The Town of Smithfield plans to borrow nearly $1.2 million to finance water and sewer work – debt that could lead to higher water and sewer rates to pay off the loan.
Earlier this month, the Town Council held a public hearing on the borrowing before authorizing staff to seek Local Government Commission permission to obtain an installment loan. The commission, which oversees local government finances, must approve the town’s application before it can get money from a lender.
The projects financed by the roughly $1.18 million loan include system upgrades and equipment purchases and repairs.
No citizens spoke during the public hearing.
To repay the loan, the town could have to increase water and sewer rates by roughly 50 cents per 1,000 gallons used, the staff told the Town Council. But those increases would take place no earlier than the start of the 2016-17 budget year on July 1, staff said.
The Local Government Commission required the town to estimate the impact on rates, so Smithfield’s finance director used the largest increase that could likely occur.
Staff outlined two scenarios – a 7-year loan and 10-year loan – both using 3-percent interest rate.
After advertising for a loan, staff recommended and the council approved moving forward with a 10-year loan to make for lower payments in the event the borrowing requires rate increases. BB&T was among the bidders for the borrowing and agreed to finance the loan at an interest of 2.06 percent, lower than staff estimated.
The deal with BB&T would require the town to make two annual payments of $65,671, or $131,342 per year for 10 years, according to staff. Total interest over the 10-year period would $131,923. The first payment, pending state approval of the borrowing, would be due in October.
The town received two bids for the 7-year loan, from BB&T and PNC. BB&T was the lone bidder on the 10-year loan.
Among other things, the borrowing would buy a lot of equipment, including spare pumps for lift stations, $50,000; a used backhoe, $81,500; sludge-handling equipment, $100,000; and an air compressor, concrete saw and trenching-shoring equipment, $41,000.
Also, the money would replace a lot of aging gear, including water valves throughout town and at the water plant, $80,000; switch and control panels on a generator, $90,000; and controls at a pump station, $62,000.
The town plans to rebuild a water pump, $30,000; replace a two-inch water line on Vermont Street, $25,000; install a remote system for monitoring and controlling systems, $97,000; and install a chlorine dioxide system for water treatment, $130,000.
Another $265,000 would make repairs and upgrades to sewer lines and pump stations.
Abbie Bennett: 919-553-7234, Ext. 101; @AbbieRBennett