SEQUIM –– City officials hope to borrow cheap money now that will be repaid with more valuable money later in an effort to reduce costs for construction of a civic center.
Administrative director Elray Konkel will bring to the Sequim City Council on Monday a proposal to issue revenue bonds guaranteed by payments from water and sewer customers to fund a portion of the $16 million construction of a City Hall, police station and community plaza.
The utility funds are slated to pay $3 million of the construction cost.
Those offices will be relocated into the 34,000-square-foot building currently under construction on the 100 block of West Cedar Street.
“A 20-year 2014 revenue bond would capture interest rates at historical lows and have the effect of spreading the cost of the utility share of the project not only to current rate payers but also to future ones as well,” Konkel said.
Under a rate structure plan approved last year, water and sewer rates are scheduled to increase 4 percent a year over the next three years.
The council will hear Konkel’s proposal at 6 p.m. when it meets Monday in the Sequim Transit Center, 190 W. Cedar St.
“It’s like building a house,” City Manager Steve Burkett said. “You ask, ‘should I take money out of savings and pay cash, or should I leave my money in savings and use it for other things in the future, and hopefully generate income with that money, and borrow money at historically-low interest rates?’”
According to Konkel, the $3 million in the utility fund savings account currently generates about $40,000 annually in interest for the city.
The bonds would cost the city about $85,000 a year over the next 20 years, leaving a net annual cost of $45,000 if the city issued the bonds.
But the bonds also would leave that money in the bank that the city could tap for planned capital improvements to its water and sewer systems, he said.
Burkett also noted the money that would be used to repay the bonds would likely be inflated over its current value.
And with the city projecting 2 percent growth in the number of users of city utilities, the cost would be spread among a wider base, Burkett said.
Lydig Construction of Seattle is building the new civic center, designed by Integrus Architecture of Seattle, under an $11.85 million maximum contract.
It is expected to be open next summer.
Land acquisition and preliminary design costs account for the remainder of the budgeted building cost of $16,074,200.
The city is paying for the project primarily with a $10,439,000 bond issued at a 4.53 percent interest rate last July.
The first payment this year will cost the city $580,000.
The bonds would be repaid from several sources: $275,000 from a public safety tax approved by voters in 2012, which raised the city sales tax by 0.01 percent; $200,000 from elimination of current rent for city office space, including the Sequim Village Shopping Center spaces; $75,000 from the real estate excise tax; and $160,000 from excess budget capacity.
Other funding sources include $2,190,200 in reserved funds from real estate excise taxes and operational savings; the water and sewer funds; and $170,000 in expected real estate excise taxes for 2014.
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Sequim-Dungeness Valley Editor Joe Smillie can be reached at 360-681-2390, ext. 5052, or at jsmillie@peninsuladailynews.com.
