During its last meeting on Nov. 15, the Edinburg City Council approved the reduction of a loan from $44 million to $30 million that would fund utility system improvements.
The Texas Water Development Board Clean Water State Revolving Fund (CWSRF) provides low-cost financial assistance for planning, design and construction of wastewater infrastructure, according to the agenda packet. The city will obtain a $30 million low-interest loan and will issue bonds, according to Tomas D. Reyna, Edinburg assistant city manager.
Noé Hinojosa Jr., chairman, president and chief executive officer of Estrada Hinojosa Investment Bankers, gave a presentation on the city’s current financial status and how the status relates to the amount sought from the fund. Hinojosa recommended that the city council consider reducing the bond issue from $44 million to $30 million.
In an interview with The Rider last Wednesday, Reyna explained the financial adviser’s recommendation and the outcome of not reducing the loan.
“If the city goes [for the $44 million], it would increase the debt,” Reyna said. “Our debt would be more than our revenue, so we would be overextended. So, that’s when we will need to generate more revenue to cover the $44 million. So, that’s why we changed it to [$30 million]. … So we can ensure that we don’t have to raise the rates at this point.”
He clarified that the city will use revenue from the Utilities Department to pay back the loan. Reyna also clarified that voters do not need to approve the loan. The bonds are expected to be issued in late February 2023.
During the presentation, Hinojosa said that other cities, such as Corpus Christi, San Antonio and Laredo, have 55% to 60% of utility debt in their debt portfolio while the City of Edinburg’s is 16.5%. As of Sept. 30, the city has a $36,530,000 million utility debt.
Hinojosa added that the city currently has a AA credit rating. He told the council that, regardless of how much the city borrows, the ratings have to be protected since a lower credit rating signifies a likely increase in loan interest rates, which would lead the city to seek extra revenue.
He explained why the amount was not reduced initially, saying that the interest rates have increased since then.
“When the application was submitted … back in February or March … [the city] had much lower rates,” he said. “Today, the interest rate is going to get up to three, three and a quarter percent. Back then, it was probably half a percent.”
He added that every time interest rates increase, the payments also rise and that it is important for the city to lock in that allocation. Hinojosa also said that borrowing the $44 million is easy, but that doing so would lead to rate, revenue or expense adjustments.
“Now, you can still do the $44 million as the water board has indicated, but we would have to shift or add additional collateral, property taxes, and the way you do that is issuing a certificate of obligation.”
Mayor Ramiro Garza Jr. asked about the progress for the plans.
Gerardo Carmona, city director of utilities, replied that the construction plans for the existing wastewater treatment plant expansion are 65% done.
Carmona added that once the plans get completed, they will be sent to the Texas Water Development Board for review and approval. He also said the plans will be ready to go out for bids around June or July of next year because the city has to amend its existing wastewater treatment permit with the Texas Commission on Environmental Quality. Carmona said this would take four to six months and that the city has already started the process.
“Once the plans do get completed, they do have to go for the Texas Water Development Board for review and approval, so that’s a whole different process,” he said. “It takes about 30 to 60 days.”
With the funding, the city would use the money for utility system improvements, including the expansion and improvements of existing wastewater treatment plants; the rerouting of the existing wastewater collecting system; and the planning, designing and construction of a new treatment plant.
However, Reyna said that by reducing the bond issue to $30 million, there will be no construction of a new treatment plant. The city currently has only one wastewater treatment plant.
“We’re gonna be expanding and rehabbing the existing water treatment plant,” Reyna said. “That way, we can take more capacity without having to open a new plant.”
The city originally applied for $52 million in funding in 2020 but was not able to make the final intended use plan list, according to the agenda packet.
The Texas Water Development Board allowed the city to resubmit its application for the 2022 state fiscal year and sent a notice to the city to apply for $44 million instead, which the city did on March 15.
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