Palmer requests $2.3 million for water-sewer line

PALMER -- The Palmer City Council voted Tuesday to send to the city's voters, in October, a proposition to sell $2.3 million worth of bonds.

These bonds will be used to cover some of the costs of Palmer's planned water and sewer extension to the new Mat-Su hospital.

The extension, now officially called the Southwest Palmer Utility Extension, will cost a total of about $8.22 million, according to a recent cost estimate. Approximately $6.16 million, or 75 percent, of this sum will be covered by a federal assistance grant. The rest of the money, $2.06 million, is up to Palmer to raise.

The Palmer City Council weighed options for raising this money, and decided that floating a low-interest loan with the state Department of Environmental Conservation was the best way to handle the immediate cost.

The amount of this loan, which carries an interest rate of 1 percent and will have to be approved by Palmer voters at the October election, was the issue at hand at the council's Tuesday meeting.

Council Member Tony Pippel voiced concerns about whether $2 million, the original proposed amount of the bond, would be enough to cover all of Palmer's costs.

"If it goes over 8.2 million, where are we going to get the extra money?" he asked. Pippel said that even with a $2-million bond, Palmer would have to pull approximately $50,000 from its budget to cover the remaining costs.

Palmer City Manager Tom Healy said the cost estimate takes into account approximately $950,000 of contingencies, so the city has quite a bit of leeway to work with. However, Healy added, "there are some variables in this, and I can't be sure about whether [$2 million] will be enough."

Pippel said it would be best to make sure the city had enough money on the first go-around rather than risk running out of money and searching for more later on.

"We should only go to the voters once, and we should be sure we have enough when we do so," he said.

Pippel said Palmer voters had never turned down a bond issue on the ballot, but that their approval could by no means be taken for granted.

Council Member John Combs said he favored a $2.3-million bond, but that the voters would have to be made aware of the extremely reasonable rates of the bond before voting on it.

"It's really crucial that we make the repayment information available to the voters," he said.

The council summarily amended its bond proposition to request a $2.3-million bond rather than a $2-million bond. This issue will appear before the voters on the October ballot. The larger question on the minds of the council and the voters alike, however, is whether Palmer will be able to recoup the costs of the line using funds derived solely from the new line.

Healy said he had met with some of the city's financial advisors, and they informed him that this was possible.

Healy said a local improvement district (LID), a measure commonly used to split the costs of utility improvements among beneficiaries, was impossible in this case due to the line's situation outside of Palmer's city limits, but that there are other capital recovery methods such as connection fees or higher rates on the new line that can be used to even out the balance.

However, the city can differentiate between its existing ratepayers and those joining the line, allowing officials to charge each group different rates for service.

Healy said that because of this, the city can increase rates charged to new customers of the line without affecting the rates paid by current customers. In fact, Healy said, existing rates might go down due to the presence of more customers using the system.

"It's a distinct part of the utility, so we can determine costs separately," he said.

After a period of providing service on the new line, Palmer will re-evaluate the water and sewer rates it's charging for the new hospital. At this time, it's likely that the rates of customers on the new line will be reassessed as well. Healy said that after a certain period of higher rates, new customers should experience a "sunset" time, when Palmer's capital costs are covered and rates return to ordinary levels.

A few more studies and planning sessions are necessary before the precise amount of money required for connection is determined, Healy said.

These studies should roll in over the next month or two. However, rates for new customers, including the hospital, probably won't be exorbitant.

"Their intent is to be charged a fair rate based on an established practice," said Healy of the planned medical facility.

Combs said the city has two primary advantages working for it as it proceeds with construction of the new line.

First, it can subdivide its users into two separate cost areas, as Healy described. Secondly, Combs said that Palmer's public works department has an excellent record of following through on prior commitments.

"I feel really good about this," Combs said.

The cost estimate for the extension takes into account about $6.3 million worth of construction costs. This requirement is supplemented by approximately $420,000 of architectural and engineering fees, $360,000 of project inspection fees and $120,000 of administrative and legal expenses, in addition to the nearly $1 million of incidentals that Healy mentioned.

The preferred route for the new line runs along the Alaska Railroad right of way near the Glenn Highway, toward its intersection with the Parks Highway. The city is currently in negotiations with the railroad for provision of a lease on this right of way.

Contact Daniel Spoth at daniel.spoth@frontiersman.com.