Benny Westcott
The city was recently able to save hundreds of thousands of dollars after securing a favorable interest rate on its water and wastewater debt.
“We took our water and wastewater debt, and went out to a firm out of Portland, DA Davidson & Co. and all of that debt had interest rates that were 3% or above,” said Brandon Neish, city finance director. “And with the bond market where it was, we thought we could get a better rate for these items.”
City staff went through a very long and paper-intensive process, and were able to finish with an interest rate averaging 1.38% for three of their loans.
That will save the water and wastewater system $766,000 between now and 2035, Neish said.
“There’s a lot of options for that money,” he said. “The council could decide that needs to go back into rates to offset any future rate increases for a period of time. Or it could go into capital.”
“That’s $766,000 we didn’t have before. It opens a lot of doors. Now the council needs to decide what’s best for this community.”
Neish said the city is deferring the principal payments the first two years. “We’re still paying some, but of that $766,000 we are going to realize about $720,000 of the savings in the next two years. So that way we have the money to invest now, whether it’s in rates or capital projects.”
The city also recently received an AA bond rating, which city staff were excited about.
“Only 15% of communities in Oregon attain that, and they’re generally not our size. They’re the bigger ones that have a lot more revenue,” said City Manager Ray Towry.
Neish explained exactly what the bond rating means.
“A city has a choice when they go out for a refinance to obtain a bond rating or not. That bond rating then directly impacts what you will be able to do with your rate. The better your bond rating is, the lower your rate is going to be, because people see your debt as secure. There was an additional fee to do it, but we decided that it was worth the investment to do that bond rating.” he said.
“Knowing that we can get that AA bond rating means that if we go out for future bonds, investors will look more favorably upon those ones as well.”
He said a city the size of Sweet Home normally wouldn’t qualify for that rating, but its policies and finances were such that it has.
“They felt that it was above and beyond the normal setup for an organization, so they felt comfortable giving us an above average rating for our city’s debt,” he said “And that did contribute to what we got as far as an interest rate.”
The rating was provided by S&P Global Ratings Group, a credit rating agency that publishes financial research and analysis on stocks, bonds, and commodities. It is considered the largest of the Big Three credit-rating agencies, which also include Moody’s Investors Service and Fitch Ratings.
Neish said he hopes to continue to help the community in debt-related items.
“My philosophy in my role as finance director is we want to do whatever possible to minimize the long-term effects of debt on this community.” Neish said.
And he said he tries to avoid putting rate increases on the people of Sweet Home.
“We don’t like to talk about rate increases. Nobody does. The council doesn’t like to; we don’t like to as staff. We all pay water and sewer ourselves. We know the damages that utility rates can have on a household budget. We certainly don’t take those things lightly so whatever we can do as staff to mitigate those potential increases is critical for us,” Neish said.
“We don’t like raising rates any more than people like paying them,” added Towry.
Indeed, Sweet Home has one of the lowest permanent tax rates in the state of Oregon, said Towry.
However, one rate that is particularly high in Sweet Home is sewer rates. But city staff plans to use that revenue to improve the sewer system.
“About three years ago we got the council to agree on a rate increase on the sewer side,” Towry said. “It was a fairly steep increase. We now have some of the highest sewer rates, unfortunately, in the state of Oregon. But what that’s done is it’s allowed us to build up this fairly large savings, that we can put into a very necessary sewer treatment plant upgrade.”
“Because we have that money we were able to go to the state and leverage that and get an additional $9 million dollars in state funds. With that, we’ll be able to leverage it with Business Oregon and USDA to hopefully secure some additional funding as well,” he said.
Sweet Home’s wastewater treatment facility was built in the 1940s, with an upgrade in the 1970s and another in the 1990s.
Problems have arisen with the system.
“In some heavy rain events, the rainwater actually gets into the collection system, and then it goes into the water treatment plant,” said Towry.
He said that about 15 years ago the system, which was made to handle about 7 or 8 million gallons of water a day, was getting upwards of 22 million gallons during a rain event. “That is overwhelming the system, and to keep it from flooding out you had to just bypass it into the river.” This has led to the Department of Environmental Policy issuing infractions on Sweet Home.
Neish said, “The city’s been able to stave off some more severe penalties from DEQ infractions because they know we’re moving forward with the treatment plant upgrade.”
After sewer spills into a creek occurred, DEQ mandated the city to fix the problem. The city complied with that order and spent $15 million over a ten year period. Some of that $15 million became the debt that the city recently refinanced.
The city hopes to complete the wastewater treatment plant upgrade by 2024. Towry predicts that the project will cost around $28 million dollars, and less than 50% of that will be debt.
The reason that the city had to incur so much debt to pay for sewer remedies is because they did not want to raise rates in the midst of past economic hardship in Sweet Home.
Towry explained why some of that hardship occurred. He said that unemployment rates in Sweet Home went up after new regulations hit the timber industry.
“The community used to have 13 mills. We don’t have 13 mills anymore.”
“There was always this feeling that the timber industry would come back, but it hasn’t really,” Towry said. “Anything related to recovery in the timber industry has been met, but it’s also been highly automated. So all those jobs didn’t come back.”
“So we have this economic crash in a lot of Oregon with the downfall of the timber industry, and then that’s followed by the recession,” Towry said. “So the community has really struggled to keep up with a lot of necessary maintenance items.”
He said that councilors were reluctant to up rates to pay for projects, like sewer treatment plant improvements, if it meant possibly keeping citizens from putting food on the table.
“They did what was best at the time,” he said.
He said the city’s general fund is low because of the city’s relatively low permanent tax rate.
“Really the only place that the council can go and take money from one area and move it into another is the general fund. That permanent tax rate is what funds the general fund, and with that rate being so low, there’s not a lot there to take away.”
“So much so that in order to fund the police department and library we have to utilize Special Operations revenues, which we just renewed last fall,” he said.
Sweet Home’s low system development charges compared to other cities in Oregon have also contributed to making it difficult for the city to fund projects.
Council discussions have started to lean toward raising SDCs in Sweet Home in the near future, but the council hasn’t officially voted to raise SDCs yet or set what the new rates would be.
Towry said that raised SDCs would mean that “when a new developer comes in with the SDCs, they have to invest in the system. The rate payers (tax payers) don’t pay. The guy making the profit is going to pay. He or she is the one benefiting financially from [the system], so they should have to bear some of that.”
Even though the city sometimes doesn’t have the funds available to complete as many projects as the city staff would like, the staff does their best to do what they can with what they have to work with.
“We work really hard to be efficient as much as Salem will allow us to be,” said Towry. He admitted that “probably 85% of what we do is dictated by Salem.”
And city staffers say they enjoy coming to work every day.
“Part of the long-term vision that Ray [Towry] has brought to the table is something we hear from him all the time – hiring people that are hungry, humble and smart,” said Neish. “People that want to be here, that want to work for this organization, that want to contribute to this community.”
Towry discussed some of the biggest goals he has for the city.
He started by saying “It’s economic development. It’s working to create an environment in which businesses can succeed. We’ve tried to help local entrepreneurs be successful.”
“We know you can be successful here,” he added. “We’ve got businesses to prove it.”
Additionally, he said “We want to encourage investment in the community. We try to encourage downtown building owners to invest in their buildings.”
“We’re trying to increase the number of houses. We’re trying to encourage people to build homes in the community.”
He also says the city is focusing on its parks. “We’re trying to improve the overall quality of life in the community. Right now we’re investing in Sankey Park. We’ve done some big things there, and then we will move on to other parks once we get Sankey done.”
Towry says Sweet Home’s population could increase in the next decade, a trend that he already sees occurring.
“We’ve seen a huge influx of people, particularly from the California area,” he said.
He also thought that the COVID pandemic could actually lead to more people moving to the area.
“If there’s a positive to COVID from an economic development standpoint, it’s that you’ve got a lot of companies learning that they can have a remote workforce and still be equally or more productive. We’re starting to see people wanting to come out into more rural areas.
“I think you could see a huge influx of people, because while we’re rural, you can be at a meeting in Portland, Eugene or Corvallis pretty easily in a short amount of time. We’re not that far from the metro areas, but we’re far enough that we aren’t part of the metro areas.”
“If you like to be amongst the mountains and nature and lakes, it’s a great location,” he said of Sweet Home.