Project Cost:
Total costs for this project are now finalized, as the City Council has awarded a contract for plant construction.
| Estimated Project Costs |
| All Construction Design, Well Construction, and Water Treatment Infrastructure Phases 1 and 2 |
$10,300,000 (funding secured, project complete in 2026) |
| Water Treatment Plant Construction |
$17,798,930 |
| Power and Gas Supply |
$250,000 |
| Engineering and Project Administration |
$1,900,000 |
| Project Contingency (5% of construction costs) |
$889,947 |
| Total Cost |
$31.1 million |
Project Funding:
The project will be funded through a combination of secured and projected grants and low-interest loans from the Public Facilities Authority (PFA). It is anticipated that the City will also receive an Emerging Contaminant Grant of $5 million that will also reduce the cost to the City. The City Council will continue to review how to pay the annual debt service on this - either through water rate increases or franchise fee increases. The City Council will hear funding scenarios at its regularly scheduled meeting on November 10, 2026. More information about this can be seen below in the FAQ section.
| Projected Funding Plan |
|
Water Treatment Facility Total Cost
|
$20,838,877
|
|
Congressionally Directed Spending (Allocated to the City in 2023, only received if a plant is built.)
|
($960,000)
|
|
CJS Appropriation (Allocated to the City in 2026, only received if a plant is built.)
|
($1,092,000)
|
|
PFA Emerging Contaminant Fund Grant
|
($5,000,000)
|
|
Project costs to be funded by the water fund (Power and supply costs)
|
($250,000)
|
|
Total amount to be borrowed by the City from the PFA
|
$13,536,877
|
|
Estimated Annual Debt Service
|
$734,000
|
Frequently Asked Questions:
Q: Will the City need to borrow money to pay for the project?
A: Yes, the City will apply to the Public Facilities Authority (PFA) for a loan to finance the project. These are typically repaid over the course of 20 years at a 2-3% interest rate.
Q: Is the water fund currently in debt?
A: Yes, the water fund is approximately $3 Million in debt. Water rates must rise over the next three years to bring this fund out of debt. Previous City Councils voted to freeze water, sewer and storm water rates from 2018 through 2022. Without increases in rates, these five years of artificially low rates created deficits in each of these funds. The water fund grew to a $5.3 Million deficit as of July 31, 2024.
Q: Why does it matter if the fund is in debt?
A: The water, sewer and storm water funds have had to borrow from other city funds to pay for the staffing, operation, maintenance, and expansion of the water, sewer, and storm water systems. These other funds must be paid back and could utilize that cash for projects related to their funds. Additionally, having positive cash in these funds would allow the City to finance water projects without additional tax rate hikes.
Q: Doesn't taking a loan out put the fund in more debt?
A: Yes, but only for a limited time. The City will take on the debt of the water treatment plant, but increasing water rates can cover yearly debt payments as well bring the fund out of debt over time.
Q: How will the City pay for the water treatment plant loan and bring the fund out of debt?
A: The City will need to pay an estimated $750,000 per year to pay back the loan. The City Council can use two mechanisms to pay back this back, either raising water rates or raising franchise fees.
Raising Water Rates: To continue bringing the water fund out of debt, the City will raise water rates by 13.5% in 2027. The City Council could decide to raise the water rate further to pay the loan on the water treatment plant.
Raising Franchise Fees: Franchise fees are collected by Xcel Energy and CenterPoint Energy each month on your utility bill which are paid directly to the City. The City Council could raise these fees to pay the loan on the water treatment plant.Q: Could the City assess property owners for the project instead of raising utility rates?
A: If the City chooses to assess property owners, State Law would prohibit the City from receiving the low-interest loan from the PFA and would not receive a grant of up to $5 Million from the PFA. The City would have to instead bond for this project, similar to a road construction project, and the interest rate for borrowing this money would be much higher. A bond for this project would bring the amount the City would need to borrow for the project up to approximately $19 Million versus $13 Million.
Q: Could the City pay the debt service using property taxes instead of raising utility rates? A: If the City wanted to use property taxes to pay for this project, the outcome would be similar to choosing to assess. The City would no longer be able to
receive the low-interest loan from the PFA and would not receive a grant of up to $5 Million from the PFA. The City would have to instead bond for this project, similar to a road construction project, and the interest rate for borrowing this money would be much higher. A bond for this project would bring the amount the City would need to borrow for the project up to approximately $19 Million versus $13 Million.
Q: Has the City asked other government agencies for money to support this project?
A: Yes. The City has secured $12.3 Million in funding from the State and Federal government to support this project. Despite strong advocacy from the City Council, the City did not receive money from the State of Minnesota 2026 bonding bill. The City will receive another grant from the Public Facility Authority along with the loan. Read about the full history of funding requests here.
Q: Why didn't the City secure the loan from the PFA and have a decision on financing before approving the project?
A: The Public Facilities Authority requires that a City have accepted a bid before applying for a loan. This is the same process the City uses for a street reconstruction project, where the City would bond after awarding a contract.
Q: When will the Council decide what the 2027 water rates will be?
A: The City Council will review the Utility Rate Study at its regularly scheduled meeting on November 10, 2026. At that point, the Council will review scenarios of raising water rates, raising franchise fees, and/ or raising property taxes. The final decision on 2027 utility rates will be at the November 24, 2026 City Council meeting.
What You Should Know:
