Meridian City Hall

The city of Meridian’s credit rating and financials are in good shape to move forward with a second bond issue to fund work relating to the federal consent decree, the City Council was told Tuesday.

Nnamdi Thompson, of Government Consultants Inc, which has helped the city with past bond issues, said issuing more bonds has always been part of the plan.

Meridian issued its first bond to fund consent decree work in 2019, when it borrowed just over $40 million. At the time, the City Council implemented a series of planned increases to residents water bills to cover the debt payments on the borrowed funds.

Those planned increases, however, were implemented to cover not just the initial $40 million, but the estimated total cost of the project, which at the time was around $120 million.

Unlike other city departments, the water fund is an enterprise fund, Thompson explained. It is supposed to be self supporting and cannot transfer money in and out like other departments’ budgets. Increasing the rates is the only way to generate the money needed to cover the debt payments.

The council was told in a July 9 work session that an additional $55 million will be needed to carry the consent decree work through Sept. 30, 2027. Thompson said the amount falls within the anticipated borrowing and shouldn’t’ be difficult to do.

Councilman Dwayne Davis said he has concerns about the debt repayment schedule set up after the first bond. According to the schedule, he said, the city will be paying $16 million in interest on the $40 million bond before beginning to pay the principle.

“Me or anybody else in here, especially people who have a mortgage or anything they’re paying principle and interest, in knows you want to pay principle more than interest,” he said.

Of the council members currently serving, only Councilman George Thomas was in office when the first bond was issued. Davis joined the council in a special election in 2020, and the other three council members were elected in 2021.

Thompson said claiming the city is not paying down principle isn’t accurate, and the city is indeed paying down its debts. Meridian is currently paying four different debts from its water fund, including the initial $40 million bond, a bond issued in 2013 and two revolving loans, he said. The total cost of the debt service is roughly $1.6 million annually.

When structuring the debt payments, which was done under the previous administration, the idea was to keep costs low for residents while still keeping the city on top of its financial obligations, Thompson said. The city is paying principle on its revolving loans and 2013 bond issue, he said, and should pay those off in a few years. That money will then be freed to go toward consent decree debts.

“Overall, from your water and sewer perspective, you are paying principle. You’re paying principle down, and you’re getting it out of the way,” he said. “This was set up because if we do pay principle, that payment in the first column says instead of $1.6 (million), it will be $2 million and change.”

Going that route would require dramatic increases to water rates, Thompson said, which is what the previous council was trying to avoid.

Once the council is ready to move forward with the second bond issue, a quick check of the water fund’s finances will be done to make sure collections are still in line with the original forecast, Thompson said. If everything looks good, the council can move forward with the necessary paperwork and get the process started on issuing the bonds.