St. George saves $1.4 million on wastewater infrastructure 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 has finished issuing $36 million in municipal bonds needed to pay for the remaining upgrades to its wastewater treatment infrastructure.

Paul Ford separates solid waste at the St. George Wastewater Treatment Facility, St. George, Utah, February 2015 | Photo by Sheldon Demke, St. George News

Despite the COVID-19 pandemic and its impact on the economy, the city was able to take advantage of favorable interest rates. The all-in cost to the city of the bond is 2.54%. Prior to the coronavirus, the estimated interest rate was closer to 2.8% for a 25-year bond.

The rate drop equals a $1.4 million savings in interest costs.

“When we priced the bonds on May 13, we literally hit a low point in the marketplace,” said Jason Burningham with Lewis Young Robertson & Burningham, the city’s financial advisor.

In March, the picture changed with a spike on interest rates that put the bond sale in jeopardy, Burningham added. The decision was made to wait on the market to rebound and bounce back which it did. The bond sale began May 13 and finished Thursday.

“With the COVID-19 issues that everyone has been dealing with, there was some (changes) in the market, but because of the city’s high-grade credit … and overall financial management … there was a lot of demand from investors,” Burningham added.

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. The original estimated return on investment for bondholders was 5%. The current percentage is not available.

Nearly 20 investors included Travelers Insurance, State Farm Insurance, Northern Trust and the Aquila Group, a Utah-based tax-free municipal bond fund. Because the investors were primarily institutions and large block purchasers, it helped drive down the interest rate, Burningham said.

Left is Scott Taylor, St. George Water Services Director (left) and Jason Burningham, with Lewis Young Robertson & Burningham, the city’s financial advisor presents 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 YouTube feed, St. George News

“Because the market purchased the bonds at a premium we reoffered them at 4.3 million,” Burningham added. ” In essence the bondholders purchased them for more than $40 million that gets us more in net proceeds.”

The facility west of Bloomington was built in 1989 with a capacity to treat 5 million gallons of wastewater each day. It was upgraded in 1994 and again in 1999. Its current capacity is 17 million gallons per day.

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 within three weeks with Phase II immediately following up its construction set to begin in August. When the $36 million-plus upgrade is completedm it will increase treatment capacity to 25.5 million gallons of wastewater per day.

Phase II is anticipated to be completed by May 2022 and May 2023.

Based on the current growth rate, St. George officials anticipate the plant will meet the city’s needs through 2035. The upgrades will serve a population of approximately 170,000 residents throughout its regional service area of St. George, Washington, Ivins and Santa Clara.

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

Upgrades have been underway for more than 18 months during the Phase I expansion. Until now, the city has been able to use cash reserves to finance the first phase of the expansion. Payment on the bonds will be generated through the city and participants in its regional service area fees.

St. George Mayor Jon Pike was unsure how the pandemic would impact the level of interest there would be from the investment community for a bond sale, but added he was confident that the city’s strong financial health was a positive for investors.

“Given this time I wasn’t sure how this would go,” Pike said. “Clearly, we are viewed as a very good risk. In three years, we will be able to see what $40 million looks like.”

Burningham agrees.

“It is amazing how well Utah is viewed by the investment community, which is a testament to great fiscal practices,” Burningham said. “We’ve always had a great conservative approach and it shows when it comes to the cost of (borrowing) money.”

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

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