Finance committee backs low-cost loan, $24.7M principal forgiveness for Blackwater CSO tunnel

The Lynchburg City Council Finance Committee voted Aug. 26 to support a financing package for the Blackwater combined sewer overflow tunnel that pairs a low-interest loan with principal forgiveness from state programs. Tim Mitchell presented the proposal and answered committee questions.

Tim Mitchell said the city applied to the Virginia Clean Water Revolving Loan Fund to pay the remaining balance of the tunnel project and was awarded $54,100,000. "So there's another $25,000,000 that local sewer ratepayers will not have to pay because of the grant," Mitchell said. He told the committee the award includes $29,000,000 in a 25-year loan at a 0.5% interest rate and about $24,705,000 in principal forgiveness.

Mitchell summarized the project and the financing: the city's CSO-related appropriations total about $107,000,000, and the tunnel cost is "a little over a $104,000,000." The city previously secured $50,000,000 in ARPA funds that required a $25,000,000 local match; Mitchell said the revolving loan can serve as that local match. He told the committee the loan repayment will begin six months after project completion.

Committee members praised the financing outcome and asked schedule questions. Mitchell said the project is on schedule and estimated a completion date of July 2027. He also said the city must spend the $50,000,000 in ARPA funding by Dec. 31, 2026, and that closing on the loan is expected in September to align with that schedule.

The committee voted to support the resolution authorizing the issuance of revenue bonds and acceptance of the principal forgiveness. A voice vote was recorded with committee members saying "aye;" no opposing votes were recorded on the transcript.

The packet for the item, as described in the presentation, recommends adopting a resolution to issue $29,395,000 in revenue bonds for a 25-year term at 0.5% interest, accept principal forgiveness of $24,705,000, and authorize the city manager, deputy city manager, and chief financial officer to execute necessary documents. Mitchell said a public hearing on the related revenue bonds will be held that evening.

Why it matters: Committee notes and the presenter described the tunnel as the largest capital project in Lynchburg's history, required to meet the CSO long-term control plan and state consent-order requirements and to restore sewer capacity for future upstream development.

What happens next: The committee's support sends the recommendation forward as described in the presentation and the city will proceed with closing the financing and completing required documentation.