Council discusses debt repayment options

Tecumseh City Manager Kevin Welch outlined some repayment options that could be pursued for a Waste Water Treatment Tertiary plant upgrade that is being done, complying with new mandates from the Michigan Department of Environmental Quality. Construction is under way on the project, which should be done by summer. The project is being funded by a State of Michigan Revolving Fund Loan, totaling approximately $1,965,000, and with a very low interest rate of 1.67 percent.
Joel Piell, the city’s bond attorney with Miller Canfield, provided a loan payment schedule. Principle and interest payments are due twice a year. The first payment is due April, 2008, with approximately $16,000 absorbed into the normal operating expenses of the Waste Water Fund.

The scheduled debt service is for 20 years and the annual principle and interest payments due to the State of Michigan will range between $113,000 and $118,000 each year. Welch outlined two options to establish a Bond Debt Service Charge to cover the bond payments: a flat debt service charge to each sewer customer, or a calculated annual rate needed to cover the annual bond cost. Each scenario would likely add just under $6 to an average user’s bill.

With the flat fee, which would be similar to the water tower debt that will be paid off this year, a flat charge would be charged quarterly to each customer, based upon the meter size and the percentage of sewer volume used by that type of customer. A flat charge could be calculated either based on volume or upon sales figures. Disadvantages to a flat rate system would include the fact that customers with the same size meter would pay the same amount each quarter regardless of usage, meaning high users would pay the same as low users, and the fact that there could be fluctuating changes to sales volume over the coming years.

With an annual rate to cover the annual bond cost, the city determines the rate per 1,000 sewer units sold (or water sold) needed to cover the cost of the bond each year. The amount would be calculated each year and applied to the sewer bill as a separate charge. Welch noted that for the 2008/2009 budget year, the city would need to set a Bond Debt Service Charge rate of approximately 45 cents per 1,000 gallons of sewer units sold. Customers would pay a different total cost each quarter based upon their individual usage. He said disadvantages included a potential need to change the rate each year due to changes in sales amounts or volumes, and the fact that high volume users would pay more of the cost of the debt.  

City Council members were not asked to make a decision Monday night, however, there were some comments during the Study Session discussion. Council member Larry Van Alstine noted that it seemed “fundamentally unfair” that with a flat rate on the water tower debt, for example, that those who have higher usage pay the same rate as those who use less. “It just does not seem fair,” he said

Council member Jack Baker, however, said he was inclined to favor the flat rate.
“It shouldn’t be a usage issue,” Baker said. “This is an issue required by the government. As far as putting this in place and bringing the plant up to government requirements, I think it’s unfair to the high end user to make that person or company pay more than anyone else. It’s just another side of the coin.”
Mayor Harvey Schmidt said he hadn’t looked at it that way, but that Baker had a good point.

“The difference would be are citizens paying for water with this improvement or are they paying for infrastructure?” He said that Tecumseh property owners were, in a sense, buying a part of the plant. “It’s a different way to look at it,” he said.
Welch said he would like to see something in place by May in order to go out with the July bills but that the council could have a little time to consider the options.
“We’re seeing more fluctuation of the economy,” he said. “We don’t want to collect too much and we don’t want to collect too little.” He said if too much is collected, the monies would go into the fund and the next year could bring lower rates. “But it could also work the opposite way, too.”

The council members asked Welch to look into what other communities do and to explore their rationale for doing so. Welch said he would expect to see it done both ways, since there appears to be no preferred way that other municipalities do it.
During regular council business, the city council members:
• Heard an annual report from Tecumseh Fire Chief Joe Tuckey, who noted that there now are 17 paid on call staff, four part-time staff, and one part-time administrative assistant. The department conducted around 500 Emergency Service runs this past year and 127 fire calls. Tuckey said the department covers approximately 20 square miles in the city and Tecumseh Township, and response time averages eight minutes or less.
• Heard Welch point out that approximately $4,500 would be spent to take care of a water problem at City Hall.
• Approved a special events permit for the Acres of Fun Run as requested by the Tecumseh Acres PTO on April 12.
• Accepted a bid of $11,000 from Stein Electric Company of Manchester to remove and replace some electrical panels and to rewire panels in two city well houses.
• Accepted Goals and Objectives for the city manager, which included a goal of developing a plan to work with Tecumseh Products to address their decision to close the manufacturing operation in Tecumseh through exploring opportunities for reuse of space, among others.