Council leans toward internal loan to cover $1.4M in utility interim notes due June 30; finance committee favors option

After a detailed briefing from outside financial advisers, the Middleburg Town Council signaled consensus to use town cash rather than external borrowing to address about $1.4 million in interim utility notes coming due June 30 and to preserve flexibility for pending capital needs.

Consultants told the council the $1.4 million balance is split between roughly $1.1 million in tax-exempt interim financing and about $300,000 in a taxable note. The managers' recommendation, backed by the finance committee, was to pay the $300,000 taxable note off immediately and arrange an internal, formally documented loan from general fund reserves to cover the $1.1 million tax-exempt balance so the town can maintain optionality on future capital planning.

Davenport consultants reviewed two principal options: (1) go to market and convert the interim financing to permanent external debt (and establish a bank line of credit for anticipated 2027-28 capital work) and (2) use general-fund cash to loan the utility fund the needed principal now and hold off on external borrowing until the town had more clarity on the scope and timing of future capital projects. The finance committee and several council members favored option 2 for its flexibility amid high cost uncertainty.

Key figures and constraints discussed in the meeting: - Interim obligations coming due June 30: approximately $1,400,000 total (about $1.1 million tax-exempt; about $300,000 taxable). - Utility fund audited cash/reserves at the end of fiscal 2024: about $2,600,000 (consultant figure). - General fund unassigned balance (end of 2024 audit): about $4,500,000; assigned (policy) reserves roughly $5,800,000; total general-fund balance ~ $10.5 million. - Consultants' planning assumption for an external 20-year permanent financing rate: 5% (used for scenario modeling). - One-time estimated issuance/line fees for external borrowing: roughly $75,000 (consultant estimate).

Consultants said using cash now to retire the taxable note and to loan the tax-exempt portion internally would avoid $75,000 in issuance expenses and preserve borrowing flexibility. They also warned that if the town uses the utility cash directly (rather than an internal loan), those dollars could not be re-borrowed later under federal tax rules; that was cited as a reason to structure any internal transfer as a formal loan with repayment terms and interest.

Council members and staff emphasized uncertainty in construction-material pricing and potential tariff effects and said they preferred keeping cash available to address surprise repairs or higher-than-expected capital costs. The council directed staff to work with bond counsel and auditors to memorialize an internal loan (with market-based interest) and to bring the documentation back to council in May so staff can pay Truist the outstanding note by the June 30 maturity date.

The council did not adopt a formal ordinance or take a roll-call vote on the financing option during the meeting; the direction was recorded as council consensus and the finance committee's preference was noted in the minutes. Staff said they expect to return at the next meeting with formal documentation and to present any required authorizing action for council approval.

On related policy matters, NewGen Strategies and Solutions presented a separate 5-year utility forecast and rate-structure options. NewGen recommended keeping the current practice of small, annual inflationary increases (3% per year) as a baseline and modeled an alternative three-tier consumption pricing structure that would reduce bills for low-usage households while shifting more cost to very high users. Consultants and council members raised concerns about master-metered multi-family properties (for example, buildings billed on a single meter) where a per-meter change could disproportionately affect tenants; council asked staff to evaluate options such as per-unit equivalents or other adjustments before pursuing a rate-structure change.

Next steps recorded in the meeting: staff and Davenport will prepare loan documentation, coordinate with bond counsel and auditors, and return to the council in May with a formal item to (a) use an internal, loaned principal to retire the Truist interim note and (b) pay the $300,000 taxable note; staff also will present options for rate-structure changes, public outreach, and potential submetering or unit-based approaches for multi-family properties.