Council directs rate review after FEMA BRIC cancellation leaves $66 million financing gap for water plant

Grants Pass City Council members directed staff on May 1 to begin a formal rate review after staff said the city must borrow roughly $66 million to complete the replacement water treatment plant following the April 4 cancellation of FEMA’s BRIC program.

City staff presented updated costs and financing options for the replacement water treatment plant, including a previously approved guaranteed maximum price (GMP) of $98,817,005.74 and a revised estimate for remaining construction and related costs. Jason, the city’s staff presenter on the project, told the council that the BRIC cancellation removed $50,000,000 from the project plan and that staff have since refined intake structure costs and other scopes. He said the intake work was estimated at $9,240,000 (a 30% estimate) and the team has identified remaining funding sources and gaps.

The financing picture, as presented, includes a mix of cash on hand, confirmed and uncontracted loans, grants and future deposits. Jason said the city has about $24,000,000 in cash, confirmed Business Oregon loans totaling roughly $4,000,000 and other expected sources such as congressionally directed spending and state drinking‑water loan funds. After accounting for those items and expected future cash deposits, he reported the city will need to borrow about $66,000,000 to finish the project.

Because of that gap, staff advised issuing bonds. Jason explained the two main bond types under consideration: revenue bonds (backed only by the water utility) and full faith and credit (FFC) bonds, which would use the city’s taxing authority as a credit enhancement but would still be repaid from water revenues. He said revenue bonds without FFC would show a larger rate increase in the worst‑case scenario; using FFC for a portion of the debt could shave that increase modestly but would expose general fund balance and credit considerations.

To maintain a desirable bond coverage ratio (staff cited 1.5 as the target used by bonding agencies, with 1.25 as the legal minimum), staff recommended implementing rate changes earlier than previously planned. Staff’s consultant, FCS, modeled a “worst‑case” scenario that would require a 2.5% annual rate increase for three years, timed to begin by January 2026, in addition to the scheduled CPI adjustments. Jason said that combination would keep the coverage ratio above bonding thresholds when borrowing up to the estimated $70,000,000 range and that the average single‑family customer using six units per month would see the water portion of the bill rise by about $6.78 per month by Jan. 1, 2028 (the figure includes the modeled increases and CPI assumptions used in the presentation).

Staff also reported the city obtained an EPA Buy America (BA/”BABA”) design waiver that reduces costs and schedule risk for several long‑lead items; Jason said complying with Build America Buy America requirements would have substantially increased costs and delayed the project because much membrane and specialty equipment is not domestically manufactured.

Council discussion focused on energy savings from variable frequency drives, coverage ratios, the difference between revenue and FFC bonds, and timing. Councilor Joel asked about present coverage ratios; JC (finance staff) and Jason replied the water fund’s coverage ratio is currently about 2.0 but would drop below the minimum without a rate adjustment once additional borrowing occurs. Several councilors said they are uncomfortable using the general fund as backing; Jason said staff will likely avoid pursuing a FFC pledge unless conditions change.

Motion and vote: Councilor Victoria moved and Councilor Kathleen seconded a motion directing staff to initiate the rate review process (to evaluate and return with implementation options for a 2.5% annual increase scenario and alternatives). The motion passed in a roll‑call vote: Victoria yes; Eric yes; Rick yes; Kathleen yes; Rob yes; Joel yes; Seth yes; Indra no. Following the vote, staff confirmed they would prepare the rate‑setting analysis and continue working bond structure options (revenue bonds preferred; FFC off the table for now). Jason said if council directed staff to proceed he would notify the contractor to begin scheduling work that afternoon.

Why it matters: The council’s direction begins a formal process to change rates and to structure borrowing to complete a multi‑year, multi‑tens‑of‑millions construction project that supplies potable water to the city. Staff repeatedly framed the rate decision as necessary to maintain debt coverage and bondability and to avoid placing greater pressure on the general fund.

Next steps: Staff will return with a detailed rate study, bond‑structure options, and updated cost and funding schedules. JC will provide detailed fiscal scenarios for council review; staff noted timing is important for bonding markets and recommended implementing changes earlier rather than later to preserve credit metrics and lower long‑term cost.