Sewer authority needs $30M bond
Canonsburg-Houston Joint Authority needs about $30 million to refinance its debt and pay for necessary expansions to its sewage treatment plant.
While the proposed project already is behind schedule, it remains undetermined whether the authority or Canonsburg Borough will float the bond.
Canonsburg Borough is proposing a 25-year bond agreement with the authority, in which the borough would issue a bond and essentially “act as the bank,” loaning money to the authority, said John Bevec, president of Canonsburg council and newly appointed member of the authority.
“We’re just looking for the least expensive way to borrow the funds,” Bevec said during an authority meeting inside Frank Sarris Public Library last week.
Although nothing has been finalized, Bevec said the tentative agreement would be a one-package deal that would refinance the authority’s $4.2 million debt, float the bond for the project, which could cost around $25 million, and renew the authority’s lease for the sewage plant, which expires in 2019. The authority owns the plant but leases operations back to the borough, which is in charge of the day-to-day operations of the plant and all employees.
Bevec said the impact on customers’ bills has not yet been determined, but he said a potential increase in tap fees could keep the sewer rates steady for the next four to six years.
Michael Alterio, authority chairman, said the sewage plant project already is two years behind schedule and cannot be further delayed. He said the authority is under a corrective action order from the state Department of Environmental Protection, and further measures could be taken by the DEP if the project doesn’t begin soon.
Alterio said Cool Valley, a proposed mixed-use business park, could soon be larger than Southpointe, and “the population is growing at such a rapid pace that we need to make those upgrades.”
Contractor bids for the project were scheduled to be opened next week, but the board postponed the opening until December. After that date, the authority has 90 days to award contracts, so a bond agreement would need to be reached beforehand.
Representatives from PNC Bank and Eckert Seaman, Canonsburg Borough’s bond counsel, answered questions during the authority’s meeting regarding the proposed bond agreement. Alterio asked if the authority could issue the bond itself if its lease were renewed.
A PNC representative said it would be cheaper for the borough to float the bond because the borough would not need a debt service reserve fund or mandated debt service coverage, whereas the authority would, and the interest rate for the borough would be lower. Bevec said he believed it would be cheaper for the borough to issue the bond because the authority would need to pay large fees for insurance or a surety bond policy.
“It’s either a $2 million cost (for a surety bond policy) or a cost to buy the insurance, so that, to me, is a big chip in PNC’s favor because now that’s extra money that we don’t have to pay out or go get in insurance,” Bevec said.
Glenn Alterio, solicitor for the authority, said he wished the borough would give the authority the chance to look into the matter independently and determine for itself which is the best option. He said he wants the authority’s lease to be renewed regardless of the bond agreement outcome, because the 2019 expiration date makes it impossible for the authority to borrow large sums of money. The length of the lease extension has not been determined. The last extension was for 50 years.
“If this is the chepaest way, for the borough to borrow it, then I’m sure this board, being a resonable board, will say, ‘Let’s do that,'” he said to the borough’s bond counsel. “But the way it sits now, you basically are telling this board, ‘If you do not do it our way, you’re not going to do it at all,’ and that’s not an arms-length transaction.”
He said the agreement proposed by the borough includes changes to the authority’s articles of incorporation that would restrict the authority’s ability to borrow money and incur debt, as well as the ability to negotiate, alter or amend service agreements.
Authority members said they hope to reach a tentative bond agreement by Nov. 13.
“I think I can say on behalf of the board, we want to get this plant built, and in several months from now we want the money,” Michael Alterio said, addressing the borough’s bond counsel. “We don’t care how you get it. We just want to make sure that you do the right thing for the council and for the people of Canonsburg and, of course, this board.”