Boone County agrees to loan SD1 $6.2 million to provide upgrades to sanitary sewer in Hebron

By Mark Hansel
NKyTribune managing editor

The Boone County Fiscal Court has approved a loan of up to $6.2 million to Northern Kentucky Sanitation District No. 1 (SD1) for an upgrade to the sanitary sewer system in Hebron.

The Fiscal Court voted unanimously at its Nov. 15 meeting to approve the loan, which would come out of working capital from the County’s general fund.

Earlywine

SD1 set aside $3.2 million in its Fiscal Year 2017 budget to put toward the project, which is projected to cost $9.4 million

The upgrades are necessary because Hebron is one of the fasted growing areas in Northern Kentucky and its sewer system is at capacity. Currently, there are fewer than 20 permits available for new tap lines in the area.

With as many as 2,700 new homes planned for Hebron and a system that already experiences overflows during heavy rain events, the need for an upgrade was obvious.

What was not as clear, is how SD1, which is saddled with aging infrastructure in the River Cities, consent decree requirements from the U.S. Environmental Protection Agency and capacity issues in other high-growth areas, would pay for the improvements.

In a presentation to the Fiscal Court, Boone County Administrator Jeff Earlywine outlined the three-year process that led to the decision to recommend the loan.

“In September 2013, this court appointed a task force to begin to roll up its sleeves and study the problem, acquaint ourselves with possible solutions and to endeavor to find a funding solution for the Hebron area,” Earlywine said.

The committee, which included a county commissioner, representatives from the Home Builders Association of Northern Kentucky, and business owners from the Hebron area, met for several months and delivered a report to the Fiscal Court in March, 2014.

“There was no panacea, no specific plan at that time, but some good feedback, Earlywine said. “I think we acknowledged that we were all better-educated regarding the scope and the extent of the problems up in the Hebron area. We better understood some of the options that SD1 and its staff were exploring (and) we certainly came away with a renewed sense that time was of the essence.”

The consensus was that there were several issues that needed to be resolved in order to provide adequate service to the area right away, and to accommodate anticipated growth.

The yellow blocks represent pump stations around the area of North Bend Road (KY 237), north of Interstate-275 that send sanitary wastewater up and over North Bend Road. The Sand Run Pump Station, the workhorse for the area, is at capacity and at times cannot handle the current flow. Additional development planned in Hebron would overwhelm the pump station and other pinch points along the line. Boone County has agreed to loan SD1 up to $6.2 million to upgrade the system to accommodate present needs and future growth (click to enlarge).

To understand the $9 million-plus pricetag for the project, and the decision by Boone County to take the unusual step to provide a loan for two-thirds of the cost, Earlywine felt it was important to outline the capacity issues in some detail.

There are several pump stations around the area of North Bend Road (KY 237), north of Interstate-275.

They pump sanitary wastewater up and over North Bend Road, where it heads south in a forced main that continues on to an interconnection with Tanners Road. It is then discharged into a gravity sewer line.

A primary pinch point is the Sand Run Pump Station, the workhorse for the area, which is at capacity and cannot handle additional development. Even now, during serious wet-weather events, untreated wastewater is discharged into a stream, creating a potential health hazard.

In addition, a 10-inch force main on Stahl Road and several sections of the Tanners Road gravity sewer are also at capacity. As a result of the problems, no new sewer taps are being issued, aside from those where previous reserve capacity provisions have been made and approved by the SD1 board.

The main takeaways from the committee’s research was that doing nothing was not an option and SD1 did not have money to fund the project.

In November, 2015, the Boone County Fiscal Court approved an agreement with SD1 to authorize matching funds in the amount of $275,000 for a consultant and engineering firm to propose a solution and provide an opinion of cost for the upgrades.

In the spring of 2016, the consultant recommended the following solution, with an estimated cost of $9.4 million:

• Reconstruct and enlarge Sand Run pump station
• Construct a new 16-inch force main along North Bend Rd. from Sand Run to Tanners Rd.
• Replace and enlarge sections of Tanners Road gravity sewer

An obvious question is that if SD1 can’t afford to pay for the fix itself, how will it repay the loan?

The answer, Earlywine says, is with the added revenue generated by new home construction.

Terms of the Boone County loan to SD1 to assist with funding of improvements to the sanitary sewer system in the Hebron area (click to enlarge).

A sewer tap today costs the average homeowner $3,259 and the cost is greater for most commercial and industrial projects. For the last three years, there have been an average of 60 new homes built in the Hebron area.

The money from those taps would be collected quarterly, remitted to the county, and pledged as repayment through a formal written loan agreement.

SDI would own and maintain the system and would repay the County with interest consistent with the amount that would be generated if the money was left in the bank.

Earlywine acknowledged that there is some risk involved in loaning money to a utility that has struggled financially in recent years.

An economic slowdown, such as a recession could result in fewer than 60 homes being built in Hebron in a given year. By the same token, historically, in years when residential development is strong, Hebron has far surpassed the 60-home benchmark.

“The stakes are high and there is considerable revenue (at stake),” Earlywine said. “Not to mention the investment that has been made by the private sector in terms of acquiring land and investing in infrastructure to be able to provide those building lots.”

The benefits to the county, however, could also be significant.

Earlywine provide the following assessment of the estimated local direct economic impact for the project:

• Assumptions –60 new homes per year, current tax rates, $250,000 valuation and current permit fees, no CPI adjustment
• County tax revenue $142,350/year (1st year)
• Building permit fees -$24,000/year (1st year)
• 20 year tax revenue total -$29,893,500
• 20 year building permit fees -$480,000

It is estimated that SD1 will be able to repay the loan, with interest, within 20 years and the $3.2 million set aside by the utility would be used before any county funds are spent.

Miller

Boone County Judge/executive Gary Moore strongly supports the project.

“We are using our reserves to help fund a need in the community and the system is in place to make that equitable to our taxpayers,” Moore said.

Brian Miller, executive vice president of the Home Builders Association of Northern Kentucky, has also been a strong proponent of a solution to the capacity issue in Hebron.

“Really at $6.2 million, this is an investment,” Miller said. “We know that it’s a loan, but it’s a real investment in the economic development of Northern Kentucky, specifically, the Hebron area.”

Miller expects the rate of growth to exceed the 20-year estimates that would allow for repayment of the loan and said the economic impact to the county will far exceed the cost of the project.

“If it was 20 years, you would be looking at about 450 jobs that are going to be supported every year to work on these homes – working here in Boone County,” Miller said. “After those neighborhoods are built out and people are living there…it will allow for $16.2 million annually (by Home Builders Association estimates) in taxes and fees paid back to government. Not just in real estate taxes, the companies are supported, but the goods and services that are bought and paid for as folks go on in their daily lives.”

Commissioner Charles Kenner recommended approval of the loan and Commissioner Charlie Walton seconded the motion.

“I believe we have a moral responsibility to provide situations where our citizens have a healthy environment to live in and we can move forward,” Walton said.

At Walton’s suggestion, County staff agreed to develop an ongoing amortization table and will include updates in the annual budget presentation on the progress of loan repayment.

The project requires formal approval from the SD1 Board at its Dec. 20 meeting, but that is believed to be just a formality, since the funds have already been allocated.

Contact Mark Hansel at mark.hansel@nkytrib.com