JUNEAU — A $795,749 state loan to the city of Juneau was approved last week, paving the way for another loan sought by the Juneau Utility.
Juneau Clerk/Treasurer Dennis Sheldon announced Monday that a loan from the State Trust Fund Loan Progam was approved Nov. 19. Juneau City Council voted unanimously to seek the loan at a special meeting Nov. 3.
The money will be used for early retirement of a 1998 Juneau Utility bond issue. Retirement of those bonds is necessary to clear the way for a $1.1 million loan to the utility from the State Clean Water Fund, according to Brad Viegut of Baird Inc.
The Clean Water Fund loan would be used to make $1.17 million in upgrades to Juneau's wastewater plant.
In May, work began on additional holding tanks, pump rehabilitation and other improvements designed to expand plant capacity and to extend the life of the facility.
Baird advises the city and utility on large financial undertakings and Viegut said the state would not loan the utility money from the Clean Water Fund unless the 1998 bond issue was retired or refinanced.
"We passed a bond-call provision Nov. 3," Sheldon said Tuesday. "'Call' means we can retire all the outstanding obligations early and pay them off."
Initially, Viegut said, the utility explored refinancing, but the collapse in credit markets in mid-September made such a move cost-prohibitive.
Pressed for an alternative, the utility asked the city to use its ability to borrow from the State Trust Fund to pay off the 1998 bonds and facilitate a Clean Water Fund loan.
The utility plans to repay the trust fund loan from its own coffers, with no cost to taxpayers, according to Viegut.
"The taxpayers aren't picking up the tab, but if the utility can't pay its debt, the city's on the hook," said Viegut, who likened the city, in this case, to a cosigner on a consumer loan.
Sheldon said the State Trust Fund is expected to make proceeds available on or about Dec. 3, and he anticipated the 1998 bonds would be paid off by March 1, 2009.
"It's important that we get the proceeds next week," Sheldon said, "because the utility and council must approve the Clean Water Fund bond issue which supports that loan."
Sheldon said, "the state needs the call to be final before we can approve the Clean Water Fund loan."
The 10-year, State Trust Fund loan, according to the resolution approved Nov. 3, carries a 4.5-percent interest rate.
Refinancing the 1998 bond issue would have cost the utility about $50,000 because of high interest rates, Viegut said.
By repaying with State Trust Fund money, he said the utility stands to save about $6,000 instead of losing $50,000.