Chanute and its partners are getting ready to close on a second bond issue to fund $26 million in improvements to the city’s water treatment plant.
The project has been in the works for some time. The first bond issue came in 2021. Closing on the second issue will be next week.
Last week, the Chanute City Commission set a project budget at $26 million for improving the water treatment plant, which will be capable of treating 6 million gallons of water daily.
Representatives from Midwest Engineering, Crossland Construction and Gilmore and Bell, the bond counsel, were on hand to discuss a second bond issue for the project and the size and scope of the work.
The new general obligation bond issue will total $9,995,000 and be marketed by UMB Bank. The city will be able to apply $9.8 million toward the construction of the water treatment plant improvements. The city issued bonds in 2021 to fund a portion of the project. The bonds to be issued this month will be paid off over two decades with fees collected from water customers.
The interest rate will vary on the bonds, starting at 3.8% and increasing to nearly 5% near the end of the first 10-year term. The interest rate resets at that point, Garth Herrmann of Gilmore and Bell told commissioners. Interest payments start in 2025 and the first principal payment is set for 2031.
After the discussion, the commission passed an ordinance and a resolution relating to the bond issue.
The board also discussed payback options, a conversation that will continue each year during budget talks, commissioners heard. City Manager Todd Newman said the current fee attached to water customers’ bills is $20 for the capital improvement program. That could increase in future years because of the second bond issue and the need for a third issue to finish the project.
The annual costs are $586,000 for the first bond issue; the expected annual cost for the second issue is $465,000.
Chanute’s water treatment plant is more than 60 years old. The original plan discussed in 2021 was to replace the front end and the back end of the system while keeping the building and filters. The original cost was to be $14 to $17 million.
Delays in regulatory review and approvals caused that cost to double as labor and material costs increased. The new estimate last week was $36 million, which included the water plant upgrades, equipment, engineering and construction. City staff looked at the project and didn’t want to have that much debt because of budget and rate concerns. Eliminating a clear well, which could store up to 1 million gallons of water, would drop the project cost by $10 million.
The clear well would serve as a secondary water source, although it would only meet the city’s needs for a short time.
Another budgetary concern is that the city still needs to make expensive improvements to the wastewater treatment plant in the future, Newman told commissioners.
“It’s a lot of money. It’s a lot of money on 8,500 citizens,” Newman said.
The current plant treats up to 1.5 million gallons a day. The new plant could treat up to 6 million and would use two 3 million gallon tracks for treatment. This will allow the city to shut down one side at a time in the summer for maintenance and still have up to 3 million gallons of water to send into the system each day.
Commissioners wondered if the reduced project would have to go through state review as well, possibly causing more details and increasing costs again. Newman said he’s not sure.
After the discussion, the commission approved a motion to reduce the size of the project to $26 million.
Construction will take about two years to complete.
