CU approved for $10M loan
by By RICK NORTON Associate Editor
Jun 30, 2013 | 1019 views | 0 0 comments | 36 36 recommendations | email to a friend | print

Cleveland Utilities has been approved for a massive $10 million loan from the State Revolving Fund Loan program that will keep a comprehensive sewer rehabilitation initiative afloat for the next few years.

The SRF package, which CU has pursued for the past year, is divided into two parts, according to Tom Wheeler, CU president and chief executive officer, and Ken Webb, CU senior vice president and chief financial officer.

The first totals $1.82 million for sewer system rehab, and includes $451,022 in “principal forgiveness,” meaning this portion of the loan will not have to be repaid. In this part of the funding package, $1.38 million is being loaned on a 20-year repayment term with a fixed interest rate of 1.15 percent.

The second includes $8.17 million for sewer system rehabilitation in the Wildwood Avenue and 9th Street drainage basin area. This part of the state loan package carries with it a 20-year repayment plan at the same fixed interest rate of 1.15 percent.

SRF is administered by the Tennessee Department of Environment and Conservation in conjunction with the Tennessee Local Development Authority. The U.S. Environmental Protection Agency, which monitors and enforces the federal Clean Water Act, provides grants to fund the SRF program. The state of Tennessee provides a 20 percent match. Loan repayments are returned to the program and are used to fund future SRF loans.

Two years ago, Cleveland Utilities launched a comprehensive, but costly, community-wide sewer rehabilitation program intended to reduce inflow and infiltration (I/I) into its existing sewer lines which in turn will curb manhole overflows and isolated flooding during periods of heavy rain across the city.

SCOPE 10, an acronym for Strategic Commitment to Protect the Environment, was designed as a 10-year program. Latest projected cost for the sewer system overhaul is $30 million although the total could increase based on severity of damage to existing underground pipes and cost of materials.

CU is well into the second year of SCOPE 10, a project it has funded internally. With SRF support, the public utility will be taking advantage of a low fixed interest rate while receiving the $451,022 incentive in principal forgiveness.

Utility officials had already planned to keep the sewer rehab program going through a series of 4.5 percent wastewater rate increases over the next four years; however, TDEC reviewed the CU application for SRF funding and recommended the proposed hike be pushed up to 5 percent to assure repayment.

As approved in prior actions by the Cleveland Board of Public Utilities and Cleveland City Council, the 5 percent rate hike will take effect Monday (July 1), which is the first day of CU’s new fiscal year budget.

Webb, who has worked closely with TDEC and other state officials since late last summer to complete application paperwork, projects the SRF funding will pay for SCOPE 10 sewer rehab improvements for the next three to four years once the money is made available.

“This is a fixed-rate loan, and that’s important because it takes the uncertainty out of it,” Webb said, referring to the up and down fluctuation of a variable interest rate plan. “We’re seeing that interest rates are already ticking up a little bit.”

Completing the application requirements — facilities plans, a financial review and multiple steps of an approval process — have been challenging and they have spanned several months, “... but it’s been worth it,” Webb said.

Wheeler agreed because TDEC’s approval of SRF loan support means the local utility has a reliable source of low-interest funding for the next few years.

“This is just a real shot in the arm for us ... [because] it will get us well into a project that is so important for Cleveland,” Wheeler said.

Although he is ecstatic about CU being approved for SRF funding, Wheeler said his staff won’t be dancing in the streets.

“It’s time to go to work,” he stressed. “It’s too early to celebrate. We’re pleased we’ve gotten this funding, but we’ll be happier when the whole project is completed, and that we’ll be showing some significant results.”

Although CU is already well into the SCOPE 10 initiative, Wheeler cautioned that area residents probably won’t be seeing identifiable improvements until halfway through the project.

“This is a very slow process,” he said. “You go into the [wastewater] system point by point and realign bad sections of pipe.”

He added, “We’ll take more flow testing once the work is done ... but it’s going to be halfway into the project before we see some significant, measurable results.”

SCOPE 10’s halfway point could be in about three years provided the initiative remains a 10-year project.

An ongoing sewer rehab review, which was actually a predecessor to SCOPE 10, dates its origin beyond Labor Day Weekend 2011; however, on this holiday the Cleveland area received a rare 12 inches of rain within a 24-hour period. This was CU’s wakeup call that a more aggressive initiative like SCOPE 10 was necessary because of the severity of overflow, isolated flooding and even some sewer backup issues that the heavy downpours caused.

Wheeler credited the work of his staff in fine-tuning the SRF application package, but he pointed as well to the foresightedness of two governing bodies that he said recognized the severity of the flooding and overflow problems.

“This (SRF funding) would not have been possible without the support of the utility board and the City Council in approving the [sewer] rate increase that we had to have to get this,” Wheeler said. “Biting the bullet on increasing the [sewer] rate did get us this loan forgiveness [on the $451,022) and an extremely low interest rate [on the remaining $9.5 million].”

Of the CU board’s and Council’s actions, he added, “We could not have done this without their support.”

Another who had a hand in working to get Cleveland Utilities the state aid that it needed is State Rep. Kevin Brooks, R-Cleveland who represents the 24th Legislative District. This area includes much of CU’s service territory.

“We are so thankful for this and many other ways that Gov. Bill Haslam and the state of Tennessee are helping to make Cleveland and Bradley County a better place to live, work and raise families,” Brooks said.

In helping to share the news about TDEC’s role in administering the SRF program, and the state agency’s involvement in approving the CU loan application, Brooks pointed out, “This will go a long way toward the bigger, better and brighter future of our hometown of Cleveland, Tennessee.”

According to the joint announcement by TDEC and Haslam, CU and the city of Cleveland are one of 11 communities in the state approved for a total of $203 million in water and wastewater construction loans through the SRF program.

“I am pleased to see local governments using this important program to help address critical drinking water and wastewater needs, and making infrastructure improvements that will benefit the health of these communities and economic growth,” Haslam said in a prepared statement.

Bob Martineau, TDEC commissioner whose office oversees SRF, added, “The State Revolving Fund Loan Program is a community investment to help maintain environmental and public health, while keeping local communities moving forward as they prepare for future needs.”