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Time short on big Bunker Hill debt

BY CAROLINE EGGERS - ceggers@perutribune.com

Faced with a half million dollar plus payment to Wells Fargo due on May 1, Bunker Hill Town Council members may have no choice but to hike water rates by 26 percent.

“There is no magic pill,” Eric Walsh, an H. J. Umbaugh and Associates partner told the Bunker Hill Town Council on Monday night. “You have two months to figure this out.”

In 2002, Bunker Hill received a loan for $1.1 million to build a new water treatment plant. Walsh said.

In 2015, the town was in a financial crisis and couldn’t make the regular payments for the loan. They decided to change their payment structure with Wells Fargo to very low costs upfront and a balloon payment of $552,000 at the end, Walsh said. 

And now that balloon is ready to pop.

Walsh first presented the issue to the Bunker Hill Town Council during an October 2017 meeting. “It’s not like this is a surprise that’s coming,” Walsh said on Monday night. “We’ve been telling you since last fall.”

To fix the problem, Walsh recommended increasing the water rates by 26 percent to pay for a loan from the First Bank of Berne to pay off the other loan.

“We inherited this,” said Council Member Luis Nino. “It’s a complex issue when you have a board rotating in and out.”

Council members Shanna Griffis, Don Jaberg, Rae Ann Panther and Eric Murray – the replacement for recently resigned Carl Wade – voted yes to approve the first reading of an ordinance increasing water rates.   

For the average residential family, that would equate to about a $14 per month extra. In comparison to other similar-sized, surrounding communities, Walsh said Bunker Hill already has the highest rates.

First Bank of Berne agreed to finance the loan at a rate of 3.9 percent through 2030.

Bunker Hill would then pay back the loan over the course of 12 years at a cost of about $65,000 a year, divided into two bi-annual payments.

“This is how it should have been done in the first place,” Walsh said.

In addition, Bunker Hill would have to set aside about one fifth of the total payment over the course of five years in a debt service reserve fund. This safety fund ensures that the bank has one year’s payment if the town ever defaults on a payment, Walsh said. 

Council members inquired into ways that they could lower the rate impact for citizens, but Walsh said basically the only way to actually do that would be to get rid of employees. “The general fund is stuck,” he said.

“This is the best option we found with the least rate impact, spreading it out over 12 years,” Walsh said.

Before Bunker Hill can close on the loan with the First Bank of Berne, the town council has to adopt the new rates.

If they had suspended the rules on Monday – which would have taken a majority vote – then they could have passed it in one meeting.

Instead, there will need to be one more reading before the ordinance can be adopted.

So, Bunker Hill Town Council will host a public hearing on April 9, and then afterwards hold a second reading of the proposed ordinance.

Council members know the town citizens will not be happy. “We’re not exempt from the bills, and we’re not happy about it, either,” Panther said.  

If Bunker Hill decided to default on the Wells Fargo loan, Walsh warned that the town would have a black mark on its name – possibly preventing them from ever being able to secure another loan.

“Understand what you’re cornering yourself into,” Walsh said.