Big cash pumped out for water treatment plant

By BOB BRUTON Barrie Examiner May 3 2011

Barrie is borrowing $75 million to fund the completion of its surface water treatment plant.

During the next 40 years, the city will pay back that $75 million — plus another $101 million in interest.

“This is just like a mortgage. Because the city doesn’t have the cash to pay for the plant, borrowing is necessary,” said Mayor Jeff Lehman. “The longer the term of the debt, the lower the payments, but the higher the overall interest costs.

“We are in this situation because the new clean water plant is very expensive. Clean drinking water comes with a very high price tag because it’s not something where you can cut any corners,” the mayor added.

The plant and its treatment equipment must be built to a very high standard, for obvious reasons.”

City council approved the financing bylaw Monday.

The $75 million loan is for a portion of the costs incurred to this date for the facility, which will take water from Kempenfelt Bay for drinking, bathing, etc. The project’s total construction cost is $142 million.

The financing breakdown is that 60% comes from development charges and 40% from the city water rate, paid by Barrie residents and businesses.

The surface water plant will be used for residential, industrial and commercial customers in the southern half of Barrie, and water is expected to be in the system either this month or in April, pending rigorous testing.

This $75 million will convert existing construction financing into long-term debt, which is required in the financing facility agreement with Ontario Strategic Infrastructure Financing Authority.

OSIFA has given the city a debenture interest rate of 5.08%, which is more than the 4.99% rate used in the city’s water and wastewater long-range financial plan. This will cost the city $2.2 million more during the 40-year repayment period.

“Almost all economists are now predicting interest rates in Canada will increase in the near future due to the economic recovery, so locking in now should reduce the risk of higher costs for the taxpayer,” Lehman said.

The debenture was originally for 20 years, but was changed to 40 years in order to keep water rates affordable. This does increase interest costs, however.

“Yes, this is unusual. Normally debentures (how municipalities borrow money) are for a shorter period,” Lehman said. “I am not at all happy that the city has had to go this route, but the option was to dramatically hike water rates and I think that would not be fair to Barrie residents.

“Other financing methods were looked at by city staff. However, OSIFA was a very low cost option because they were also able to provide interim construction financing at a very, very low rate.”

Some Barrie councillors, John Brassard in particular, had problems with the interest rate from OSIFA, and the long-term financial burden this arrangement places on the city.

But in the end there was little choice but to approve it.

“This is basically the best of a bad situation,” Lehman said. “Barrie’s reserve fund levels are very low and part of the financial challenge for the city now is to avoid further debt requirements as much as possible by keeping costs down and paying for construction projects as we go, while at the same time trying to keep taxes as low possible.

“Borrowing is necessary, but the objective must be to limit it as much as possible and not allow it to become a burden on the overall budget.”

The surface water treatment plant is needed to meet future demands of providing potable water for Barrie residents. Currently all city water comes from 14 deep-drilled wells, but that soon won’t be enough.

The water capacity from city aquifers is 125,000 cubic metres per day, while 110,000 cu.m. are currently used daily. The new facility will add another 60,000 cu. m. a day to Barrie’s water supply.

“Once the surface water treatment plant begins supplying water to the south-end of Barrie, the existing well supply will be valved or rerouted to the north of Barrie,” said Graeme King, SWTP project engineer. “This will ease the pressure on the groundwater aquifer, ensuring its long-term sustainability.”

The new plant is located at 20 Royal Parkside Dr., between Big Bay Point Road and Prince of Wales Drive. It has an administration area, processing building, chemical facility and electrical building.

The intake facility is at 23 Camelot Sq., on Kempenfelt Bay, near the city’s south-east corner. Its pumphouse facility is a single-storey building.

The raw water intake pipe stretches about 800 metres out into the bay, at a depth of about 80 feet, to feed a low lift pump station on Camelot.

Two pipes needed from the pump station to the treatment plant were built as the Princess Margaret Gate-area residential subdivision was being constructed.

The new city water will still be chlorinated, as it is now, but is not expected to be as hard.

The new plant includes membrane filtration to ensure the water is treated to meet, or exceed, Ontario drinking water quality standards.

A map showing the areas that will be supplied surface water is located on the city’s website, www.barrie.ca. It also has several frequently asked questions and allows Barrie residents to type in their address to see if they will be on surface water.

 

 Loan approved for water treatment plant

By Janis Ramsay Simcoe.com Mar 08, 2011 

BARRIE – Council has approved a huge loan to pay off the new surface water treatment plant. 

The new plant, which should start pumping out clean water to south-end homes soon, is costing $150 million.

Half that cost ($75 million) is being borrowed from the Ontario Infrastructure Projects Corporation (OIPC).

But Ward 7 Coun. John Brassard is unhappy with the 5.08 per cent interest rate.

“We’ve seen different interest rates as we’ve been discussing this,” he said. “How can a rate fluctuate, and cause a difference in interest of $2.2 million, if it’s not the Bank of Canada rate?”

Council was told the number is a fixed interest rate, and that’s just the going price.

“Isn’t there any way to negotiate a lower interest rate with them?” asked Brassard. “We’re paying over $100 million in interest. Someone’s making a ton of money. We should be able to get a better interest rate.”

Director of finance, Debbie McKinnon explained it was a 40-year term and there’s little flexibility with OIPC.

“There is a fixed-rate shorter term of 30 years, but we would have an unknown interest rate for the final 10 years. It’s better to lock in,” she told council Monday night.

There’s also the fact that the city is paying down the debt only twice a year.

Craig Millar, deputy treasurer, said it’s not like a mortgage rate where the city can pick a more frequent payment option. “It’s an agreement with OIPC and the date it goes to market is March 15. We have to repay it every six months after that,” said Millar.

Payments are made every September and March, he said.

“Unfortunately, OIPC is not like a bank where we can negotiate down from the posted (interest) rate,” said Mayor Jeff Lehman.

He too questioned the high cost of interest but said approving the loan was still a good decision, saying, “If we wait, there’s a probability the taxpayer will get hit harder.”