City Commission Approves Ordinance for Loan with State of Kansas

In Monday's City Commission meeting, Commissioners deliberated on an ordinance greenlighting the execution of a Loan Agreement (Loan) between the City of Salina, Kansas, and the State of Kansas. The purpose of this loan is to secure financing for the inventory of drinking water service lines, with a focus on identifying any lead service lines within the city's water distribution system. This initiative is part of the Kansas Public Water Supply Loan Fund Project No. 3185.

Background:
In line with the U.S. Environmental Protection Agency (USEPA) Lead and Copper Rule (LCR) compliance, a comprehensive and thorough inventory of the City's water service line materials will be compiled by no later than October 16, 2024. This project is designed to complete a Lead Service Line Inventory in accordance with the EPA's Lead and Copper Rule (LCR) and the approved Kansas Lead Service Line Inventory (LSLI) spreadsheet, as per K.A.R. 28-15a-32. Salina has been classified as a Disadvantaged Community based on the 2020 American Community Survey (ACS), which identified the percentage of impoverished residents over the preceding 12 months. In comparison to the state of Kansas, Salina's poverty rate stood at 11.6%, while the state's rate was 11.4%. Consequently, Salina qualifies for a 49% loan forgiveness.

On October 3, 2022, the City Commission granted staff the authorization to prepare and submit a loan application to the Kansas Department of Health and Environment (KDHE) for the Lead Service Line Inventory (LSLI) project. The loan, approved for an amount not exceeding $250,000, comes with an estimated $112,500 in principal forgiveness, resulting in a net loan cost of $137,500. The loan repayment includes a gross interest rate of 2.13%, with a single payment of $138,964.38 due on February 1, 2025.

It's important to note that the Loan differs from a bond issue in that the city does not receive the full $250,000 at the time of closing. Instead, the funds will be disbursed in a manner similar to grant reimbursement, meaning the city will incur expenses and subsequently seek reimbursement from KDHE.

KDHE has stipulated that Ordinance No. 23-11182 must be adopted and published in the official city newspaper. The Form of Opinion of Municipalities Counsel must also be completed, and several documents, including the Loan Agreement, an excerpt of minutes from the City Commission Meeting, Ordinance No. 23-11182, proof of publication in the Official City Newspaper, and the Form of Opinion of Municipality's Counsel, must be submitted to KDHE.

On July 10, 2023, KDHE informed the City of Salina that it has been selected in the KDHE 2024 Intended Use Plan to apply for a loan in the amount of $7.1M from the KPWSLF, with an estimated $3.479M in loan forgiveness. The remaining estimated principal and accrued unpaid interest of $3.621M will be funded by the KPWSLF and included in future water and sewer debt costs. This loan will be used to replace lead services from the public water main to the face of the exterior wall of private structures and galvanized service lines downstream of lead components. In July 2023, the gross interest rate was 2.14%. Staff will be preparing a Drinking Water Loan Application later this year.

On October 10, 2023, staff submitted a request for assistance to KDHE regarding the Water System Service Line Inventory. This request includes historical records reviews, statistical analysis/predictive modeling, and validation of information derived from historical records and predictive modeling. KDHE provides these services at no cost. The City of Salina anticipates receiving support for predictive modeling and validation.

Fiscal Note:
The proposed cost of $138,964.36 will be covered by the Capital Reserve Fund, which means there will be no financial impact on water and sewer rates.

The motion passed 5-0 vote on first reading.