Valpo project could get second costly surprise

March 03--VALPARAISO, Ind. -- The planned construction of a combined stormwater overflow disinfection facility at Valparaiso's sewage treatment plant could be hit with another expensive surprise.

John Julien, a partner with the financial consulting firm of H.J. Umbaugh and Associates, told the City Council on Monday that, in initial discussions with representatives of the state's revolving loan fund, the state asked the city to provide an additional $900,000 in the bond reserve fund included as part of the bond issue.

The reserve equals one year's bond payment and would enable the city to make the payments if the sewer rates were not sufficient to cover the cost as expected. The last series of rate increases was calculated to pay for the bond issue, and Julien said it appears they will be sufficient.

For the 2007 bond issue for sewage treatment plant work, the utility bought insurance to cover such a scenario, reducing the cost from $1.8 million to $900,000. The sewer utility was able to use the $900,000 it saved for other capital projects.

Following the recent financial meltdown on the national level, many companies that issue the bond insurance went out of business while the rest had their rating dropped from the highest AAA to an AA rating, Julien said.

This includes the company that issued the city's surety bond, and the state requires a AAA rating. This could mean the city will have to put the $900,000 back into a reserve fund. Julien said that is a worst case scenario he hopes to have clarified by next week.

The news of the bond reserve fund requirement came hot on the heels of the utility learning bids for the project were $942,000 higher than the $1.65 million estimate because the engineering consultant inadvertently left some items out of its calculations and underestimated other items.

Instead of being able to pay for the project with cash on hand and money left over from a previous bond issue, the utilities board was forced to borrow more money to complete the project, which is required to be done by the end of this year as part of the city's operating permit for the plant.

Now, instead of having to borrow $1.7 million to cover the extra cost plus contingencies and the cost of issuing the bonds, the utility could have to borrow $2.6 million.

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