Loveland City Council approves interfund loan for Pulse construction – Loveland Reporter-Herald
A combination of rapid development, inflation, and a missed funding projection has left Loveland’s broadband utility with a $10 million budget gap that could put future construction on hold. On Tuesday, Loveland City Council bridged that gap by voting 8-1 to approve a $15 million loan to Pulse from the city’s electric utility, but not without some qualms.
“I think not doing it is worse for the city than doing it,” Councilor Pat McFall said during council deliberations. “Although I came to it reluctantly, I support doing it.”
Although Pulse’s revenue and “catch rate” are in line with its original business plan, a number of other factors have caused deviations from that plan, and in costly ways, according to the city manager of fiber, Brieana Reed-Harmel, who led the presentation before the board. .
The budget shortfall stems from the first bond issue in April 2019, which raised $95.1 million of Pulse’s planned $97 million start-up costs, which delayed nearly $2 million. dollars the public service since the beginning.
Much of that was to be interest on unspent money, but, according to Reed-Harmel, the economic shock during the wave of the COVID-19 pandemic dashed those hopes. Between 2019 and 2021, Pulse’s seed fund only brought in $1.9 million of the projected $3.2 million in interest payments, widening the overall budget gap by $1.27 million. .
Pulse added another $3 million to the gap when it changed contractors early in the construction process.
Most important is the recent growth of Loveland’s development in Loveland, “a good problem to have,” Reed-Harmel said. Between 2018 and 2021, the city added 2,400 new premises, and 500 more are under construction.
That’s three times more than Pulse’s initial projection of 800, and while new customers are definitely welcome, the growth is also adding significantly to the area the utility has committed to serve, driving up costs. initial construction costs of approximately $4.2 million over original projections.
“We were expecting some growth and we certainly anticipated it – Loveland is a very nice place to live,” Reed-Harmel said. “But a lot of developments have moved in and a lot of houses are going up.”
At the same time, laying fiber and cable in housing estates under construction can help cut about half of typical costs, she continued.
“If we can get in before the houses are occupied, we don’t have to worry about disturbing the landscaping or the water lines in people’s houses. We don’t have to worry about the cost of crossing roads or driveways, which are among the biggest costs of entering the existing development.
Inflation adds the final $3 million to the gap, despite what Reed-Harmel called “an excellent job of forecasting” Pulse’s construction costs.
“We had a plan for this project – we knew how much material we needed, and we started working with our distributors early on to do scheduled release of material throughout the project,” she said. . “We also started buying equipment a year in advance to make sure we had enough on hand so we didn’t have the ups and downs and worry about delivery and timing. .”
Since then, the costs of some of the high-volume materials have increased by 49%, with an average increase of 25-30%.
“What it ends up doing is reducing our buying power for the amount of hardware we can actually buy with the dollars we originally allocated,” Reed-Harmel said.
The $10 million funding shortfall means Pulse may have to delay or cancel service in some Loveland neighborhoods, Reed-Harmel said, until funds can be raised in the future.
A delay would also mean higher future construction costs as developing neighborhoods are completed.
To make up the shortfall, Pulse staff considered several options, including issuing new bonds, but that can be a costly process and lacks flexibility, she said. Eventually, it became clear that an 18-year, $15 million internal line of credit between Pulse and the Power Unrestricted Fund would be the best option for both divisions.
“This allows Pulse to fire only what’s needed when it’s needed, with funds remaining in the power fund until needed,” Reed-Harmel said. “And the interest will go to the energy funds. So it kind of pays us back, rather than Pulse paying interest to an external entity outside of our community.
According to Loveland utilities manager Kevin Gertig, this could delay some of the power division’s 10-year capital projects, but it won’t impact the utility’s ability to operate or to maintain the equipment. It will also have no impact on customers’ electricity rates. However, inflation and supply chain issues are likely to come later.
The loan will be repaid at the City’s investment rate, adjusted annually. According to Reed-Harmel, the repayment should be complete at the same time as the initial bond plan.
The city council broadly backed the plan, with more than one councilor saying, ‘We have to start what we finish’, in their remarks.
Councilman Jon Mallo went further and also praised Pulse staff for “solving their own problem,” rather than raising rates for customers or asking the city to help make up the shortfall.
“There is a serious gap in our plans,” he said. “I call it the ‘disease of the gap’. There are several to come and we’re going to have to figure out which ones we can handle and which ones we can afford.
However, Mayor Jacki Marsh was reluctant to increase Pulse’s debt burden without input from Loveland voters, something that hadn’t happened until the $97 million bond issue in 2019.
“It’s a new entity, it’s competing with private industry, and it’s a hell of a lot of money,” she said. “I’m not surprised we need the extra money…it’s a lot easier to say yes to $15 or $20 million more when the notes have approved the initial debt.”
Marsh was then the only no to vote against the motion.