At the October 28 Mayor and Council meeting, we voted to authorize the City to issue a Bond Anticipation Note (BAN) for $18.2 million to begin the financing of four big projects:
- A major upgrade to the Wastewater Treatment Plant (i.e., the sewage plant)
- Replacing the City’s drinking water reservoir
- Building a Sports Complex at the end of 13th Ave
- Finishing the B&O Railroad Park downtown
This vote was the culmination of several other votes in the past several months, including approving the plans and contracts for the sewage plant upgrade and Sports Complex. I voted yes for each of them, and I’ll address them all here. Both the projects and their financing will matter to Brunswick for many years.
I’ll start with explaining each of the projects and my thoughts about their merits. Then I’ll talk about the bond.
Here’s the spark notes version, since the full thing is a bit long:
- The sewage plant and reservoir projects are expensive but necessary.
- The Sports Complex has been in the works for years and should be carried through to completion.
- Finishing the B&O Railroad Park is relatively inexpensive and well worth it.
- The long-term bond will likely end up being smaller than $18 million due to grants and developer fees.
- Even if the long-term debt doesn’t end up smaller, Brunswick can handle it without going broke, and it beats the likely alternative.
- Long-term water and sewer infrastructure maintenance is a real hamster wheel for municipalities, but there may be some things we can do to position ourselves for future upgrades.
Wastewater Treatment Plant Upgrade
The Wastewater Treatment Plant upgrade is the biggest project and the most important. It is expected to cost $8.3 million and has four parts. The most urgent is replacing a machine called a sludge press. You’ll sometimes hear it referred to as a “dewatering system” because its job is to separate solid sludge from water in the sewage treatment process. It’s important because water that is separated and treated can go back into the river, but water that’s mixed up with sludge has to be hauled out with it. The more water in the sludge, the heavier the load, and the more expensive it is for the City to get it hauled to the landfill. Our sludge press is 40 years old, isn’t performing as well as it used to, and is getting toward the point where it will be at risk of failure. Instead of getting to that point, we’re going to replace the sludge press with a new machine that will be more effective at getting water out of the sludge, which will help keep the plant’s operating costs under control.
The second part of the sewage plant upgrade is replacing an ultraviolet light system that’s part of the treatment process. The one there now isn’t working properly and replacement parts are no longer available for it. The result is that the plant has to keep the UV system running at full strength all the time instead of being able to dial it up or down as needed. That makes the machine’s power consumption unnecessarily high, so replacing it will also help with managing the plant’s operating costs.
The third and fourth parts involve repairs and improvements to the plant’s headworks and overhauling its electrical systems. Both will help with managing operating costs by making the plant more efficient, which means smaller water bill increases than we might otherwise have to do. These upgrades will also help equip our plant to treat more water in the future than it has the capacity to treat now, so that Brunswick is ready whenever more capacity might be necessary.
The four parts of this upgrade together are “Phase 1” of a larger sewage plant overhaul that is planned over the next few decades. The contractor doing the work is the same company that assessed the plant and developed the plan. The cost of the machines we need and the related work has been going up a lot over the past few years, so it was time to get the contract locked in and get the work done before costs rose further. The project is expected to begin this month.
For the project plan and contract, see the packet for the August 26 Mayor & Council meeting (pages 52-72).
Reservoir Replacement
The reservoir replacement is the second biggest project, estimated to cost up to $6.95 million, and it’s nearly as important as the sewage plant upgrade. Our current reservoir was built to store three million gallons of drinking water, but it’s a hundred years old. It had to be taken offline earlier this year because too much debris was getting into it and too much water was leaking out. The City’s water system can operate without the reservoir (and has for several months), but that’s not good in the long term. It’s important to have ample storage capacity in case a natural disaster or equipment failure causes the water treatment plant to go offline for an extended period.
The plan for this project is to replace the reservoir with a one million-gallon above-ground storage tank. An above-ground tank will be less prone to leakage and debris than a reservoir is. Although its capacity will be less than what the reservoir’s currently is, we also don’t need as much for this particular piece of the puzzle nowadays as we did in the 1920s, because we now have two water towers and another storage tank being built at the City’s Yourtee Springs site as part of separate project. If Brunswick needs more storage in the future, there will be room to build another tank.
The contract for the project is still being finalized. See pages 112-114 of the March 11 Mayor & Council meeting packet for more info about the issues with the current reservoir.
The Sports Complex
The Sports Complex is the third biggest project. Its second phase is expected to cost $2.5 million (which is what this debt is going to cover, since we have already budgeted for the first phase). It has been in the works for quite some time, and the plan is to overhaul the handful of ball fields Brunswick currently has down at the end of 13th Ave and turn it into a sports park similar to what the county has at Othello Park. In addition to the main football field that’s already used there, it will have two softball diamonds, two pickleball courts, and two fields that can be used for a variety of sports, as well as a concession stand and public restrooms. Importantly, it will also have nearly 300 paved parking spaces and a loop road to circulate traffic in and out, which ought to help with the problem of parked cars blocking 13th Ave on gameday.
It’s not a project that would have been my top pick if I had been on the council when it was first thought up. I would rather have spent the time and money on an ambitious sidewalk project or on a bridge over our railroad crossing. But I believe in the principle that it’s best not to come in and throw a wrench into a long-running project when it’s nearly ready to be built, unless there’s some fatal flaw in it. These things take a lot of time to design and plan, and after they have been talked about for years people come to expect them. Getting it done shows that our local government can follow through on the things it plans.
And I don’t see a fatal flaw in the Sports Complex plan. The City obtained a substantial sum of grant money for it, and the amount of debt needed to cover the remainder is manageable (more on that below). The complex has gone through a professional design process and the construction contract looks reasonable. The anticipated annual maintenance cost of $40k is something the City budget can handle, especially with Brunswick’s tax base growing. The theory of the case for building the complex is that it will help our local sports teams and bring visitors to Brunswick when leagues hold games here, which will boost our economy. I don’t know if that will happen to the extent we dream about, but I also don’t have a strong reason to believe it won’t hold true enough to make a positive difference.
I also still see a way forward on those other priorities of mine. The City now has a dedicated revenue stream from a recurring grant and the system improvement fee that will allow Brunswick to make gradual but persistent progress on sidewalks. MDOT is still apparently all-in on helping us resolve our railroad crossing problem, possibly through federal grant programs. The Golden Rule comes into play here: If I help see through the projects started by those who came before me, then perhaps those who come after me will see through the projects that I help start while I’m in office.
Construction on the Sports Complex is expected to start this month and it should be done within a year or so. Renovating or repurposing the skate park—which is not in great shape—is not part of this project, but it is on the radar to get an overhaul at a later date.
For the Sports Complex contract and design drawings, see the Sept. 23 Mayor & Council packet (pages 14-29). For information about the project’s progress, see this page on the City website.
The B&O Railroad Park
The fourth and smallest project is finishing the B&O Railroad Park, the park that’s being built overlooking the railyard next to the WB Tower downtown. Much of it is already complete, and what’s left is expected to cost $300,000.
This one was an easy call for me. It is by far the least expensive project out of the four and it will not add substantially to the City’s debt burden. When it is done it will have benches, swings, and interpretive signs, plus the WB Tower will finally be accessible (though it may only be open at certain times).
I think Brunswick will benefit from having a park where you can sit and take in the view of the old railyard. In fact, I have a hunch that it will achieve what the train viewing platform at the foot of Maryland Ave was never quite able to do. It will be good from an economic development perspective by attracting people off the towpath and into downtown, but it will also simply be a nice thing for us, Brunswick’s own residents, to have and enjoy. That makes it well worth completing and maintaining, in my view.
The Bond
Then, of course, there’s the big question: How are we paying for all this? The answer is: A big chunk of debt, but not necessarily as much as it appears at face value.
The specific debt instrument that we authorized the City to take out is a five-year loan called a Bond Anticipation Note (BAN). The loan is for $18.2 million, the total anticipated cost of all four projects. That will allow the projects to be fully paid for and completed quickly. During those five years, Brunswick will pay only the interest on the loan annually. Then, to pay off the BAN sometime before those five years are out, the City will issue full-fledged bonds (likely 30-year bonds for the reservoir and sewage plant projects and a 20-year bond for the park projects).
Here’s the kicker: The long-term debt that the City issues won’t necessarily be for the full $18.2 million. In fact, it likely won’t. That’s because Brunswick will collect several million dollars in capacity fee payments from the developers of Vista Pointe and Springdale Summit (Cooper Farm), the two housing developments that are set to begin construction soon. The City will also receive some federal and state grant funds for the various projects, and could apply for and win even more. Those sums can be put toward paying off the BAN, which means the bond needed to make up the difference would be smaller. For a hypothetical example, if the City were to receive $8 million in developer fees and grants and then put that $8 million down on the BAN, we would only need to issue a $10.2 million bond to finish paying off the BAN.
That’s important, because the difference between an $18 million debt and a $10 million one is a lot of money over the course of 30 years of interest payments. While an $8 million difference isn’t assured, it’s a realistic possibility. The tap fees that the Vista Pointe and Springdale developers committed to pay up front in the annexation agreement amount to about $6 million combined, while other fees will come in as houses are built. There is already about $700k in state grants lined up for the reservoir replacement, and federal money is possible for both the reservoir and the sewage plant projects.
Alternatively, the City could take out the full $18.2 million long-term bond and use grant money and the developer fees (or interest from investing them) to pay the debt service costs.
It’s wise to plan with Murphy’s Law in mind, though, and the City’s financial advisor first ran the numbers taking into account Brunswick’s existing debt and assuming the full $18.2 million bond without the benefit of grants and developer fees. Here, it’s important to remember that the debt will be split between the City’s funds: Debt service costs for the Sports Complex and B&O Railroad Park projects will be paid from the General Fund, and debt service for the sewage plant and reservoir projects will be paid from the Enterprise Fund, which is itself split into water and wastewater funds. The water fund will bear the reservoir debt service and the wastewater fund will bear the sewage plant debt service.
The projections for the General Fund portion aren’t concerning, even assuming the full amount of long-term debt. Total annual debt service would likely hover around $450k for most of the next 20 years, not much higher than the $426k it was last fiscal year, when it stood at 4.4% of total General Fund revenue. The City has been running debt service expenses of around 4% of revenue in the General Fund since fiscal year 2020 (which began in mid-2019) without much issue. And because Brunswick’s tax base is growing, a ~$450k annual debt service cost will soon account for an even smaller portion of revenue than 4%. So, that’s all to say, the General Fund seems fine even in a scenario where we don’t catch any breaks.
For the reservoir and sewage plant projects, it’s important to ask: What’s the alternative?
The debt service costs for the water and wastewater (sewer) funds are more daunting. In the full-size debt scenario (including existing debt), we’re looking at annual debt service peaking above $800k in each fund for the 2029 and 2030 fiscal years, then dipping to approximately $700k per year for the decade of the 2030s before settling at about $570k per year for the sewer fund and $475k per year for the water fund for the remaining 16 years of the bond (with fiscal year 2056 as the last payment). Those debt service costs for the first half of the 30-year bond lifespan work out to something like 25-30% of Brunswick’s current revenues from utility service charges (i.e., what we pay in our water bill) and for sewer it would likely exceed the difference between service charge revenue and operating costs. That’s sobering math.
However, the water and sewer funds are also the most likely to see their debt burden reduced by the developer fees and grants I mentioned above. When the City’s financial advisor ran the numbers for a scenario in which Brunswick used the developer tap fees to pay debt service costs, it projected those fees zeroing out or substantially reducing the debt service for the first half of the bond lifespan. We’d still be looking at $570k per year for the sewer fund and $475k per year for the water fund for the second 15-year period in that scenario, but by that point Brunswick would likely be taking in significantly more utility revenue due to having a larger population (meaning more people paying water bills) and from gradual utility rate increases over time.
That said, there’s risk involved in this business. Grants could fall through, developments could stall, or some equipment failure could occur at the water or wastewater plants that requires developer fees to be diverted to fixing it. You can’t eliminate these sorts of risks, but you can mitigate them and prepare contingencies for them. The provisions for up-front tap fee payments in the annexation agreements mitigates the risk of the developments stalling; having done investment-grade audits of the water and sewer plants mitigates the risk of being surprised by some equipment issue. But even if all that fails and we end up having to pay the full load of debt service costs from our own water and sewer revenues, Brunswick won’t go bankrupt. The City has sufficient reserves to meet the first few debt service payments. That buys us time to seek additional grants and help from the state. If it really comes down to it, we’ll levy an assessment or fee in which we all pony up a bit to cover the debt associated with maintaining our water and sewer system—our most fundamental infrastructure.
For the reservoir and sewage plant projects, it’s also important to ask: What’s the alternative? We either take on the debt and maintain them proactively, or we wait until failure is imminent in the hope that the state will bail us out. That second option is much worse, in my view, for two reasons. First, we’d risk experiencing the actual failure of the sludge press or some disaster in which we really need the additional water storage from the reservoir. Second, when the state bails us out, the state dictates the terms, including what utility rates we set and what fees we levy. The state would want to minimize or recoup its own expense, so we could not expect our rates to be light in that circumstance. With this bond plan, by contrast, I reckon the odds that we come out having to pay less than expected are higher than the odds that we have to pay more.
For the debt service estimates and general info about the bond, see the August 12 Mayor & Council meeting packet (pages 60-90). For the BAN ordinance, see the October 28 Mayor & Council packet (pages 5-39).
Looking Ahead
I usually try to finish thinking through these decisions by looking ahead. Unfortunately, this one shows the serious difficulties that municipalities everywhere have these days in keeping up their water and sewer infrastructure over the long term. As I mentioned earlier, Brunswick has a second and third phase of upgrades planned for the wastewater plant that will each cost tens of millions of dollars. Some of the equipment replaced in this Phase 1 project may also need to be replaced again before the 30-year bond is completely paid off. It all turns into a real hamster wheel with increasingly impossible math, in which the only viable long-term strategy seems to be to get lucky with state or federal grants.
One thing Brunswick could do, if things go right this time and we manage to keep down our debt service costs, is to budget more for depreciation. The depreciation line item in our water and sewer funds is the amount we set aside in our reserves to save for the replacement of aging equipment. Brunswick currently budgets for 20% of the estimated depreciation value. Increasing that amount is tough when our budgets have tight margins, and there are downsides to squirreling away money into reserves: those are funds that aren’t being put to work right away, and factors like inflation can result in that stashed money proving to be inadequate when we do need it. But it’s something I’d like to explore further to see if we can improve on what we currently do.
In the meantime, let the construction begin. Here’s to its success.
[Correction: The original version of this post said that the above-ground storage tank replacing the reservoir was going to have a 1.25 million-gallon capacity. That was envisioned in earlier stages of planning, but the final design is for a one million-gallon tank.]