Wellington Council OKs Bank Loans For Utility Upgrades

The Wellington Municipal Complex.

By Callie Sharkey

In an effort to stay ahead of trends and avoid potential interest rate increases, the Wellington Village Council agreed Tuesday, Dec. 7 to borrow $20 million ahead of schedule to fund improvements to the village’s water utility infrastructure.

Instead of going with bonds, financial advisors recommended procuring two separate loans through qualified banks about a year or two ahead of originally planned.

Wellington Director of Administrative & Financial Services Tanya Quickel, bond counsel Mark Raymond and Clark Bennett, a consultant with Spectrum Municipal Services, presented a detailed financing proposal for the use of capital improvements.

The proposal was based on extensive interest rate studies and the updating of the village’s five-year capital improvement plan.

“Our five-year capital improvement plan stands at $89-plus million,” Quickel said. “Including proposed financing of almost $25 million, probably in 2020 or 2021.”

Considering that the borrowing of funds was already part of the capital improvement plan, the financial team recommended acquiring the debt early through qualified banks instead of waiting, given that interest rates are expected to rise.

The proposal involves two separate loans, each for $10 million. The first would take place prior to the end of this month, and the second immediately after the new year.

“We received responses from 10 financial institutions that ranged from 3.08 percent to 3.775 percent [interest],” Quickel said. “The term was 15 to 20 years, which we had asked for a maximum of no more than 20 years. Our recommendation is to proceed with the 3.08 percent for the first $10 million for a 15-year term. The second $10 million would be at 3.09 percent to close again right at the first of January.”

Village Manager Paul Schofield added some important details.

“As far back as 2009, we knew that we would be borrowing for utility improvements because our system is now approximately 40 years old,” he said. “You have a very unique opportunity here, one that doesn’t present itself very often. Part of that is due to the fact that we carry very little debt.”

The village has borrowed money for infrastructure projects in the past, so this proposal is not a new concept, he noted, making it clear that the debt would not be paid from ad valorem taxes, but instead out of utility funds derived from fees for service. Only people who use municipal water service would contribute to the repayment of the debt.

To expand, Schofield added that by not going to the traditional bond market, the village can save hundreds of thousands of dollars, in addition to the estimated $1.6 million it saves when locking in the current interest rate with a bank.

Raymond provided supportive information on why taking on debt in this manner is a smart move. Banks like the deal because of a provision in the Internal Revenue Code.

“That affords banks a better return on the investment if the borrowing entity issues $10 million or less of tax-exempt debt in that calendar year,” he said. “That means that the interest rates for those types of loans, known as tax-exempt loans, is lower than the interest rate on an equivalent loan being made on a taxable basis.”

Essentially, banks are encouraged to work with Wellington because they do not need to pay taxes on the interest received from that loan as long as the amounts remain at $10 million or less.

According to Quickel, the rate studies conducted all point to interest rates going up over the next few years. While that is not a guaranteed prediction, it is reasonable to assume it will occur, she said.

Bennett then addressed the process of acquiring the bank bids.

“I provided Tanya with a list of about 200 banks from all across the United States,” Bennett said. “We got bids from major banks. I was thrilled with the rate, to tell you the truth.”

Council members wanted to make sure that the village was getting the best rates possible.

“So, you have in excess of 30 years in this field, and you have pored over close to 200 bank offers to come to this decision tonight that the one that has been offered to us at the 3.08 percent is in Wellington’s best interest?” Vice Mayor Michael Drahos asked.

“I certainly do,” Bennett replied. “I don’t see anything comparable.”

McGovern asked about the potential for rising interest rates.

“If the interest rate goes up 1 percent, how does that change the amount of repayment that would be required if, in fact, we waited?” he asked.

“A full point increase, to go from 3.08 percent to 4.08 percent, would be an increase in payback of approximately $1.8 million over the 15-year term,” Quickel said.

Shannon LaRocque, the director of utilities for the village, provided additional details on the long-term plans for updating water utility infrastructure.

“We’ve got an aggressive capital improvement plan,” she said. “During those times of the recession, the village really had to stop those capital investments, so we are not only catching up, we are also doing what we need to do proactively.”

Over the next five years, Wellington has $90 million in projects, and over the next 10 years, more than $157 million is planned for water and wastewater infrastructure repairs and upgrades.

LaRocque noted that while the water and wastewater systems in use are safe, they are not necessarily up to the current code, considering that they were built more than 30 years ago to developer standards, not current Wellington standards.

“There’s more than 45 projects in the next five years that we need to work on, and we are actively working on them,” LaRocque said. “This borrowing will certainly help us continue those very important investments in our public health system.”

After further discussion, each resolution passed 4-0 with Councilman Michael Napoleone absent. Mayor Anne Gerwig noted that he was out of the state on business, but he was aware of the matter.

Also on Tuesday’s agenda was a resolution in reference to the development of Gene Mische Way and completion of bridle trail improvements. The resolution deleted a condition put in place in 2008 that kept the project from moving forward.

“Staff is bringing this forward because we believe it is imperative to get that road constructed and relieve traffic on Pierson Road,” Schofield said.

McGovern asked for clarification from the planning department on what the resolution would approve outside of the bridle trail and Gene Mische Way.

“Physical development of the property, including any barns or any homes or anything, will not be permitted,” said Bob Basehart, director of planning, zoning and building for the village.

No public tax dollars are designated for the paving of Gene Mische Way, and the cost falls to the operator of the show grounds. The resolution passed 4-0 with no public comment.

In other business, Schofield provided an update on the license plate readers being put in place by the Palm Beach County Sheriff’s Office.

“I was asked to provide an update on the license plate readers,” Schofield said. “Four of the seven locations have been installed. The others should be completed shortly. The data is being sent to the PBSO’s crime center.”

Schofield made it clear that village employees do not see, nor do they have access to the data collected. For operational questions about the readers, citizens should reach out directly to the Palm Beach County Sheriff’s Office, he said.