Now that the Olean city government legally owns all 6,500 water meters serving the city's residential homes, officials must come up with the money to move forward with a $5.6 million plan to replace them with digital models.
The City Operations Committee on Tuesday will consider sending the Common Council financing legislation that, if approved in the coming weeks, is designed to furnish the $5.6 million to pay for the $2.3-million meter changeover, a pump station replacement and HVAC upgrades at the fire hall and in the municipal building.
But the method proposed by the consultant for raising the cash may have to change due to the ongoing problems on Wall Street and the municipal financing market.
The Common Council voted in August to transfer the meters' ownership with a change in the water and sewer code, and then awarded the energy performance contract for the metering changeover to the consulting firm Wendel Energy. Upgrading the equipment would save time and water, while plugging water fund losses by identifying homes where meters have either not been read or have not been read consistently.
Wendel guaranteed that the city would generate more revenues than the $2.3 million cost of the project within five years, netting an additional $764,000. This would happen not only by raising the sewer and water rates but also through a financing method called a Municipal Lease, spread over 15 years.
A firm representative compared the Municipal Lease to a car lease when explaining it to aldermen before the project was voted on in August, stating that banks submit competitive bids offering low-rate financing for the equipment, such as the digital water meters and the high-tech transmitting equipment.
The project would be aided with lower interest rates afforded by the New York State Energy and Research Development Authority's Smart Loan grant program. But city auditor Janet Jones said Friday that the legislation proposed by Mayor David Carucci will most likely ask for a bond anticipation note instead.
"With the way the market has been the past week I don't think we can get someone to finance a municipal lease, so we are thinking of doing a bond anticipation note for six months to a year, then when the markets calm down we can finance it through a municipal lease," said Jones.
She said the constricted markets mean there is less capital available to the city for borrowing, along with the possibility of higher interest rates than the 3.5 percent to 3.75 percent the city has been offered recently. These factors could affect whether the city can move ahead with the energy performance contract, the Two Mile Sewer and the state-ordered East State Sewer projects, she said.
Jones said the city's money is safely held in banks and is collateralized, and the existing bonded debt can't be called in. But she added that it remains to be seen how the financial markets will affect the city's future borrowing ability.
She said she expects to begin seeing problems with financing the short-term notes the city needs periodically and the bonds and notes that must be renewed yearly. But also there is an indication that in the next fiscal year the city could be faced with at least a 10 percent cut in state aid.
The City Operations Committee will discuss several other agenda items: bid awards for the Two Mile Sanitary Sewer Replacement Project, the Olean Wastewater Treatment Plant Flexible Technical Services alternative agreement with Malcolm-Pirnie and the New York State Energy Research and Development Authority.