Consultant: $11.5M Estacada water plant upgrade will push bills higher as loan rates rise

Estacada City Council held a work session on the city's planned water treatment plant upgrade where consultant Steve Donovan said new financing information received Friday raises project borrowing costs and will affect rates.

Donovan said the filtration project is estimated at $11,500,000 and that the city would contribute about $1,000,000 this year and $3,300,000 next year, with an additional $740,000 in contingency. "We're looking to borrow $7,500,000," Donovan said, adding the city also will begin paying debt service on Reservoir No. 5 (about $54,000 on a 30-year loan starting in 2027).

Donovan told the council the financing outlook changed after Friday. "We've got some new information as of Friday. It's it's not comforting information, but it's new information of the financing agencies," he said. Where assumptions in packet materials showed an interest-rate scenario near 3.92 percent, Donovan said updated modeling now uses about 5.46 percent. He translated the higher rate to roughly $84,000 more per year and an estimated $2.5 million more in interest expense over the life of the loan, raising annual new debt service to about $513,000–$514,000.

That change affects revenue needs. Donovan said the earlier analysis targeted an 8 percent levelized revenue increase but, accounting for growth, the recommended ask for July 1, 2026 would be about 5.61 percent. "That ask will be about $3.11 per month on water for the average single-family customer's bill," he said.

A city staff member who joined Donovan on the briefing summarized the funding options the city has explored. "We submitted a letter of interest for the Safe Drinking Water Revolving Loan Fund, which would be the best opportunity for funding," the staff member said, noting that program rates can be about 3.83 percent and can include principal forgiveness for disadvantaged communities. "Not great news," the staff member added, explaining Estacada's strong compliance and lack of health issues would likely reduce its ranking for principal-forgiveness awards. The alternative Special Public Works Fund has money available but carries a higher interest rate and offers no principal forgiveness, the staff member said.

Councilors asked whether system development charges (SDCs) collected from new development could be used to buy down debt and reduce future rate increases. Donovan said it depends on the financing vehicle: some Public Works trust products allow buy-downs; traditional revenue bonds can include call-option limits that constrain early pay-downs. Donovan offered to model scenarios that apply additional SDC contributions to lower the annual increases.

Donovan also asked the council to consider aligning guidance with the upcoming budget cycle. "It would be very helpful to have council guidance that this is something you want to entertain, and it'll help with your budget process," he said.

Next steps: Donovan will provide staff with a memo modeling SDC buy-down scenarios and the council will consider guidance during budget deliberations. The city has also submitted a $3 million capital construction funding request to the state legislature; staff emphasized that state funding is uncertain and encouraged outreach to legislators to support the request.

The work session portion concluded with council members thanking staff for the analysis and requesting follow-up modeling before formal rate decisions.