The CPA performing the Town of Lovell’s annual audit informed the town council last week that the town may be in a position to pay off the water and sewer bonds much earlier than originally scheduled.
During his annual report to the council on Tuesday, Nov. 12, CPA James Seckman of Powell said that careful stewardship of town funds may allow the town to retire the bonds much sooner than the originally scheduled 30 years.
Voters in Lovell approved $7 million in general obligation water and sewerage bonds in the November 2004 General Election, with the bonds to mature in 30 years once issued.
According to Town Clerk/Treasurer Valerie Beal, in 2006, the town issued $3,687,000 in bonds, and in 2010, the town issued the balance: $3,313,000 in bonds. The town also issued $548,000 in revenue bonds in 2009 under a provision in state law that allowed the town to borrow against anticipated revenue without going back to the voters. That allowed the town to maximize its grant opportunities through the USDA Rural Utilities Service, Beal added.
With the town paying down the bonds over the years, the 2006 bond has been reduced to $3,185,000, the 2010 bond to $3,132,000 and the 2009 revenue bond to $518,000 as of the end of the 2012-13 fiscal year that ended June 30. Thus, the town has retired some $713,000 in debt on the water and sewer project and now owes $6,835,000 (as of June 30).
The debt is being retired through water and sewer replacement fees added to each town utility bill, and Beal explained that the town got ahead of the game by initiating the fees before the first bonds were issued. That, combined with careful management of “enterprise funds,” has put the town in a strong position, Seckman told the council last week.
Beal spoke with Seckman Tuesday and confirmed the status of the town’s enterprise funds for water, sewer and garbage.
“He said the general rule of thumb is to have one to three times the annual operating expenses, plus depreciation,” Beal said. “We need to have a reserve on hand to take care of things as they come up.
“We’ve been able to have reserves on the healthier side of things – closer to three years (operating expenses) than one year. As we go forward, once the project is finished, we can see if some of the reserves can be used to pay down the bonds sooner.
“We need to see if there are any unanticipated expenses with the Main Street Phase.”
If nothing else, Seckman said, the town should be able to immediately retire the revenue bond leading only the two general obligation bonds, and even they could be whittled down, he said, perhaps reducing the retirement date by 15 or even 20 years.
“If we continue operating the way we have been that’s a possibility,” Mayor Bruce Morrison noted, but Beal signaled a more cautious tone.
“I think that’s on the generous side of things (10 years to retirement of the bonds,” she said. “Maybe in 15 or 20 years. I think it will take longer (than 10 years).”
Whatever the reduction in the payment schedule the benefits of retiring the bonds are great, Beal and Morrison said. Not only would the replacement fees go off of the utility bills sooner, but millions could be saved in interest. If the bonds aren’t paid off until 2036, the town will pay $4.6 million in interest alone.
“That’s why we want to pay the debt down as soon as we can,” Beal noted.
“We want to do it,” Morrison added. “We can’t promise it in 15 years, but we want to do it as soon as possible. It’s a very worthwhile goal.”
by David Peck