MEMORANDUM 09-54

To: Walt Wrede, City Manager

From: Carey Meyer, Public Works Director

Date: April 21, 2009

Subject: Homer Water Treatment Plant Improvement Project

Project Status – Authorization to Utilize Entire Loan Amount

Project Status: The construction of the new water treatment plant is nearing completion. The new treatment plant will begin to provide water to the community starting in May, 2009. This project is within budget and on schedule, to be complete by early this summer. This is an $11.75 M project that will assure City drinking water meets the new, more stringent regulations and provide for continued community growth. A public grand opening is planned for later this summer.

Funding Overview: The total cost of this project is still expected to be $11,750,000. Total ADEC Loan Amount is anticipated to be $7,417,000 at 1.5% through the Alaska Drinking Water Fund. City Council has authorized borrowing $8,000,000. Grants will total $4,333,000 (30% City; 70% State).

Budget Breakdown and Costs to Date (as of March 31, 2009):

Current Budget Actual to Date Cost to Complete

City Admin./Support Contracts $ 270,000 $ 230,000 $ 55,000

Design $ 845,000 $ 845,000 $ 0

Construction $ 8,340,000 $ 7,480,000 $ 860,000

Treatment Equipment $ 1,610,000 $ 1,040,000 $ 570,000

Inspection $ 415,000 $ 300,000 $ 115,000

Contingency (5%) $ 260,000 $ 250,000 $ 10,000

Total Project Budget $11,750,000 $ 10,145,000 $ 1,605,000

Schedule: Original Schedule Actual Schedule

Complete Final Design of WTP facility November, 2007 March, 2008

Open Bids for Construction of WTP facility December, 2007 April, 2008

Award Bids for Construction of WTP facility January, 2008 May, 2008

Issue Notice to Proceed for WTP facility February, 2008 May, 8008

Start Construction of WTP facility May, 2008 May, 2008

Construction of WTP facility Complete November, 2008 July, 2009

As described above, the City Council has authorized borrowing $8,000,000 at 1.5% to fund the project. Total borrowing needed is expected to be limited to approximately $7,500,000.

Grants received by the City for this project will total $4,333,000; (30% City; 70% State). The 30% grant match has been paid for directly from the HAWSP fund (as directed by the City Council).

The City does have the opportunity to utilize the unencumbered loan amount to finance some portion of the matching funds. By using the remaining loan amount to finance a portion of the City’s grant matching responsibility; the City can protect its cash reserves in the HAWSP fund. Rather than spending cash out of the fund, the City could borrow the money at 1.5% and pay it back over a twenty year period. This money could then remain in the HAWSP fund, earning interest, and be available to fund future projects.

Recommendation: The City Council authorize utilizing the entire approved 1.5 % interest loan amount ($8,000,000); so that a portion of the City’s matching grant responsibility (estimated to be approximately $500,000) can be financed, rather than paid for directly out of the HAWSP fund.