Levelland faces roughly $7 million shortfall after wastewater plant bids exceed estimates

Levelland — City officials told the Levelland City Council that the lowest bid to build a new wastewater treatment plant came in at $26,265,000, far above engineers’ original construction estimate of about $16 million, leaving roughly $7 million the city must find before the project can move forward.

Council was briefed on the shortfall and financing options at its April meeting; no award or binding decision was made. Staff said they will return to the council next week for further consideration and to include council members who were absent.

The gap emerged after the city went to bid earlier this year. City staff told the council that the original “opinion of probable cost” included about $16 million for construction and $3.3 million for engineering, for a total of roughly $19.35 million. After bids were opened in March, the lowest responsive bid was $26,265,000; projected total program costs including contingency and other items were presented as about $30,878,250.

James (staff member) said the city has identified roughly $2 million in additional funding available — some from interest earned on previously authorized bond proceeds and some from reserves — but that about $7 million is still needed. “I’m not happy,” James told council members as he reviewed the figures, and said staff were exploring reserves, the wastewater fund and the city’s effluent contract as part of the gap-closing effort.

Jason Hughes of Hilltop Securities, the city’s financial adviser present at the meeting, outlined debt-issuance options and timing risks tied to pending state legislation. Hughes said the city will likely need to issue additional debt and described splits between taxable and tax-exempt financing depending on the project and an existing effluent contract the city has in place. He advised the council on structure choices that would lower near-term debt service — for example, interest-only periods early in the schedule — at the cost of higher total interest over the life of the debt.

“There is a bill... House Bill 19,” Hughes told the council, noting legislative proposals could restrict cities’ ability to issue certificates of obligation for certain projects. “So just to underscore, in my opinion, it is critical based on what we know today to go ahead and sell before 9/1,” he said, referring to the start of the Texas legislative session changes that could take effect September 1.

Council members asked whether a contract award could proceed while the city delayed drawing all debt proceeds. One council member asked whether the city could approve a contract now and delay borrowing and paying interest until later. Hughes and staff cautioned that contractors typically expect funding to be in place and could be reluctant to proceed if the city awards a contract without funds available; staff also called attention to competing capital needs the city is managing, such as a new animal services facility and failing SCADA telemetry and a roof replacement for another facility.

Hughes presented modeled debt service under a conservative pricing scenario (6.5% taxable rate used for planning) and said the financing plan could push additional annual debt service onto water-and-sewer-supported debt service (he presented a rough $630,000 per year estimate for financing $6.7 million at the assumed rate, and a structure that spreads principal into later years to reduce early-year payments). He noted the city has an A-plus rating from S&P and that short-term use of ad valorem debt service levy (I&S tax) could provide temporary flexibility but may affect future credit considerations if used long term.

Staff repeatedly emphasized there was no formal action on the agenda to accept or reject bids; the council will revisit the bid award and financing at its next regular meeting so absent members can participate. Staff said they were not recommending rejecting bids and rebidding because delays could produce still higher bids.

Council and staff also discussed practical next steps: refining the engineer’s numbers, evaluating available wastewater fund reserves and effluent contract payments, and possible debt structures to limit near-term rate impacts.

The city manager and financial adviser said they will return with updated figures and recommended actions at the next meeting.

No motion was made and no vote was taken on the wastewater treatment plant award or financing during this meeting.