The Ostrander City Council met on August 16 for a special meeting. All members were present (Erin Brugh, Pam Kunert, Mayor Pat Nesler, Clerk Chris Hyrkas, Heidi Jones and DJ Start). As posted, the items to be discussed were to pick a funding option for the pre-project financing and authorizing the submission of such application, and to approve or opt out of the “granny pods” law.
The council first herd from Mike Bubany, who stated that for Ostrander’s infrastructure project, the USDA is able to help, through grants and loans, but, “USDA, however, doesn’t provide the longterm financing until after construction is complete. So you have to do construction financing,” and he explained that Minnesota Rural Water Association has an interim financing option. “Then it turns out,” he added, “the interim financing program does not become available until bids,…and bids might be next spring or summer or fall. So, you need an interim financing for the interim financing because you’re going to be getting into large bills associated with the design.”
Bubany then summarized what the city’s options are, saying, “Cities must structure all debt as a bond issue. USDA loans, they call them loans, but they’re bond issues. Minnesota Water calls them loans; they’re bond issues.” He then offers several options for the city to consider in trying to find the most cost-effective option. He said governmental programs, such as USDA, are always the best option to look at first, but because of their rules, that’s why the city is looking for interim funding in the first place.
Secondly, he mentioned a conventional bond sale, but said they are very expensive to issue. He gave a ballpark estimate that for the $527,000 in pre-project costs, minus $144,000 for the county’s contribution, the city would pay about $30,000 just in issuance costs. He also pointed out that this type of funding has significant inherent delays.
Third, he said Minnesota Water offers MIDI loans, at a higher interest rate but much lower issuance cost. He estimate that for this short-term project, this would result in payments about $20,000 lower than conventional borrowing. Bubany said this is what he would recommend Ostrander pursue. After some discussion, the council voted to authorize application for such a MIDI loan.
Brian Malm of Bolton & Menk Engineering then presented an “Agreement between owner and engineer for professional services” for the project. He explained that the lengthy document is required by the USDA guidelines. He also added that although the project will not include any work on private property, they will be able to identify properties that have significant problems with their water and/or sewer lines, and usually, a local plumber will be ready to come in if any homeowners choose to have their lines replaced at that time. When asked how much an average homeowner might pay for such a replacement, he said roughly $4,000 to $5,000 but cautioned that that depends on a variety of factors, including the length of pipes and any sidewalks or structures above ground that are impacted. Malm was asked if there are grants or loans available for homeowners who wish to have their water and/or sewer lines replaced in such a situation, and he said he would find out. He clarified that USDA is “very picky” that the project absolutely cannot include anything on private property, so any homeowners choosing to have work done must have it done by a different contractor than the one doing the city project.
The council then discussed Minnesota’s new “granny pod” law, which allows residents to put up temporary housing for relatives dealing with a health condition. Members voiced concerns that the law could easily be abused. There were also concerns about water and sewer hookups that might be left above-ground if a granny pod was vacated and removed. Since cities have the option of opting out of this new law for now, the council voted unanimously to do so.
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