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The Dansville Online
  • Village of Dansville studies debt problem

  • The village of Dansville has a debt problem. The village has plenty of capacity to borrow and there is no threat of non-payment for existing debt.

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  • The village of Dansville has a debt problem. The village has plenty of capacity to borrow and there is no threat of non-payment for existing debt.
    It’s not the amount of debt that’s the problem at all, instead it’s how the debt is structured.
    The lion’s share of the village’s debt is in long-term bonds and the village is steadily reducing its total debt obligations; however, close to $1.8 million is in the form of bond anticipation notes — a short-term form of debt usually issued in advance of a larger bond — according to a working document prepared by village’s financial advisers at Bernard P. Donegan and presented Tuesday at a meeting of village trustees.
    State law limits local governments from using BANs for long periods. A BAN can be issued for up to five years, after which, it is to be either paid off or converted to a longer-term bond. Many local governments prefer BANs over bonds because the short-term notes often carry interest rates as low as 1 percent. Bond on the other hand carry a higher rate, generally in the 4 percent to 7 percent range, depending on a local government’s credit rating and market conditions.
    Already a portion of Dansville’s BANs — almost $219,000 — falls outside the five-year window. By the end of the current fiscal year, another $248,000 will reach the five-year mark.
    The situation didn’t arise overnight. One BAN, originally $316,800 for a wastewater treatment plant renovation in 1998, was set up as a 30-year debt. It should have been converted to a bond by 2003, but at the start of the current fiscal year the BAN, which has been renewed multiple times, had an outstanding balance of $110,880. It’s not scheduled to be paid off until 2018. Other BANs fall into a 10-year schedule — for street paving, fire trucks, and wastewater treatment plant heating and study — and all of those should also have been converted to long-term bonds by their fifth year.
    “You ran BANs when you should have run serail bonds,” Dominic Mazza of the Bonadio Group, said. The village contracted the Bonadio Group to conduct a financial audit of the village’s books.
    It wasn’t until just weeks ago that the trustees were told that having BANs outside the allowable five-year period could negatively impact the village’s ability to take on more debt.
    With a $15 million wastewater treatment plant nearing the end of its engineering, village officials had expected to solicit bids this summer. While final design work can continue, bidding for a new sewer plant is off the table for the village until the matter of the outstanding BANs can be resolved.
    Page 2 of 3 - “We need to get our house in order now,” trustee Dick Whitenack said of the situation.
    Addressing the matter is no small task. Since the village’s debt is already out of compliance, it takes a legislative action to allow the village to convert its existing BANs into a serial bond — a debt that will extend two or three decades into the future.
    The typical solution, according to Chuck Basham of Bernard P. Donegan Inc., the village’s financial adviser, is to petition the legislature for special legislation. With the legislature already in session, the clock is ticking for Dansville to get the legislature to take up the matter.
    To make matters more pressing, Mazza explained the legislation will get bogged down in the comptroller’s office and other state agencies before it is passed by the legislature and signed by the governor.
    The alternative — and one that was advocated by Trustee Jay Griffith at the board’s March 13 meeting — is to pay off the outstanding BANs. Griffith was absent from this week’s meeting.
    “I don’t think you want to use all your cash paying this stuff off,” Mazza said.
    That analysis is in line with a recent analysis of the village’s water and sewer rates by Paul Bringewatt. In his report earlier this month, he said the village already has a cashflow problem and should have several months of reserves built up just in the water and sewer accounts, to say nothing of the village’s general account.
    While converting the village’s BANs to a serial bond will mean paying higher interest rates, the village can look at extending the term of its debts and that may actually mean lower annual payments.
    Though the board made no formal action, the four officials in attendance agreed to take steps toward seeking legislation and converting its BANs to a serial bond.
    Keeping the cost of debt service down may also become a priority as village trustees are looking to raise water and sewer rates.
    According to Mazza, the village already has a cash flow problem in its water and sewer accounts. Rates are already insufficeint to cover costs, but need to be brought up further to build necessary reserves for capital projects. Adding a serial bond in the next few months and the debt for the new wastewater treatment plant will only add to the necessary rate hike.
    Most of the outstanding BANs — more than $1.2 million — are in the wastewater treatment account.
    Bill Davis of the MRB Group, project engineers for the wastewater treatment plant, also brought up a planned water meter replacement project. Trustees set a $500,000 cap for the project and expect that the increased revenues from accurate reading will cover the cost of the replacement program.
    Page 3 of 3 - In the project, the village plans to replace up to 2,200 of the 2,700 water meters in the village. The cost for the meter replacemnet project is expected to be rolled into the serial bond once approved by the New York legislature.
    That still leaves the question of the Wastewater treatment plant.
    Last week, MRB submitted plans to the New York Department of Environmental Conservation for review. Until the matter of the BANs came up, the project was slated to be bid in early summer.
    The village already authorized a BAN for $850,000 to cover the design and engineering for the new plant; however, costs will continue to accumulate on the project and the village intends to borrow another $700,000, also in the form of a BAN. Both those notes will be rolled into the overall cost of the wastewater treatment plant, now estimated at $15 million.
     
    Contact Les Bowen at lesbowen@dansvilleonline or 585-335-2271.

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