CHICKASHA — The City Council/Municipal Authority intends to build a new and larger water treatment plant to replace the town’s aged facility that needs several expensive repairs and is barely able to meet current water demands.
The new treatment plant would be financed with a sales tax of 1.25% – a slight increase in an existing capital improvements sales tax of three-quarter of a penny per dollar – or, in the alternative, a substantial increase in water rates.
Chickasha voters will have an opportunity during a special election Aug. 8 to make their financing preference known.
The council is soliciting requests for qualifications from engineering firms interested in designing a new and larger water treatment plant for the Grady County community.
The existing facility was designed to produce 6 million gallons of treated water each day but now “provides a maximum of 4.6 million gallons daily” to Chickasha and the nearby tiny community of Norge, City Manager Keith Johnson said.
“We have some serious issues with our water infrastructure,” he said. “We’re at risk of not being able” to meet demands imposed on the water delivery system.
Chickasha’s water treatment plant was built in the 1960s, records indicate, but has several “deficiencies,” Johnson told the council. The state Department of Environmental Quality issued a consent order in December 2021 that directed the City of Chickasha to implement several improvements to its water plant. Some of those issues have since been resolved but several others still remain, Johnson said.
U.S. Water Services Corporation manages Chickasha’s water and wastewater treatment plants under a renewed five-year contract first negotiated in 2015. The city pays USW $101,852 each month to operate the water plant, and $60,989 per month to operate the sewage treatment plant.
During its tenure, USW has made several improvements and addressed various maintenance issues at both facilities.
New water plant cost estimated at $74M
The Chickasha Municipal Authority proposes a new water treatment plant that would be built on an adjacent tract of land off Genevieve Street, and would be capable of producing up to 6 million gallons of potable water daily “with provisions to expand to 8 mgd.” The treatment process would include pre-treatment, clarification, filtration and disinfection, the CMA said.
The preliminary estimated cost of constructing a new water treatment plant is $74 million, city officials were told. According to Johnson, potential funding sources include federal and state aid and local funds.
Besides the age of the existing water treatment plant and its deficiencies, greater demands on its production capability will be expected in the not-too-distant future.
For example, California businessman Chet Hitt has proposed as much as $5 million in various development projects in Old Town Chickasha. Those plans include construction of a stillhouse and grill that will be “our granddaddy project,” he said.
The still will produce half a million to a million bottles of whiskey, bourbon and vodka per year, Hitt said. Each of those bottles will contain 750 milliliters of alcoholic beverage, slightly more than the volume of two 12-ounce cans of soda, he said.
The city is unable to pay for a new water treatment plant from its existing revenue streams, Johnson said. Consequently, the Municipal Authority adopted a resolution during a special meeting May 18 that authorized an application to the Oklahoma Water Resources Board for a long-term loan of up to $72 million to finance construction of a new water plant.
“We looked at water usage patterns and your customer base,” which resulted in the projected need for a treatment plant capable of producing 6 million gallons of potable water daily, said Jon Wolff with Municipal Finance Services in Edmond.
Financing options were evaluated
“We spent weeks, months, looking at options,” Wolff said. Those included the City of Chickasha issuing its own revenue bonds, based on its credit rating, and two OWRB programs.
One of those is “tied to federal dollars” with their attendant “strings” and environmental requirements, he said. Environmental issues can add years – and expenses – to a construction project, Wolff noted.
The other is the OWRB’s Financial Assistance Loan Program. An FAP loan “has the fewest requirements and gets us through without environmental issues,” said Allan A. Brooks III, bond counsel with the Public Finance Law Group in Oklahoma City.
Because of its excellent bond rating and its perfect record of no defaults on FAP loans, the OWRB can provide low-interest FAP loans for municipal and rural water and wastewater improvement projects. A 30-year FAP loan would bear an interest rate of approximately 4.3%, Wolff estimated.
“The pricing of OWRB’s last FAP issuance was 12 months ago, and the rate was 4.28% on a 30-year loan,” Tonya White of the agency’s Financial Assistance Division told Southwest Ledger on May 19. The next FAP issuance will be priced sometime this week, she said.
The loan agreement between the CMA and the OWRB authorizes the state agency to attach a lien on the town’s water system as security on the transaction. At least one member of the CMA was uncomfortable with that provision, and the Ledger was contacted by a Chickasha resident who expressed a similar concern.
But Brooks pointed out that Chickasha’s water system already is leased to the Municipal Authority, “so from a functional standpoint nothing would change” if the Water Board approves the proposed loan.
“We are not committing 100% of our water revenues to the bonds,” Johnson said.
Chickasha gets its water from Fort Cobb Reservoir in Caddo County and processes it in the Genevieve Street treatment plant. The city’s monthly water bill this year from the Fort Cobb Reservoir Master Conservancy District is $33,841.
Using $5 million from the city’s capital outlay fund would reduce the amount the Municipal Authority needed to borrow for construction of the new treatment plant to an estimated $69 million, Wolff said. The debt service requirement on Chickasha’s loan – the amount needed each year to meet the principal and interest payments – would be approximately $4.1 million annually, he estimated.
Boost sales tax vs. raise water rates
Chickasha has a sales tax levy of three-quarters of 1%, the proceeds of which are devoted to capital improvements; that tax is slated to expire at the end of this year. Renewing the levy and increasing it to 1.25% would eliminate the need to raise water rates, Wolff said.
Any growth in municipal sales tax receipts over the next 30 years could be used to help retire the loan or for other infrastructure needs such as streets, storm drainage improvements, and/or replacing leaking water lines and dilapidated sanitary sewer lines, he said.
If the voters decline to renew and raise the capital improvements sale tax on Aug. 8, water rates would have to be increased 82% to meet the debt service requirement on the loan, city officials were told. Chickasha’s water rates were raised “last summer,” Wolff reminded the council members.
Providing local residents with two options “would allow the voters to decide how they want to pay for” the new water treatment plant, said Brooks. “You put it in the voters’ hands.”
Rising interest rates and construction costs are critical issues.
The Federal Reserve raised its benchmark interest rate 10 times in the last 14 months. If the Chickasha Municipal Authority could submit its loan application to the Water Resources Board soon, the board might be able to consider it at its July meeting, which could “lock in the interest rate,” Brooks said.
“Our biggest concern is what construction prices are doing,” he said. “We will probably see year-over-year increases for the next six to eight years as more projects come into the system” at a time when “a limited number of contractors” are available to construct them.
Construction of the new water plant probably will take two years to complete, Brooks estimated.
“What happens if we go out for bids and $70 million is not enough?” Councilman Oscar Nelson asked.
In that event, the Council/Authority would have three choices, Brooks said: reduce the scope of the project, borrow more money, or pump in more local funds.
Officials seek applications from design firms
Written statements of qualifications from design firms interested in the water treatment plant project are due by May 26.
A selection team will establish a short list of qualified firms, if applicable, by June 2, and proposals from those firms would be due two weeks later.
A selection team will pick the best design firm on June 26.
Authorization from the Chickasha Municipal Authority to negotiate a contract will be requested on July 3, and CMA approval of the contract will be sought on July 17.
The selected design firm will provide “all pre-construction services for the project,” including but not limited to 1) engineering and other appropriate design of the proposed facility, 2) construction documents for the project, 3) reports and information necessary to obtain the appropriate permits for construction, 4) environmental reviews, reports and plans and 5) construction bid solicitation.