The Kenai Peninsula Borough will loan money to the City of Homer for construction on a natural gas trunk line and distribution system. The Borough Assembly approved the measure during its meeting Tuesday night.
The loan totals $12.7 million and comes with a 4 percent interest rate. The Homer City Council had approved a bond ordinance that paved the way for this loan agreement during a meeting last month, but officials were waiting for approval from the borough. Homer will have 12 years to pay back the loan with the first two years consisting of interest-only payments.
Assembly Member Bill Smith said the money will come from the borough’s investment funds. He said many of the investments the borough currently has only draw a 1 or 2 percent interest rate.
“The borough will be gaining income from this. It will not come from any reserve funds. It will not come from any taxes,” he said.
During public comment, Fred Sturman mentioned he didn’t think it was the borough’s job to loan out funds. He was the only dissenting voice and said members are overstepping.
“I don’t think the borough should be taking a risk on the money that we’ve got to the city of Homer, or any other city,” Sturman said.
But Borough Mayor Mike Navarre says the option to offer credit to Homer is too good to pass up.
“For that $12.7 million, we’re going to earn among the highest interest in our investment portfolio. So it makes good sense from our standpoint. It also allows the city of Homer, and later Kachemak City, more flexibility,” he said.
He said he can understand why residents may be concerned about the agreement, but he said the borough has done its due diligence. Navarre also pointed out that the anticipated savings in energy costs are going to benefit the borough as a whole. According to an analysis by Smith, each school in Homer is projected to save, on average, roughly 63 percent in fuel costs each year.
“The hospital down there is projected to save as much as $300,000 on an annual basis in energy costs. Are there some conversion costs to it? Absolutely, but the real benefit comes from the energy savings that you get with natural gas,” he said.
Homer City Manager Walt Wrede attended the meeting for one final push of support for the loan. He said the city council appreciates the relationship with the borough.
“We’re going to be able to finance construction of the gas distribution system throughout the entire city, which is a really big deal. We're talking about 71 or 73 miles of road. Everybody in Homer’s going to get it within a two-year period and everybody’s going to get it for the same price,” he said.
The loan agreement passed unanimously among the members present at Tuesday night’s meeting. Three members were absent. Assembly Member Charlie Pierce abstained from voting due to a conflict because he works for Enstar Natural Gas Company.
Wrede said he will be signing paperwork soon to confirm the agreement. He said he expects to receive a transfer of funds from the borough totaling around $3 million. About $2 million will go to Enstar for upfront costs associated with construction and another roughly $1 million will be put into a reserve fund that’s required by the city’s bond ordinance.