	$28.65 ($343.75 / 12 = $28.65)
Approximately Number of Water Users:	517

Assumptions:

1. Since the City has no indebtedness against the municipal water system, the City could use the entire monthly user rate ($28.65) to issue/repay a water system improvement bond through U.S.D.A. Rural Development, pay for Operation and Maintenance (O&M) costs, and establish a Water System reserve account;

2. Bond interest rate of 5.2% for 20 years; and

3. 517 Users.

Breakdown:

Monthly Operation & maintenance Costs per User:        $18.23
Monthly Principal & Interest Cost per User:                      $ 9.47
Monthly Reserve per User:                                                 $ 0.95
Total Monthly Cost per User:                                        $28.65

Financing:

Interest Rate:                 5.2%
Term:                              20 Years
Annual Payments:       $58,752 ($9.47 X 517 Users X 12 Months per year = $58,752)
Debt Capacity:            $719,922

In short, before "outside" resources could "kick in", the City would have to raise their water user rates to a "reasonable" level, or $28.65. This user rate would enable the City to retire a water revenue bond in amount of $719,922 (assuming a 5.2% interest rate for 20 years), pay for monthly operation and maintenance of the system and establish a reserve account.

by raising a water user rates to $28.65/month/user (average), the City would be eligible for an estimated $879,905 in grant fund through U.S.D.A. Rural Development, and an additional $250,000 grant funds through the Community Development Block Grant Program. Therefore, the City could leverage $719,922 in low-interest loan funds, into $1,129,905 in grant funds.

Utilizing the aforementioned assumptions, the maximum amount of financial assistance that could be provided to the City of Louisville for Water System upgrades is $1,849,827.