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12/03/2018 11:00 PMWith anticipated water main extension costs possibly doubling for Mulberry Point, Tuttles Point, and Long Cove homeowners and the clock running out on a state loan fund, the Town of Guilford is holding a special town meeting on Thursday, Dec. 13 seeking approval for a $3.1 million special appropriation—and again emphasizing to residents that a “Yes” vote won’t carry a net expense to taxpayers who aren’t part of the project.
The water main extension project, which is being undertaken to address unsafe levels of salt (from seawater incursion) and coliform bacteria (from insufficient septic capacity) in Mulberry Point, Tuttles Point, and Long Cove, has had its share of recent challenges—construction bids came in well above budget, and even then the low bidder dropped out, leading the town to send the project out to bid for a second time. At a Board of Selectmen (BOS) meeting on Dec. 3, officials announced that the town has a new low bidder, but the overall cost of the project is going to jump significantly, from a planned $3.4 million to $6.5 million.
The water main extension project was approved at referendum on May 31, 2017, with an expected costs of $3.4 million, garnering 1,004 “Yes” votes to 122 “No” votes. Prior to the referendum, the town announced that, of the 145 homes in the area that could be served by the water main, 83 percent of residents signed formal commitment letters to connect with the main, well exceeding the necessary commitment level and pushing the project forward.
Residents in the service area will pay all expenses for the project, including initial soft costs. In January, the town signed a service agreement with the Connecticut Water Company (CWC) that outlined the financial rate of contribution from CWC. The rate of contribution from CWC is dependent upon the percentage of the 145 homeowners in the area who commit to the project. With an 83 percent commitment rate demonstrated by residents who sent the water company signed commitment letters and financial deposits, CWC will contribute $1.5 million.
At the time, the total project budget was roughly $3.4 million, so after the CWC contribution, homeowners who are direct beneficiaries of the water main extension would pay the remaining $1.9 million project costs.
The town had hired engineering and construction management team Wright-Pierce, completed the state permitting process, and put the project out to bid for a contractor in early summer. The bids varied dramatically and even the low bid was $1.2 million over budget.
At the time, the town went with the low bidder and then looked to grants to help cover the difference. However, the low bidder dropped out and the town opted to go back out to bid this fall with the hope of getting a better number.
“We thought it was most appropriate to send it back out to bid,” said First Selectman Matt Hoey. “We did so several weeks ago and I think we had five bids this time around, but they were all much closer to each other, which signified that they are probably more accurate. At this point we have identified a low bidder who is about $2.6 million more expensive than the low bidder the first time around.”
With that new low bidder, the total project cost now comes to approximately $6.5 million, an increase of about $3.1 million over the original $3.4 million project cost estimate.
How to Proceed
For the project to move forward, the town has to find a way to cover that $3.1 million. When the project was first approved at referendum, it was—and continues to be—understood that no taxpayer money would be put toward this project. Grants, funding programs, the CWC contribution, and homeowner assessments would cover all costs. That remains true, but with the increased cost of the project, if the town can’t find grants or other funding sources to put against the cost, homeowner assessments are going to be a lot higher.
When the town had its first low bidder, Hoey said officials had already made a successful start on tying to cover the cost overruns.
“When it became apparent that the costs were going to exceed the original projections, upon which in good faith the community voted to approve this project and the residents were anticipating in terms of assessment cost for them, I reached out to [State Representative] Sean Scanlon” (D-98), Hoey said. “He immediately went and talked to the governor’s office as well as leadership in the house to garner some support and we... we had a commitment for $1.25 million, which, at the time of the original low bidder, that would have brought in enough funds to actually reduce the anticipated assessment based on the original projections.”
But just a few hours after receiving the good news from the bond commission, the low bidder pulled out. Not having an actual cost estimate in hand, Hoey said the town went back to the state, informed the bond commission of the issue, and the $1.25 million was essentially taken off the table for now.
“The governor’s office on the bond commission said they were willing to support this project and basically gave us a down payment, or what could be considered a down payment, of $450,000,” he said. “The anticipation is that over time we will be able to go back to the bond commission for additional consideration for funding and we also will be scouring federal opportunities for additional grants and funding so that we can make the best effort to keep the residents as close to the originally anticipated cost as possible.”
The Special Appropriation
The town has the $450,000 grant from the state and will go back for more funds, but in the meantime the town has to seek other project funding sources this month.
When the project was headed initially to referendum, the town applied for Drinking Water Revolving Funds through the Clean Water Fund, a low-interest loan from the State of Connecticut that in 2012 became available for the project, contingent upon a successful referendum. The town anticipates receiving up to $3,443,000 from that fund. The money comes in the form of a loan rather than a bond that the 145 assessed homeowners would pay back at a two percent interest rate over the 20-year life of the loan.
The town was always going to have to advance funds to apply for the Clean Water Fund and at the Dec. 3 BOS meeting, Bond Counsel Matt Ritter said the town needs to take steps now to meet the fund application deadline at the end of this calendar year.
In short, it means that the town has to approve a $3.1 million special appropriation.
“What makes this unique and the reason we have to do this right now is the town has to advance funds for two reasons,” he said. “One in order to get the clean water funds and get your application in by the end of the year, which is the deadline, you have to have an appropriation in place for the entire project. You can’t wait and see what the project cost is piecemeal. You have to do it with a total appropriation that will not exceed that amount.”
Essentially the town has to show that has the authorization to spend $6.5 million because, while assessed homeowners truly pay for the project, homeowners can’t start paying until the project is complete and exact assessments can be sent out. The town pays the project bills as work happens and then homeowners reimburse the town through their assessments.
Voters gave the town the ability to spend $3.4 million when the project went to referendum; if the special appropriation is approved, the town has the authorization to spend an additional $3.1 million. However, at no point will the town cut one big $6.5 million check. The town will have to front some money as construction gets underway, but as that money goes out, already-approved grants from the state, the CWC, and the Clean Water Fund will be coming in to the town coffers.
“The assessments, we don’t know what they are going to be because it depends on what the final project cost is and what other grants can come in from the state or federal funds,” said Ritter. “We can’t levy any assessments against properties until the work is completed, which should take about 18 months, so after the 18-month cycle and all the grants are taken away, you will know what the town has to advance and that begins the assessments against those property owners.”
The Technical Details
When voters approved the project at $3.4 million in 2017, voters actually approved how much the town could borrow, according to Ritter. Because this $3.1 million special appropriation is a request to spend, not to borrow, the special appropriation doesn’t send the project back to referendum.
“A special appropriation under your charter, because it is exceeding one percent of your total budget, has to go to a special town meeting, but you are not authorizing the town to borrow any more money,” Ritter said. “The resolution clearly states that you are capped at $3.4 million.”
The BOS approved the $3.1 million special appropriation request, which no goes to the Board of Finance and then to a special town meeting. Selectmen said the town needs to keep exploring every grant or funding option to help bring down costs.
As the affected homeowners originally committed when anticipated costs were much lower, Selectman Sue Renner asked if that level of commitment was decreasing.
Resident Sue Robins said residents in the service area had to put down the second portion of their commitment deposit this fall, after one low bidder had already fallen through. Homeowner commitment to the project is now higher than it was when the project went to referendum, she said.
“We have 93 percent [of the homeowners in the assessment area] signed up at this point,” she said. “So more people have signed up because we went from 83 percent to 93 percent once the final deposit was due.”
The special town meeting for the $3.1 million special appropriation is Thursday, Dec. 13 at 7:30 p.m. at the Community Center, 32 Church Street.