City council approves bonds for $15.9 million sewer project

BURTON — The city council approved the sale of $15.9 million in bonds, Dec. 21, to begin a five-phase project to repair and rebuild a portion of the aging sewer system.

The city will embark on the rehabilitation and replacement of approximately 206,000 feet of sewer lines and 124 manholes in Burton, this summer, utilizing a financial assistance program offered by the Michigan Department of Environment, Great Lakes and Energy (EGLE), that will allow the sale of bonds at a 1.875 percent interest rate.

The council approved the plan by a vote of 4-3, council members Tina Conley, Tom Martinbianco and Steve Heffner voting against the proposal.

The project, expected to begin this summer, will target the worst portions of the city’s aging sewer infrastructure which need repairs and, in many cases, complete replacement. The 206,000 feet of sewer line to be replaced is equal to a total of 40 miles, according to officials.

Work will take place in five phases, each phase last about one year, and the council will review each phase before voting on funding annually.

Concern was expressed by Councilwoman Tina Conley that the project would result in higher sewer rates for the residents, which the administration says won’t be the case in the beginning – but can’t rule it out down the line as more phases are completed.

“The current sewer revenue collected now, will that pay the bond payment, so it’s not put on the residents?” Conley asked.

Charles Abbey, director of the Department of Public Works, said the city has been tracking the proposed project and the administration thinks with cuts that have been made the city is in a good position to make sure that the work is covered right now.

However, he said, going forward, each phase will come before the council and it will have to decide on how to proceed.

“But for now, the answer is no,” Abbey said, in response to Conley. “We have enough in fund balance and equity every year, revenue over expenditure, to cover that, however, there will come a time when you get into phase three, four or five – I don’t know where – that may not be the case.”

When and if that time comes, Abbey said the council might have to address the need for a rate increase.

Councilman Vaughn Smith said the city is in a good situation with the sewer fund, especially with it growing by $700,000 a year.

“So, what can we do with that growth every year? I think it’s a great idea, you’re leveraging the money, in a low interest environment, which I don’t know how long that will be, from what I understand it’ll cost $40 million overall to revamp the whole system. This will be for $15.9 million for the worst part of it.”

Smith said the sewer fund has grown since 2016 like clockwork, with the unrestricted sewer fund growing from $10.3 million in 2016 to $15.1 million in 2020.

“I don’t want to see the future councils end up in the same situation as we did with the water,” said Smith, referring to the decision in 2019 to increase water rates by 21 percent to end a monthly $60,000 deficit to the water fund. “The water was a different situation; we didn’t have $15 million laying around. We ended up having to go into our general fund to make up for the shortfall. I don’t want to see future councils, for one, lose this opportunity to partially upgrade our system to what level we can afford without having to increase the payment for sewers for the residents.”

Mayor Duane Haskins also defended the proposal, saying the administration wasn’t going to pursue the estimated $40 million overall project to renovate the entire sewer system, targeting only the worst areas at a cost of $15.9 million.

“The $40 million was scaled back to only get the (the worst rated areas) which is imperative to be fixed per the DEQ and the drain commission’s office,” said Haskins.

Tom Colis, managing director/ principal at Miller Canfield Paddock and Stone PLC, was on hand at the meeting to answer any question about the bonds or repayment.

Colis said a revenue bond is paid for strictly from revenues generated from the system, so the city’s sewer system would be the sole source of repayment for debt service on the bonds.

The city will have to bring future revenue bond proposals back to the council for approval before starting another phase of the project.

The interest rate, said Colis, will likely fluctuate from year-to-year.

Smith said he thinks the decision is “smart” because the city is leveraging its money to pay the interest on the bonds.

“So, we’d be basically using other people’s money, but we’d still have that reserve in case we have a catastrophic break in the sewer,” said Smith “At what point can we do this before we have to go to the residents for more money? That’ll be down the road.”

Abbey said when the city gets one or two phases done, they’ll have a chance to see where things are going.