Sequim City Council members opted in favor with a 4-3 vote to allow City Manager Steve Burkett and Administrative Services Director Elray Konkel to move ahead with plans to finance the utility portion of the Civic Center project with revenue bonds.

The utility portion of the Civic Center previously was planned to be paid with existing cash, but following the most recent financial analysis of the municipal bond market and adoption of the Utility Rate Study, city officials have veered from using cash and are instead recommending the city council sell about $3.3 million in revenue bonds to cover utility costs of the $16 million project.

The option to either use revenue bonds or cash to fund the utility portion of the Civic Center project is a “financially responsible decision,” Burkett told city council members during their meeting Monday, Sept. 8.

But, with the majority of the council in favor of using revenue bonds in lieu of cash, Konkel anticipates providing the city council with the required bond ordinances by its November meetings with the goal to go to market during the first or second week of December.

“At a fixed rate with future dollars deflated as they can be, this issue would literally break even in 20 years,” Konkel told city council members. “I’ve been monitoring the market over the course of the last 12 months and the interest rates continue to improve and at some point it’s hard as a finance person to ignore that.”

The utility portion of the Civic Center requires about $3 million, an additional $300,000 is needed for the revenue bonds to cover the financial advisor, bond council and underwriter’s costs and have the required reserve funds, Konkel said. The annual payment for the proposed revenue bonds, including both the principal and interests is not to exceed $225,000.

City council member Genaveve Starr, along with Erik Erichsen and Ted Miller, voted in opposition of the revenue bonds.

“I just think it’s better to not acquire more debt,” Starr said. “We’ll now owe another $3 million over the next 20 years.”

However, Starr admits she has long been expressing her concern with the increasing cost of the Civic Center project since she joined the council last January when the project was at an estimated $12.5 million, Starr said.

“They (Burkett and Konkel) told us both options are viable so to me it is just a more conservative approach to use our current funds,” Starr said.

However, the 20-year revenue bond is arguably a preferred option because of historically low interest rates, the ability to save the fund balance for capital improvement projects, offset issuing additional revenue bonds and it will be paid back in inflated dollars and funds generated from both current and future ratepayers, according to the city council discussion analysis. But, the advantages of funding the utility portion of the Civic Center with existing cash, city staff said, include eliminating current interest costs and provides debt capacity in the future.

“If I could summarize this as a financial person, it is always so much stronger to go to the financing community when you have a strong balance sheet, which we do, before we spend most of our cash, which we will do considering the current recommended six-year capital improvement plan,” Konkel said.

Given it is common practice, city officials won’t spend the proceeds from the $3.3 million revenue bonds before they utilize the existing $10.4 million general obligation bond proceeds, which Konkel foresees working out well because he doesn’t expect expenses for the utility portion of the project until April or May.