The Briarwood Reservoir Expansion project involves the replacement of the existing water tank with a new larger 750,000 gallon tank to provide adequate capacity for the projected population in the area, as well as meet fire flow demands.  The new reservoir will serve Zone 4 South and will be located at the existing site.  This project is included in the Capital Improvement Program (CIP) with a specified funding source of State Revolving Fund (SRF) loan.  Using debt for large capital improvements to spread costs over time helps in achieving rate stability and also provides rate equity by spreading costs over the period of time that the capital improvement benefits the public.  The 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 program is funded with capitalization grants from the U.S. Environmental Protection Agency and is matched with State-issued general obligation bonds. 

The current SRF loan terms are 20 year amortization with a 2.5% interest rate. The comparative current market rate for 20 year, non-collateralized revenue bonds is approximately 4%.  The Briarwood Reservoir Expansion project is included on the Montana Department of Environmental Quality's Drinking Water SRF Intended Use Plan; however, the attached SRF Application is required to apply for the loan.

The Council may:

• Apply for SRF funding; or
• Not apply for the SRF loan.  Alternate financing would need to be secured or other capital projects would need to be deferred to complete this project. 

The total cost of this project is estimated at $2,643,000, including $97,996 of related loan costs for bond counsel, audit fees, and required loan reserves.  Water revenues will be used to fund $43,000 of the project and the remaining $2,600,000 will be funded through the SRF loan.  The estimated annual debt service over the next 20 years for this loan is $82,996 and will be funded with water revenues.

Staff recommends that Council authorize the Mayor to execute the application for a State Revolving Fund backed water loan in the amount of $2,600,000.