Funding switch could increase pace of Kingsport annexations

Matthew Lane • Mar 5, 2007 at 11:21 AM

KINGSPORT - A choice in how the city plans to pay for nearly $20 million in improvements to its wastewater treatment plant could mean some annexations in the Rock Springs community take place sooner than expected.

Over the next three to four years, Kingsport is planning to perform around $20 million in renovations and improvements to the city's wastewater treatment plant. The work is being done to bring the plant into compliance with the U.S. Clean Water Act.

The plant has been in violation of the CWA in two ways during recent years - a majority being "technical" violations where the effluent (liquid waste) leaving the plant had not gone through every treatment process, even though the discharge at the river met CWA limits. A minority of the violations were when organic material was not adequately removed from the effluent.

After this discovery, Kingsport entered into an agreement with TDEC to address the problems with the work involving three major areas - plant hydraulics ($9 million), final clarifiers ($6.5 million) and sludge digestion ($2.5 million).

Since this work came to light last year, the city chose to push back some annexations in the Rock Springs community from 2008 to 2010 in order to have funds available in the sewer fund to cover the payments on a $20 million bond issue.

However, instead of going to the bond market, the city instead has applied to TDEC for a State Revolving Loan to cover the cost of improvements at the sewer plant.

"It's like a construction loan. As you borrow money, then that money becomes your liability," said Public Works Director Ryan McReynolds. "(With) a bond you receive the full amount up front. This we're able to stagger receiving the money over the life of the project, and we don't have to start paying back the principal of the money until 90 percent of the project is done."

McReynolds estimates 90 percent of the work would be done by 2010. At that point, the city would begin repaying the principal on the 20-year SRF loan.

The Board of Mayor and Aldermen has approved the mayor to enter into an agreement with TDEC for the SRF. McReynolds said the city will now go before the loan committee at the state for final approval.

By using the SRF, the city will receive a better interest rate (around 3.1 percent compared to around 4.1 percent on a bond issuance) and have unallocated money that would have normally gone to pay back the bond.

Finance Director Jim Demming said if the city had gone to the bond market, the yearly debt payment on that bond would be $1.8 million to $2 million depending on the length and interest rate. Depending on how much money the city draws down from the SRF, Kingsport could have $1 million to $2 million in unallocated funds over the next couple of years.

Demming said the city would pay interest every month based on the amount actually drawn from the loan.

"When you draw money on that loan, you have to submit invoices, so you've already spent it. It's not like they front you the money."

City Manager John Campbell said the SRF opens up some additional dollars quicker for sewer line extensions, which might make sense for the city to look at other areas in the Rock Springs community to annex in a more timely fashion.

"Some dollars that we planned to spend in the first two or three years, we won't be spending," Campbell said. "So it's available funding that could go to either pay something in cash or another bond issue."

Kingsport Planner Forrest Koder said the neighborhoods of Peppertree, Stonetree and Hidden Acres were pushed back from 2008 to 2010 and 2011 on the city's five-year annexation plan because of the expected work at the sewer plant.

"If the powers that be come back to us and say ‘we want to you to start looking at those subdivisions,' we'd pull out the areas that would be next and send those to public works and get cost figures," Koder said.

Campbell said he thinks there's a good chance the city will move some things up on the annexation list.

"Certainly we know of one area out there that has a number of failing septic tanks," he said. "Peppertree, Stonetree, Hidden Acres - I think they could (be bumped up)."

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