City plans to issue up to $40 million in bonds for wastewater treatment upgrades

St. George wastewater treatment plant, date not specified | Photo courtesy city of St. George, St. George News

ST. GEORGE — The city of St. George will be issuing bonds to pay for upgrades to its wastewater treatment infrastructure.

Taking advantage of favorable interest rates, the city will sell upwards of $40 million in municipal bonds but anticipates it to be closer to $30 million to pay for continued upgrades to its wastewater treatment plant.

The practice to sell municipal bonds, where investors purchase a bond for a return on investment to pay for large infrastructure needs, is not a new approach.

In St. George, its wastewater treatment plant serves the surrounding communities of Washington, Ivins and Santa Clara. City officials say water is key to sustained population and business growth.

Scott Taylor, St. George Water Services director, said upgrades to the current wastewater plant has been underway for the past 18 months during its Phase I expansion.

L-R: Scott Taylor, St. George Water Services director, and Jason Burningham with Lewis Young Robertson & Burningham, the city’s financial advisor, present a $40 million bond issue proposal to the city council to pay for the next phase of upgrades to its wastewater treatment plant. St. George, Utah, March 5, 2020 | Photo courtesy of Community Education Channel, St. George News

“The department has been debt-free for a few years, paying off all of our past bonds,” Taylor said. “We’ve had cash reserves on hand enabling us to finance the first phase of this expansion, and we are going out to bond for the remainder.”

The plant, which treats sewage from St. George, Washington, Ivins and Santa Clara, was built in 1989 with a capacity to treat 5 million gallons of wastewater each day.

The facility was upgraded in 1994 and again in 1999. Its current capacity is 17 million gallons per day.

Because of the area’s rapid growth, the plant, which sits west of Bloomington, will soon go through a Phase II upgrade.

Phase I of the expansion replaces the infrastructure that handles sewage coming into the plant as well as the ultraviolet-disinfection process at the end of the treatment facility. Phase II will address retrofitting infrastructure needs and processes found throughout the remaining treatment plant.

At a cost of approximately $25 million, Phase I is nearing completion with Phase II immediately following up at about $40 million to increase treatment capacity to 25.5 million gallons of wastewater per day.

Phase II is anticipated to be completed by May 2022.

“Based on the current growth rate, we anticipate this plant will meet our needs to 2035,” Taylor said. “It will serve a population of approximately 170,000 residents throughout its regional service area.”

Despite the volatility seen on the stock market in the past weeks, it is a “very” friendly lending climate to issue bonds.

According to Jason Burningham with Lewis Young Robertson & Burningham, the city’s financial advisor, now is the time to act and break away from the previous “pay as you go” approach to some infrastructure projects.

Although that has worked, it is time, he said, to pay for less than half of the projects through a bond sale.

“As the (wastewater plant) project has unfolded and moved forward and we’ve talked about Phase I, Phase II and multiple (other) phases at the wastewater treatment plant,” Burningham said, “the parameters (of the bonds that could be issued) are not to exceed $45 million, with the maximum amount of years the bonds could be paid at 30 years.”

City of St. George Wastewater Treatment Facility, St. George, Utah, Aug. 1, 2012 | File photo by Joyce Kuzmanic, St. George News

With a minimum sale price of 97% of the bonds, each of the parameters, Burningham said, are favorable.

A public hearing is set for April 2 to receive comments on the city’s desire to finance the remainder of the wastewater facility upgrades.

“Right now we are anticipating we need about $40 million in bond proceeds,” Burningham said. “At this point, the city has used significant cash balances to pay for Phase I … and we are getting to the next element of the project.”

Burningham echoed anticipations that the bond issue will only use approximately $34-$35 million to complete the immediate plans.

“Because the interest rates are so low, many of the bondholders are actually paying up to get a higher coupon rate,” Burningham said. “They pay additional costs so they can get interest earnings back.”

Currently, Burningham said, the all-in cost to the city of the bond is under 2.5% with a return on investment to investors of about 5%.

Mayor Jon Pike is pleased the city has been able to pay what it could out of its fund balance but also acknowledged it is time for the bond sale.

“Obviously, the (upgrades) are going to last us a long time in the future,” Pike said. “There is a time when debt does make sense. You can’t keep pay as you go on everything and this is an appropriate time when you use that (approach).”

Burningham added as with all city financing issues there are scorecards and St. George has a “substantial” credit rating, something it has maintained through its growth at a double-A plus on some debt and double-A on other debt.

Major factors that play into a high municipal credit rating include low debt per capita, user fees, diverse demographic statistics and a growing tax base.

“This is a big transaction,” Burningham said. “It is one of the biggest transactions that this city has undertaken. The electric system was probably the largest one, but this is up there. You’ve (the city) really put yourself in a good position to go to the market right now.”

In a moment of levity, Pike said everyone wants their toilets to flush and waste to be cleaned up, and a state of the art treatment facility will soon meet the needs of the city’s growing population.

Copyright St. George News, LLC, 2020, all rights reserved.

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