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Water project costs city millions

But the city got such a good deal with a revolving loan that it could not refuse


The city of Sandy has found a low-price lender who will help the city pay the $7.5 million price tag on the expanded water system it will build this year.

The City Council approved the loan at its monthly meeting in March, but the city’s contractor won’t begin work on the 5 miles of new pipeline until next Monday.

The project also includes two pump stations and a 1-million-gallon reservoir.

The loan essentially comes out of a revolving loan fund, supported with federal grants and managed by the Oregon Infrastructure Finance Authority.

That makes the loan a very good deal for the city, said Public Works Director Mike Walker. Because the loan fund is supported with funds from the federal Safe Drinking Water Act, there is a provision that some of the loan principal can be forgiven if certain “sustainable green” features are part of the project.

Sandy’s project qualified for the forgiveness because several elements of the project increase efficiency and cause a smaller “carbon footprint.”

The forgiven parts include a total of $362,700 of the principal, Walker told the council, and with a low interest rate of 2.77 percent it isn’t likely that the city could refinance anywhere in the future at a lower rate.

Finance Director Seth Atkinson said the most recent rates on bonds were higher than this loan, and there are bond fees on top of the higher interest rate. But with the city’s loan, there are no additional fees, principal forgiveness and a lower interest rate.

“This is a pretty good deal,” Walker said.

“We tried to get a bond deal,” Atkinson said, “but we just couldn’t match the rate we are getting from (the revolving loan fund). And there wouldn’t be any forgiveness with a bond.”

In addition, the first loan payment on the 20-year $7,137,300 balance isn’t due until one year after the project is completed.

After the forgiven amount is deducted from the principal, Walker said, the estimated annual debt service would be about $470,000.

Since this is a revenue loan, the payments will come from accumulated user fees (monthly water bills) and fees to homebuilders.

The city isn’t likely to pay the loan early because city officials want to allow future water users and new developments in the city to pay their share of the costs and not concentrate loan costs on current users and fewer developers.