Holbrook Council Rejects Loan To Buoy Savings

By Tammy Gray-Searles
   A special meeting on July 20 in which the Holbrook City Council turned down a low-interest loan that would have been used to shore up a savings account evolved into a discussion on communication, as the council learned at the last minute that $560,000 of the $700,000 loan was not forgivable as they were previously told.
   In early May, the council was advised by Congresswoman Ann Kirkpatrick’s office that the city was eligible for a low-interest loan of up to $700,000 for the rehabilitation of water storage tanks. Council members were also advised that a major portion of the loan, $560,000, was forgivable, meaning the city would only have to pay back $140,000 of the $700,000.
   Finance Director Randy Sullivan told the council at the special meeting that the Water Infrastructure Financing Authority (WIFA), the agency administering the loan, decided on May 27 that no portion of the loan to Holbrook would be forgivable. He noted that he believed that information the city was given regarding a forgivable loan was the result of a miscommunication between the federal government and WIFA.
   Sullivan told the council that the interest rate on the loan is still greatly reduced at 1.5 percent, and that the loan is needed so that the city can be reimbursed for work completed on the water tanks.
   Vice Mayor Matt Searles asked how the city is getting reimbursed for the work if it must pay the loan back.
   Sullivan answered that the money for the rehabilitation was taken out of the city’s savings account, and the loan would reimburse the savings account.
   “If we go out on our own (for a loan) the interest would be about 4.5 percent. Through WIFA it’s 1.5 percent,” Sullivan said. “We’ve spent $400,000 on the tanks and we’ve been spending it out of savings, so by entering into this loan, they’ll reimburse us for what we have spent.”
   According to Sullivan, the city’s savings account, or Local Government Investment Pool (LGIP) account, would be reduced by $400,000 this fiscal year without the loan.
   Councilman Kent Darris asked Sullivan how long he has known that no portion of the loan is forgivable.
   “How long have you known that it was not forgivable,” Darris asked. “And why weren’t we told that before we approved the tentative budget?”
   Sullivan told the council that he was unable to “get good results” from WIFA regarding whether any of the loan would be forgivable, and that the budget has always been based on an assumption that none of the loan is forgivable.
   Councilman Wade Carlisle noted that council members agreed to some additional spending because they were left with the impression that most of the loan would be forgivable.
   “We spent money on other things because of the understanding this was forgivable,” Carlisle remarked. “This is not what you show on the budget and it’s not on any of the paperwork you gave us.”
   City Manager Carlo Pilgrim told the council that he did not believe any spending decisions were made based on a portion of the loan being forgivable.
   “No decision was made based on the $560,000, based on my view,” Pilgrim said.
   Searles noted that he believed the council members should have been provided information on the loan prior to approving the budget at their last meeting.
   “It seems kind of fishy, right on the heels of us approving the budget instead of before we approved it,” he commented.
   Mayor Jeff Hill noted that he was opposed to taking on the loan if it is not forgivable.
   “There are so many other ways we can do this without borrowing money,” he said. “I’m not in favor of this. We got bad information. We were led astray. We don’t have the money, but we can raise the funds. It’s time that we live within our means. I’m not in favor of putting 20 years of payments in front of the people. It doesn’t make sense.”
   Carlisle asked what city staff is hoping to accomplish by taking out a 20-year loan to replenish savings, and also asking to spend $50,000 for a consultant to tell the city what water and wastewater projects need to be done in the next 20 years.
   “What we’re doing is preparing ourselves should a loan become available,” Pilgrim said. “My concern is that if you don’t approve (this loan) it could knock us out of the game for the next loan.”
   Carlisle asked, “How is this knocking us out of the running for another loan? Give me a scenario.”
   “I’m not going to give you a scenario,” Pilgrim replied.
   Mayor Hill stopped the discussion and admonished staff and council, reminding them to communicate with respect.
   Pilgrim then continued, noting, “I suspect it will. I have no evidence, no record.
   Carlisle replied, “This is a good discussion, we need to address this. Anytime I suspect something, I suspect it based on evidence. If you have a history of failed loans, then yes, you run a risk of not getting loans. But when we fund something ourselves, how is that going to possibly take us out of the running for a future loan?
   “Holbrook hasn’t changed. It’s still a low income city. The things that set us up to get a low cost WIFA loan are still there.
   “I have never in my life of looking at government loan structures and grants heard of a situation where if you don’t take a loan or grant it disqualifies you from taking a future loan or grant.
   “So when I hear from the manager, ‘I suspect,’ I want to hear on what basis. And if there is no basis, why even make that argument? It’s like he’s trying to scare us into taking that loan and I’m not scared,” said Carlisle.
   Hill noted that if the WIFA board is advised that the city is not accepting the loan because officials applied for it with the understanding that $560,000 is forgivable, and the actual terms do not include any forgivable portion, there should not be a future problem.
   Sullivan noted that WIFA never even knew that the city was advised that a portion of the loan would be forgivable.
   “WIFA never saw or heard of any of that,” he said. “When I forwarded them that e-mail (from Ann Kirkpatrick’s office) they had no idea what was going on. It was a miscommunication from the feds.”
   Searles asked Sullivan to look into whether an appeal process exists regarding the WIFA board’s decision that none of the loan could be forgiven.
   Councilman Charles Haussman noted that after listening to the entire discussion, he could not support approving the loan.
   “It goes back to what I said in a previous meeting. We owe some obligation to the citizens of this community,” he said “I feel we have not received adequate information on this whole scenario. I feel blindsided by the details, by factors we really didn’t understand, and we have to weigh out the cost benefit of securing more debt. I think this brings to a head some things. The communication hasn’t been there. I don’t understand why it’s not being communicated. Now we have to make a decision. If this had been communicated a long time ago, we might have been able to make a better decision.”
   Hill called for a motion, and Carlisle replied that he had not had an opportunity to read over the documents presented to him.
   “I want to read it until I’m comfortable with it. I’m not the one that brought it at the last minute,” he said.
   The council took a brief recess to allow Carlisle and other council members to read pertinent documents and ask staff questions. Upon return, Councilman Myron Maxwell stated that he did not support a 20-year loan to fund savings.
   “I would like to see Holbrook as self-sufficient as it possibly could be. I would think that if we wanted to borrow money and have a 20-year payback, there is a lot we should accomplish with what we borrow,” said Maxwell.
   Sullivan noted that the city did apply for funding for many other projects, including a hill sewer interceptor project, improvements to the Romero lift station and the addition of a water main across the Little Colorado River. According to Sullivan, the other projects did not rank high enough to receive loan funding from WIFA. He also told the council that staff did not know until recently that part of the loan would not be forgivable.
   “The fact of the matter is, council is saying that you guys weren’t kept up to date on all this, and the fact of the matter is, we didn’t know either. On May 27 is when the WIFA board voted on it, but since then we got an e-mail from Kirkpatrick’s staff saying they were talking to WIFA and they were researching it to see what’s going on,” said Sullivan. “I didn’t find out until June 29. It’s not like I sat on this a long time.”
   Darris replied, “That was three weeks ago. We’ve had a meeting since then. You could have told us. Stuff like that is very important.”
   Hill noted that with no part of the loan being forgivable, the city would end up paying approximately $114,000 in interest over the next 20 years if the loan is accepted.
   Carlisle told the council that his questions regarding early payoff have not been answered and even if he supported the loan, he did not yet have enough information to approve it.
   Darris moved to deny staff’s request to proceed with the loan.
   Hill noted that he agreed with Darris.
   “Spending $100,000 to borrow $700,000 is a good interest rate, but it’s not what we thought we were getting. I have to support the motion and that’s why,” Hill said.
   The council unanimously approved the motion.
   In other action during the special meeting, the council approved entering into an agreement with Navajo County for an Edward Byrne Justice Assistance Grant.
   Interim Chief of Police Mark Jackson told the council that the grant funds, which total approximately $12,500, would be used to buy necessary equipment, such as digital cameras, voice recorders and binoculars for the police department.
   The next regular city council meeting is scheduled at 7 p.m. on Tuesday, July 28, at city hall.