The City of Levelland and the Levelland City Council are continuing to move forward with the process of securing their new wastewater treatment plant. In Monday’s regular meeting, the council considered and ultimately took action to approve the authorization and posting of notice of intention to issue certificates of obligation. Attached to the certificates is the resolution that limits the maximum amount of issuance, $20 million. This also include the use of proceeds such as water and sewer system improvements and facilities. During the meeting, it was explained by City Manager Brandon Anderson and Hilltop Executive Jason Hughes that the effluent contract signed with the ethanol plant earlier in the year prevented the city from issuing taxable bonds. Exceeding the allotted percentage of water that can be deemed tax exempt, the anticipated interest rate will be higher to account for the taxability of the bonds. Anderson added that the taxed amount the city is looking at is approximately $2.5 million. On April 26, this agenda item was put under consideration and needed approval. Council Member Jim Myatt was absent from the meeting, putting a three-member council to vote on the item. Council Member Mary Engledow abstained from voting on the item, while Council Members Breann Buxkemper and Michael Stueart voted in favor in the item. It was decided after the meeting that the two votes did not meet the charter standard as at least three votes were needed for a 60 percent majority vote.
During Monday’s meeting, Council Member Myatt was vocal about his frustrations with the city being taxed $2.5 million.
“What is hurting us is that we are paying an extra $2.5 million as a council and none of the council knew this,” said Myatt. “There was a hidden cost of $2.5 million because it turned out it was not a tax-free bond because we did not have enough information when we voted to sell water to the ethanol plant.”
Myatt also added that he would not have voted in favor of the contract with the ethanol plant if he would have had the information.
“We had our staff look at it and they weren’t apparently aware of it,” added Myatt.
With the current A plus rating the city holds, Myatt asked Hughes was the possible tax rate the city could be dealing with.
Hughes gave an educated guess of 5.8 percent depending on how the market holds when it comes time to sell December 5.
During the meeting, Anderson explained that with the current affluent contract signed with the ethanol plant, over a 15year period the city is projected to bring in roughly $4.8 million which would cover the tax costs the city is expecting with issuing the taxable certificates.
“Council nor staff were aware of that nuance within the law,” explained Anderson. “Still going forward, the affluent contract was approved and in its reworked version it is more beneficial to the city.”
Anderson acknowledged this issue of being taxed the $2.5 million is something Myatt is frustrated with and reiterated council nor staff were unaware of the reasoning of the tax.
Additionally, the discussion of refinancing was brought up between the council and Hughes if the contract was broken due to the company folding or other various circumstances.
At the end of a 10-year date from the projected sell date of December 5, Hughes explained that the possibility to refinance if the current effluent contract had been broken was a possibility.
However, if the contract is broken before the 10-year mark, the city would have to wait for the 10-year mark before financing.
Buxkemper and Anderson both commented on the current contract with the ethanol plant wishing no ill-will to their company or business as the discussion of effluent options continued.
Anderson asked Hughes if the city could sell effluent water to other buyers if the current contract was broken. Hughes could not give a concrete answer due to the nature of the question being more suited for the contract lawyers.
Hughes offered a scenario in which the contract is broken, and the city had issued taxable certificates, then the city would be able to sell effluent water. If the contract is broken before the sell date and the city decides to go through with tax exempt bonds, the city would face problems if the council wished to find another effluent contract in the future.
With the current effluent contract, Anderson said the bonds being taxable will enable the city to continue to market their effluent.
The alternative would have the City of Levelland unable to enter into any additional outside agreement if the city found any other outside agreements that could help pay any of the debt in future. After the meeting, Anderson explained that the $2.5 million tax fee was something that the city staff could not have seen coming at the time when presenting the affluent contract to the council in July. “Going through the bond process is not a common occurrence for cities and this instance is something we learn from as we go through the process,” said Anderson. “Given the uniqueness of the situation along with the timing of the current wastewater treatment plant deteriorating, I am happy we have a bond council in place to put us in the best situation moving forward.”
Additionally, Anderson added that the effluent contract is a means to help lessen the repayment burden to our citizens. As the council and the city move out of the beginning stages of the planning process, the council unanimously approved Anderson to negotiate scope, fee and contracts with Parkhill for engineering services for the design, pricing, bidding and construction of the wastewater treatment plant.
Working with Parkhill for the better part of 75 years, they are currently under contract to provide engineering services to develop wastewater plant options for the city in a preliminary engineering report.
Assisting Anderson in those talks will be Assistant City Manager Joe Cavazos. During the Monday meeting, as the agenda item was being presented, Myatt asked if Cavazos would be more of an ideal option to handle the talks with Parkhill.
Anderson said he had no problem bringing in Cavazos during the future talks with Parkhill as they both work well together.
“A couple of months ago, Parkhill had brought forth two options of wastewater treatment plants,” said Anderson. “One option was to fabricate or refurbish the existing facility or put in a mechanical plant.”
With such a long relationship with the city and Parkhill, Anderson explained that the city can now go into negotiations with the company in regard to rates and fees to move forward with bid specs, design and work on the bid process.
“Essentially, this takes us from a where we are right now which is an idea and an estimate to a final product,” said Anderson.
This project will be put into a large packet bid for companies who are able to come in and produce whatever type of design the council chooses.
Talks of a third option for the plant remain internal, but Anderson says they are working on getting that together for an alternative.
“Hopefully by the first meeting in November, we will scope and fees to take back to council,” explained Anderson. “By the last meeting in November, they will help us with the direction and have a recommendation which plant to put in with an estimated cost. By having this timeline, we will be able to sell bonds for the amount that we need come December 5.”