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Good news for Willmar water users with expected rate hike eased by financing treatment plant in-house

It was reported earlier this summer that water rates for the city of Willmar were expected to increase 20% for each of the next three years and another 5% in the year 2026 due to having to finance the construction of the addition to the Northeast Water Treatment Plant. However, Willmar Municipal Utilities has found a way to finance the project in-house to significantly decrease the expected rate spikes.

Willmar Municipal Utilities Water Department Supervisor Alan Neer during an Aug. 8, 2022, tour points out the footprint of the new water treatment plant, which will be located adjacent to the current plant in northeast Willmar.
Willmar Municipal Utilities Water Department Supervisor Alan Neer during an Aug. 8, 2022, tour points out the footprint of the new water treatment plant, which will be located adjacent to the current plant in northeast Willmar.
Jennifer Kotila / West Central Tribune file photo
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WILLMAR — The Minnesota Legislature’s inability to pass a bonding bill this year significantly impacted Willmar Municipal Utilities’ plan to fund the construction of the Northeast Water Treatment Plant addition, and it was projected that water rates would have to increase by 65% over the next four years to fund the project.

However, Willmar Municipal Utilities has found a way to fund the project that will save approximately $3.5 million in interest payments, which significantly decreases the expected water rate hikes for its customers.

The Willmar Municipal Utilities Commission at its meeting Monday approved financing the $16.79 million project in-house, rather than bonding for the project.

Interest payments on the bond were expected to be approximately $4 million, according to Willmar Municipal Utilities General Manager John Harren. Interest on the in-house loan will be approximately $400,000.

After Monday's action to borrow money for the project from the electric fund, water rates are now expected to increase by 32% over four years — 20% in 2023, 5% in 2024, 4% in 2025 and 3% in 2026.

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That is the second bit of recent good news for water users.

Lower-than-expected bids for the project, approved earlier this month, had already decreased the expected rate spike to 47% over the next four years.

The new water treatment plant will be located adjacent to the current Northeast Water Treatment Plant. The current plant will remain in operation until the new plant is operational.

Once the new plant is operational, the current plant will have its equipment replaced with new equipment.

Demolition associated with the overall project was incorrectly described in a previously published story. Demolition will involve removing some trees, culverts, a watermain, and some electrical. The current plant will remain in place.

Willmar water plant addition location.jpg
This Aug. 8, 2022, photo shows where Willmar's Northeast Water Treatment Plant addition will be. The estimated $26 million project will be financed in-house after the Willmar Municipal Utilities Commission approved not bonding for the project. That decision saves approximately $3.5 million in interest payments, which significantly decreases the expected water rate hikes for customers.
Jennifer Kotila / West Central Tribune

“It would have been nice to have a little bit of bonding money from the Legislature, but obviously that’s not going to happen,” said Commissioner Shawn Mueske. “This is probably the best-case scenario.”

Harren explained that in-house funding will bring cash reserves below the 50% threshold that is the Municipal Utilities Commission's policy, but it does not look like that will affect any future projects at this time.

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Finance and Office Services Supervisor Andrea Prekker said cash reserves will fall below the 50% threshold for one year for electric and water funds combined, and it will fall below the threshold for five years for the water fund. The electric fund never falls below the threshold.

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The water fund will have between 20-25% cash reserves for the next five years, and the combined funds will have cash reserves of 48%, according to Prekker.

A public hearing for the rate ordinance will take place at the Municipal Utilities Commission's Oct. 10 meeting, which takes place at 11:45 a.m. at the Willmar Municipal Utilities building.

Members of the Willmar Municipal Utilities Commission, city staff and City Council members listen Aug. 8, 2022, as Willmar Municipal Utilities Water Department Supervisor Alan Neer talks about plans for the new water treatment plant to be built adjacent to the current Northeast Water Treatment Plant.
Members of the Willmar Municipal Utilities Commission, city staff and City Council members listen Aug. 8, 2022, as Willmar Municipal Utilities Water Department Supervisor Alan Neer talks about plans for the new water treatment plant to be built adjacent to the current Northeast Water Treatment Plant.
Jennifer Kotila / West Central Tribune

In May, Willmar Municipal Utilities consultant Dave Berg informed the commission during an interim water rate report that it may need to raise water rates 25% in 2023 to make up for an expected $5 million shortfall in 2026 due to debt payments on its capital improvement projects — including the water treatment plant.

“Most of you probably already know that the Legislature did not reach an agreement (May 22) on a bonding bill,” Berg said.

In July, when presenting the final water rate report Berg was recommending that the water rate increase by 20% each year in 2023, 2024 and 2025, and by 5% in 2026.

“Unfortunately, another thing that we were talking about in May was that we were potentially hopeful about getting something from the Legislature in a special session, but, as we are all aware, that special session never occurred,” Berg told the Municipal Utilities Commission in July.

Rep. Dave Baker, R-Willmar, was on the commission's agenda Monday to discuss legislative issues.

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“We should have gotten that bonding bill done,” Baker said. “Part of that bonding bill was our water infrastructure bill here for Willmar Municipal Utilities."

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Baker, along with Sen. Andrew Lang, R-Olivia, carried the bill requesting $21 million "so that we could actually do a very minimal increase on our rate-payers. We were just not able to get that through.”

Baker said there is talk of Gov. Tim Walz bringing the Legislature back into session after the election for a bonding bill, and he is “very much in favor of seeing that happen,” adding that delaying the bonding bill and delaying the projects tied to it only makes the costs of the projects increase.

Jennifer Kotila is a reporter for West Central Tribune of Willmar, Minnesota. She focuses on local government, specifically the City of Willmar, and business.

She can be reached via email at: jkotila@wctrib.com or phone at 320-214-4339.
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