The cost of the FY 2010 water and wastewater Capital Improvement Program (CIP) exceeds the amount of immediate funding available, thus a loan or revenue bond sale will be required to finance part of the water and wastewater CIP. The State Revolving Fund (SRF) Loan Program was established by the Montana Legislature to make at-or below-market interest rate loans to eligible Montana entities for water and wastewater improvement projects. The SRF programs are funded with capitalization grants from the U.S. Environmental Protection Agency and are matched by 20% with State-issued general obligation bonds. Combined, these two sources of funds create the State Revolving Fund, from which loans are made and borrower repayments revolve to provide loans for infrastructure projects. 

The current SRF loan terms are 20 year amortization with a 3.75% interest rate. The current rate for an INTERCAP loan is 4.25% with an annual adjustment of the interest rate. The comparative current market rate for 20 year, non-collateralized revenue bonds is 5.5%. The SRF Application and Preliminary Engineering Report are both available at the City Clerk’s office.

The Council may:

• Apply for SRF funding. The cost savings for the SRF loans versus INTERCAP loans is estimated to be $400,000 over the life of the loans and the cost savings for the SRF loans versus revenue bond financing is more than $1,260,000 over the life of the loans.
• Do not apply for the SRF loans. An INTERCAP loan would still need to be secured or revenue bonds would need to be sold for $7,000,000 to complete this project. 

The total cost of this project is $7,514,496 including $530,624 of related loan costs for bond counsel, audit fees, and required loan reserves.  Wastewater and water revenues will be used to fund $514,496 of the project, and the remaining $6,983,872 will be funded through the SRF loans.  The estimated annual debt service over the next 20 years for this loans is $502,000 and will be funded with water and wastewater revenues.

Staff recommends that Council authorize the Mayor to execute the application for a State Revolving Fund backed wastewater loan for $3,500,000 and water loan in the amount of $3,500,000.