City Council Approves $12.7 Million Bond for Gas Network


     The Homer City Council has approved a bond ordinance totaling 12.7 million dollars. The Kenai Peninsula Borough would purchase the bond, which translates into a loan to the City of Homer. That money would then be used for construction on the natural gas trunk line and distribution system with Enstar Natural Gas Company.

     The city had been investigating funding sources for the project for the last few months. And with a 4 percent interest rate, the Kenai Peninsula Borough was considered the most attractive option. The Borough Assembly still must approve this loan agreement in order to move forward with the plan. That could happen during its March 19 meeting. 

     The repayment plan spelled out in the ordinance allows the City of Homer 12 years to pay the Borough back. The first two years will be interest-only payments. City Attorney Thomas Klinkner explains.

     “The first payment will be interest only because they will be payable while the project is under construction and before assessments are levied, which only happens after the project is completed. Those payments will be due in 2014 and 2015. Then there will be 10 payments of principal and interest commencing in 2016 and concluding in 2025,” City Attorney Thomas Klinker said.

     In order for the city to pay down the principal of the loan, the ordinance states the city will levy assessments in the Homer Special Assessment District, or HSAD, depending on which happens later: 60 days after construction is completed, or the final bill is received from Enstar. The first assessments will be due either 60 days after the fee is levied or March 1, 2016, whichever happens first. 

     If a property owner inside the HSAD decides to pre-pay their assessment, that will affect the amortization, or overall repayment, of the loan. 

     “That pre-payment will be directed automatically to pre-pay principal of the bond. And when that principal is pre-paid… then the amortization will be readjusted so that the payments remain equal over the repayment period,” Klinker said.

     The city also is required to create two separate funds as part of the ordinance. One is called a “sinking fund” while the other is a “reserve fund”. 

     “The sinking fund is a fund into which assessments payments from properties in the assessment district will be paid as they are received. The reserve fund is a fund that’s provided to secure repayment of the loan in the event that assessments become delinquent and there is insufficient money in the sinking fund from assessment payments to make debt service payments on the bond when they are due,” Klinker said. “In that case, the reserve fund would be drawn upon to make up any deficiency in the amount available for the payment due to the Borough at that time.”

     The bond ordinance passed unanimously during the Homer City Council meeting Monday night. Toward the end of that meeting, Mayor Beth Wythe had one last question for Klinkner.

     “If the council were to, in the end analysis, make a substantial change to the manner in which they determine the roll or the assessment, would they be required to go back then and have an objection period,” she asked.

     Wythe said she was thinking specifically about the assessment levied on condo owners within the HSAD. Klinkner said it would be possible to do that, but it must happen before the city enters into a construction agreement with Enstar. The approval of that contract was postponed during Monday night’s meeting because City Manager Walt Wrede said there is one sticking point the two parties are still negotiating. Wrede would not give specifics about the issue because talks are ongoing.

     The city council will likely discuss the construction contract again during the March 11 meeting.