OSAWATOMIE — The city of Osawatomie is looking to issue temporary notes to pay for repairs to the city’s main sewer line that ruptured under the Marais des Cygnes River in mid-October.
The break not only occurred under the river but right in the middle — making repairs challenging and expensive, interim City Manager Mike Smith said in early November.
The break did not affect the city’s drinking water supply.
Cutting Edge Trucking, Inc. of Louisburg submitted a $297,108 invoice dated Nov. 12 for its work to repair the line. The ruptured line necessitated a crew boring under the river to repair the break. The lion’s share of the invoice, $222,875, covered that task. The majority of the remaining costs were for labor and materials.
At the Nov. 14 City Council meeting, financial advisor David Arteberry, with Stifel Financial Group in Kansas City, Mo., recommended the city issue temporary notes to cover the repairs, rather than spending down the city’s cash reserves.
“The city has done a good job of building reserves up from very low levels from a few years back,” Arteberry said. “Were you to expend your reserves for this project, I think you would really be setting yourself back in terms of emergency reserves that you have available in the future.”
Arteberry said the temporary notes likely would mature in one year, at which time the city could pay them off with available funds or issue long-term bonds to cover the expense.
First Option Bank in Osawatomie has purchased the city’s debt in the past, Arteberry said.
“First Option Bank in town has expressed an interest in purchasing temporary notes, and they have been a very good purchaser of the city’s debt in the past,” Arteberry said.
One reason not to issue long-term bonds now is that in order to make the bond sale attractive, investors would want the city to make a payment in the first year, Arteberry said.
“The budget was only completed a couple of months ago (before the sewer line break) for 2020 and didn’t contain a payment for any debt for this project,” Arteberry said. “So if you were going to issue long-term bonds now you couldn’t make a payment until 2021, and it would make a bond issue that would not be real attractive to investors.”
The original estimate for the repair project was about $350,000, Smith said. He said the temporary notes can be paid back at any time, so the city would not have to wait until the notes mature.
The council voted to pay the Cutting Edge invoice as part of the consent agenda at its Nov. 14 meeting. Arteberry said the city could use proceeds from the temporary notes to reimburse itself for those repair costs.
Councilwoman Cathy Caldwell acknowledged First Option Bank’s interest in purchasing the notes, but said she would also like to give the other bank in the community (Landmark National Bank) an opportunity to bid on the project. She thought that would be the fair way to handle it.
“I personally would like to see what is available (from both banks),” Caldwell said.
Other council members agreed with her and they voted unanimously to seek bids for both banks, which are located across the street from each other.
Arteberry said a one-page term sheet that describes the project has been prepared and would be sent to both banks. He said the banks would then provide an indication of what interest rate they would bid on the notes.
Arteberry plans to present those bids to the City Council at its Thursday, Dec. 12, meeting. Smith confirmed Dec. 6 the topic of temporary notes will be on the agenda for that meeting.
The council will not have its regularly scheduled meeting on the fourth Thursday of the month because of the holidays.