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Posted: 09/26/12

Bruce re-finances bonds
for $5 million sewer debt

by CHRIS GRAY
Observer Staff Writer

      The Bruce Township Board of Trustees is seeking initiatives to shrink its massive sewer debt.
       The board voted 5-0 on Sept. 19 to re-finance $4.5 million of its sewer bonds to save the township from paying $365,000 of $4.9 million in debt.
       In addition, the board approved a contract with Detroit Water and Sewerage as well as amending a fee schedule for water and sewer rates.
       The township's sewer debt, which was at $6.5 million, has caused cash flow problems due to a lack of sewer tap sales and little to no rate adjustments in the past.
       To cover the sewer debt, the township has used money from the general fund since the sewer fund can't sustain the payments. In fact, board members approved of using $150,000 to make a principal payment at the Sept. 19 meeting.
       "Some people didn't realize we had a $7 million debt, and now we're borrowing $150,000 from your tax dollars, your general fund, to pay the bill on it," Supervisor Jim Tignanelli said.
       To alleviate the township of this cash flow problem and reduce payments, the board investigated whether it could re-finance its bonds.
       Tignanelli said when borrowing money for long periods of time the risk is what the interest rates could be, but added the risk is mitigated in this case.
       "The interest rates right now will be better than they would be in 2014 when we could've normally done this," he said.
       The interest rate for the current bonds is more than 5 percent.
       Pat McGow of Miller, Canfield, Paddock and Stone compared the re-finance process to a homeowner re-financing their mortgage, in that the old bond will be paid off and a new one put in its place at a lower rate.
       The main difference is that bonds cannot be paid off in the first 10 years, meaning the township's bonds aren't ready until 2014.
       "All the interest on those old bonds is going to be paid out of the escrow and then we're left with paying some interest on the new bonds in the next couple of years," he said.
       Bob Bendzinski of Bendzinski and Co. said the principal payments for the new bond for 2013 and 2014 would be eliminated, though the township would still pay interest on those bonds.
       Bendzinski said there would be no additional payments to the township, nor would the length of the bonds be extended past the original end year of 2033.
       The interest rates the board viewed were from Aug. 29. Bendzinski said the bank will not confirm an interest rate until a bond purchase agreement is signed.
       The hope would be to have the re-finance ready by Nov. 1. McGow said according to Michigan law, the re-finance process cannot happen unless there is a savings.
       The sewer debt originated with the expansion of the Romeo wastewater treatment plant expansion. The township issued $3.375 million in bonds in 2004 with a total of $3.2 million in interest to be paid by the end.

       Rate approval
       Board members voted in favor of a contract with Detroit Water and Sewerage that establishes the rate at $26 per 1,000 cubic feet of water used.
       The rate only applies to the industrial zone, located at 33 Mile Road between Powell and McKay roads.
       As a result of the contract, the board voted to amend its utility fee schedule to include the rate. Tignanelli said the amendment includes a provision to allow non-residential customers to have their wastewater disposal service fees charged based on metered water usage.
       This can be done in lieu of pre-established equivalent residential unit capacities, but would be at a rate of $28.17 per 1,000 cubic feet of water.
       "They would pay to have that done and they'd have to pay to have it read because we wouldn't be able to do it on our own," Tignanelli said.