Olney sells $13.5 mln in bonds for water plant
The city of Olney sold $13.5 million in revenue bonds on April 4 to fund construction on a replacement of its 100-year-old water treatment plant in a move that city council members said was essential to the city’s long-term growth and water security.
The city’s water rates will not rise initially but the council discussed at a special meeting on April 14 to calculate whether the recently enacted water meter surcharge should be adjusted to cover an additional $2 million in interest caused by a three-month delay in going to market with the bond sale.
A plan to sell general obligation bonds was stymied earlier this year by a small but vocal group of voters who signed a petition rejecting the plan as too costly for low-income water ratepayers. State law requires municipalities to hold a referendum if at least 5 percent of registered voters oppose the sale of general obligation bonds.
Oscar Munoz, who sat on the 12-member finance committee researching the city’s water issues, led the opposition to the new plant.
“What’s messed up is that we went through a legally binding, constitutional system,” said Munoz. “We got all the signatures of all the people who wanted it to stop. They were people from all walks of life in Olney, generally senior citizens and low income citizens. They literally took the constitutional vote away from the people.”
Municipalities are not required to call for elections for general obligation bonds if petitioned, and have several options for financing public works projects.
The bond opponents instead favored renovating the existing concrete structure, which continues to exceed Texas Commission on Environmental Quality standards for water quality despite its age and condition.
An alternative plan to construct two “package plants,” each with 500,000 gallon capacities and a 10-15-year life span, would have cost the city about $9 million.
“It would fix the problem temporarily but we would be in the same position we are today in 10 years,” Rogers said. “So we said the right thing to do is to rebuild the plant with the proven technology but new equipment … that can make it run more efficiently, reduce our maintenance costs and … I hope it lasts another 100 years.”
As the Federal Reserve signaled its intent to raise interest rates multiple times in 2022, the Olney City Council explored other ways to fund a new water treatment plant before the project became unaffordable, said Mayor Rue Rogers.
“We looked at several different ways to fund it. That finance committee’s recommendation was to do general obligation bonds because we can act on it now and it gives us the lowest interest rate,” Rogers said. “Among 11 of the people on the committee, all five council members and numerous people in town, the consensus was, we need to do it now, and you’re never going to be able to do it cheaper than you can today.”
Last month, after examining Olney’s financial position and questioning city officials, the Standard & Poor rating agency issued the city an A-minus bond rating – a cut above the triple-B rating required to sell the revenue bonds, Rogers said. The city partnered with public finance firm Government Capital Securities of Southlake, Texas, to sell the bonds at a 3.565 percent interest rate on April 4. The bonds were fully funded on April 13.
The rate is higher than the 2.4 percent interest rate contemplated in the general obligation bond plan, and the city must now make up the $2 million difference in interest payments over the 30-year term of the revenue bonds, Rogers told the council at the April 14 meeting. The city’s monthly payments of interest and principal will fluctuate between $758,427.36 and $763,325, according to the amortization schedule.
The council also approved a contract with Wichita Falls civil engineering firm Corlett Probst & Boyd to design the new plant. Construction of the new facility will take two to three years and will not disrupt normal operations, Rogers said.