Stevens would be reconstructed from Frederick Street north to Hwy 17 bypass
By Naomi Kowles
For the Star Journal
The Rhinelander city council approved the application for $10 million in Rural Development grant and loan funding for a reconstruction of Stevens Street on Tuesday night.
If it comes through, the funding would pay for more than half of what is estimated to be an $18 million project.
The funding, which includes about $4.5 million in grant money, would form one of three monetary sources for the project, according to a preliminary financial report presented by the city’s financial consultants.
Senior advisor Sean Lentz called the amount of USDA Rural Development grant funding unprecedented in its availability to the Rhinelander community. The remaining $5,373,000 would be financed by sewer utility revenue at a fixed interest rate of 2.375 percent over a period of 40 years.
The consultants cautioned there are elements of risk to the plan. The report shows almost $1,689,099 of available sewer revenue to be applied for debt service, but from the years 2020 to 2029, the loan payments would amount to almost $1.5 million. This would leave just under $200,000 in available revenue, with a revenue debt coverage between 1.13 and 1.14. While the minimum coverage requirement is 1.10 times the debt payment, the city’s financial advisors admitted that the numbers left “very little wiggle room” when taking annual variability into account.
Much of that available revenue is calculated from depreciation expense. “In Wisconsin, most communities are using depreciation to pay debt that they currently have,” Lentz explained, adding that current debt payments had already been detracted from the available sewer revenue for the report.
The second monetary source for the project would be funded by the water utility revenue and could be financed by either a Safe Drinking Water Fund Loan (SDWFL) or another USDA loan. SDWFL’s have a 20-year term, with a fixed interest rate of 1.122 percent. Conversely, the USDA loan would be higher interest and repaid over a 40-year period.
This portion of funding would face the same issue of narrow debt coverage margins, with that number dipping to 1.11 under the SDWFL option.
Financial reports indicate that Expera and Lake States Yeast generate over a quarter of the city’s water utility revenue. “When you have a high-volume user, any volatility in their income could lead to shortage in overall water revenues,” Lentz warned the council.
While the SDWFL has the advantage of lower interest, the USDA option would allow for larger amounts of remaining revenue. However, it could cost almost $3 million more in total principle and interest payments, although the city would have the option of repaying it in fewer than 40 years.
The financial plan calls for a third funding source of $1.3 million to be funded by the city’s general obligation debt, which could mean an increase to property tax debt levy from $1.64 per $1,000 of equalized value to $1.83. For $100,000 in property value, that would mean an increased debt levy payment of $164 from $183, Lentz explained.
This would increase the total annual debt levy from $900,000 to about $1 million, in addition to borrowing for capital projects every other year.
Alternatively, city council members discussed the possibility of funding the local debt share from the Premium Resort Area Tax (PRAT), which was enacted in 2017 and is currently funding about $2 million in street projects this summer. The annual payment for the proposed Stevens Street funding would amount to approximately $100,000.
Currently, about $240,000 of PRAT revenue is paying off the 10-year street project loan, out of an estimated $425,000 in yearly PRAT revenue. The Wisconsin Department of Revenue shows about $490,000 in revenue for Rhinelander from the first two payments of 2018, up from a total of $325,580 from all four payments in 2017.
“The city had to make haste and get this in place right away; we had to turn this around inside a week,” Public works director Tim Kingman said in relation to the USDA grant. He and others have been working on sourcing funds for the Stevens Street project for almost two years, he added.
No decisions were made at the council meeting regarding the water utility or debt funding proposals for Stevens Street. If approved the work would begin in 2019.