As the municipality prepares to go to bid for a contractor to construct Water Well No. 4 and a new water tank, the assembly is considering different ways to fund the projects.
Water Well No. 4 has an estimated cost of $654,000 and the new water tank project comes with a foreseen $894,000 price tag. The municipality has applied for a low-interest rate loan from the State of Alaska to cover the costs of construction, but there is currently not enough extra money in the budget to make the loan payments outright.
Over the course of the projected 20-year loan at a 1.5 percent interest rate, the municipality would need to make annual payments of $91,100 towards the loan. By the end of the loan period, the municipality will have paid $274,000 extra in interest fees for both projects.
Skagway Borough Manager Scott Hahn proposed a plan to the assembly that might not only cover the cost of the loan payments but perhaps even circumvent the need to use a loan altogether.
Hahn proposed pulling a large amount of funds from the municipality’s share of the Commercial Vessel Passenger Excise Tax revenue to finance the projects, citing the need for a new water tank arose from the cruise ship industry’s demand for fresh water.
“We have more than enough capacity in well production and storage for a community of 1,000,” Hahn wrote in the memo. “The problem comes up when the cruise ships hook up and our tanks start dropping even with the wells pumping.”
Skagway Assemblyman Tim Cochran echoed his sentiments during the assembly meeting. Hahn was not present to speak on behalf of his written proposal.
“The reason we need it is because of the cruise ship’s demand for water,” Cochran said. “They’re bringing the water table down to 40 percent at times, and that hits a critical level for the water department.”
Hahn recommended assigning 90 percent of the need for the new water well to the cruise ship industry “because there are up to 1,000 residents and 9,000 visitors or some close percentage,” and thus justifying assigning 90 percent of the loans could be paid for by CPV funds by that justification.
However, Hahn expressed some trepidation over relying on the use of CPV funds as a safety net, as that money could disappear altogether in the next few years. CPV funds for the next fiscal year are not a guarantee as of right now, as the budget is still awaiting a signature from Gov. Bill Walker.
Hahn suggested a preemptive transition away from reliance on CPV funds to subsidize utilities could be a wise move, regardless of whether or not the money is used for the water well. Losing the CPV’s utility subsidy could mean a major spike in utility costs down the road.
“[A] study from last year revealed that it would take a 49 percent cumulative increase in water rates, 435 percent cumulative increase on sewer rates and 160 percent cumulative increase in solid waste rates to make up for the CPV funds that are used to support these funds,” Hahn said.
As such, Hahn proposed an increase in utility rates by five to 10 percent per year in order to begin moving away from reliance on the subsidy from CPV funds.
Hahn also suggested creating a two-tier payment scale for utilities that would charge seasonal residents a higher rate for utilities during the summer months.
“The locations that are allowed to shut off would pay a higher rate,” Hahn suggested. “Another way would be to have high use locations, usually not residential, pay higher per gallon fees, however this would require metering of water and that could be very expensive especially in a town that sometimes see very low temperature and potential meter freezing.”
Cochran supported the idea of payment brackets during the meeting.
“We don’t have the luxury of a population to spread out the costs, so everything is pretty much subsidized and a lot of the summer businesses, the commercial businesses, they’re shutting things off in the winter and they’re not paying anything in the winter when everybody else is, so that they’re not spreading that cost,” Cochran said.
Further discussion over the funding of the projects will take place at the next assembly meeting, scheduled for July 7, before any decisions are made, but the assembly was eager to move forward with the project.
“It’ll be nice to get that water tank installed,” Mayor Mark Schafer said.
“The water will be the best water ever,” Cochran added.