Financial analyst Phillip Brown stood before the Brooksville City Council on Monday night and delivered a grim, hourlong report on the city's prospects of paying for improvements to its utility system.
The city has been ordered by the state Department of Environmental Protection to replace its two dilapidated sewage treatment plants with a new one, which is expected to cost $4.8-million. City officials also are planning $5-million in other water and sewer projects, bringing the total cost of its utility needs to nearly $10-million.
The city's population is not expected to grow in the next five years, Brown said, so the same number of customers will have to pay for the improvements. For the most part, that means current residents will pay higher and higher utility rates _ eventually far higher than people in the county and surrounding towns.
If the city issues bonds to finance the work, it can expect to pay more for them than many other cities would.
"You can probably issue debt, but it's going to be expensive because you don't have a strong, growing tax base," said Brown, a senior managing consultant for Public Financial Management Inc. of Orlando.
The city hired the company a year ago to help it figure out how to pay for the utility improvements.
The council was not asked to decide Monday. Brown's report to the council at a special meeting was the first of what probably will be many appearances.
"He was just presenting an overview of options and how the things work," said Mayor Joe Johnston III.
At a meeting last month, a consultant told the council it should expect to raise water and sewer rates 40 percent over the next five years if it issues bonds.
Whether it issues the bonds will be determined largely by the federal Rural Development Administration. The city applied for assistance from the administration about three months ago, said Finance Director Lee Huffstutler. It should get a response within the next four to six weeks, said City Manager Richard Anderson.
The good news is that the factors working against the city's plans to issue bonds, or receive bank loans, will help it with the RDA.
The administration's grants and low-interest loans _ if Brooksville receives help from the RDA, it will probably be a combination of both _ are supposed to go to relatively poor localities with rundown utility systems.
The application tried to show, Huffstutler said, "that it would be difficult for us to raise money through the bond market, which is true, because right now our (utility) rates are not high enough that we can make enough money to cover the cost of the plant."
And, he said, "I guess we are considered a rural city, and the RDA does oversee Brooksville and this region in that respect."
The city has a fund of about $3.4-million, most of which is left over from an earlier utility bond issue, to spend on improvements. So it has to find some way of raising about $6.4-million.
If it receives substantial help from the RDA, a relatively small bank loan may cover its additional needs.
If it does not, Brooksville likely will be forced to issue bonds, Brown said, because bonds offer two things a city of Brooksville's size requires: a fixed interest rate and many years, usually 30, to pay back the loan.
That will be more expensive for Brooksville than for a city with an adequate sewer system and a growing population mainly because of bond insurance.
To make its bonds as marketable as other city's, Brooksville will have to insure them. And because Brooksville does not appear to be a particularly good risk, the insurance will be expensive.
"It's not a real cheerful situation," Johnston said.