1/19/2010 8:49:00 PM
Advisor praises city financial management
Compliments heard at last week’s meeting
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by Richard Clark
GALENA-In the process of refinancing the cost of building the city's present wastewater treatment plant, the Galena City Council heard some very nice things about Galena's financial planning and management from an outside source.
As Galena City Administrator Mark Moran has explained, a couple of assumptions made in setting up the original repayment plan turned out to be over-optimistic. It was assumed that revenues, mostly from the monthly payments by Galena citizens to the Sewer Department fund, would increase. The assumed increase would occur with increased water usage and more accurate measurement of water usage thanks to new water meters recently installed throughout the city.
Sewer department bills are based on water consumption, since most of the water used in each household eventually goes, quite literally, "down the drain," into the sewerage system, where it has to be treated to remove potential pathogens and pollutants before being discharged into the Galena River at a point downstream from the city.
In fact, surprisingly, Galena citizens responded to a moderate increase in water rates by using less water; this is a classical economic result: raise prices and people will use and buy less. The surprise was, again in classical economists' terms, that no one realized that the demand for water was as "flexible" as it turned out to be: Galenians actually checked and repaired dripping faucets and made serious efforts to conserve water.
All this, though highly socially desirable, meant that revenues from the water and sewerage bills actually declined slightly instead of increasing. Obviously, the anticipated "more accurate metering" bounce, never materialized.
This decline, in turn, meant that the city couldn't pay off the EPA loan to finance the construction of the new, larger, EPA-mandated and more efficient wastewater treatment plant as quickly as expected.After examining a number of options, including raising water rates (which was quickly and unanimously rejected) presented by city staff, the council decided that extending the payoff time from 20 to 25 years would relieve the pressure on the city's budget and avoid depleting the reserve funds.
Praise from an expert
At the Jan. 11, 2010, council meeting, Thomas Gavin, of Robert W. Baird Co. which is handling the issuance and sale of the bonds involved in refinancing of the wastewater treatment plant construction, reported to the city council.
"You've done some smart things," he told the council. The regulators (who set the interest rates on the bonds) say 'Galena's financial practices are good,' and this is reflected in your A+ credit rating, which is very scarce among small municipalities these days. Thanks to that rating, and the favorable comments from the raters, you can get bond insurance, which is also very scarce any more. And that insurance will give your bonds a triple A rating, which will reduce the cost of the bonds to you."
He ended by offering his congratulations to the city staff responsible for financial management, Financial Director Cindy Pepple and Moran, and to the council for the high quality of their staff.
Council action
Alderman LaVerne Greene offered a motion to accept the proposed draft of the bond issue ordinance at an average interest rate of 4.27 percent; the council unanimously voted in favor of Greene's motion.
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