Diligent Management Leads to $500,000 Annual Savings
Last week, the City of Marshfield Common Council authorized the refunding of Bonds including the 2006 and 2009 Sewerage System Revenue Bonds.
In basic terms, this means that through diligent management the City’s Wastewater Utility has essentially saved the City more than 500,000 per year over the next four years.
“Working with PFM (Public Financial Management, Inc.), I told them that I don’t want to refinance some of these loans for ten years when in five years they would normally be paid off anyway,” said Saw Warp, Wastewater Superintendent. “So, I said let’s look at a shorter loan period, which is not a typical way that the government would do it.”
Traditionally, government loans are extended over a longer period of time.
“You like to spread loans out because things always come up. Things break, new projects come out, and if you’ve already got your debt to the maximum, then you can’t borrow and you can’t do them, so the normal government way is to stretch them out a little bit in case something comes up,” said Warp. “My PFM plan was ‘let’s just go with whatever works out, whether it’s five years, six years, you guys do the math and figure out how to do it.”
Further improving Wastewater Utility’s financial situation is the culmination of a 20-year, $42 million project that will be paid off next month.
“When I started here, there was $17 million in debt at wastewater. Now we’re down to $4.9 million. In four years, it’ll be debt-free,” said Warp. “We’ve come a long ways.”
With this in mind and because of the utility’s significantly improved financial status, the City went back to Moody’s Investors Service and asked them to re-review Marshfield’s Wastewater Utility
“They gave us a phenomenally good rating, a Aa3 bond rating, which means that some of those interest rates that were 5%, now we refinanced them at 2.1%,” said Warp. “That’s how we saved $2.5 Million. It was a process. This just didn’t fall out of the sky. PFM was really open to finding the best deal for us. I can’t thank them enough. They do it for a living and they were willing to try something different.”
“PFM told me that’s unheard of, that he just doesn’t see wastewater plants that are debt-free,” he added.
While paying down the debt, Warp and his team has also been making necessary upgrades to the facility. Balancing the debt payments with important upgrades wasn’t easy, but the rewards were worth the struggle.
“We’ve paid down the debt and have been fixing our collections systems. We’ve upgraded the lift stations, we’ve lined sanitary mains, we’ve done street projects, so we stayed true to our long term goals and still got it paid off,” said Warp.
Warp often gets asked why the utility must take on debt at all, and his answer is practical.
“You wouldn’t have a home if you didn’t have debt. There’s no way you can save up enough money to ever buy something like that. The only way to do it is to buy it and take out debt,” he said. “Some day in the future when the wastewater plant expands or we get new nitrogen limits, we’ll be adding on and we’ll take on some debt again.”
With the significant amount of unexpected funds coming their way, Warp is eager to be able to make important upgrades to the utility in a fiscally responsible way.
“There are certain things we want to do with the plant. In fact, there were certain things in the original plan back in 1997 that they had to cut corners to keep it under budget, things we’ve wished over the years that we’d had included,” he said. “Now that the loan is going to be paid off, we went and hired a consultant to see how much some of those things would cost nowadays that didn’t get done originally.”
Warp said the Utility will also need to update because of new phosphorus regulations.
“The new phosphorus limits are going to kill us. We have such strict limits here,” he said, adding that he has been writing letters to the EPA and DNR about the extreme regulations.
The consultant estimated the cost for those upgrades to be approximately $685,000 over the next five years.
“This $500,000 is going to go to offset that. We didn’t know this was going to be this nice. We were hoping we were going to save money, but the $500,000 was sweet,” he said. “We’re using that savings so we don’t need to go out for another loan. In four years, we’ll be debt-free.”
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