The city is preparing to borrow so much money for two major projects that all other big-ticket spending will have to be sharply curtailed for the next three years.
But, Schenectady City Council members said at Monday’s committee meeting the two projects are so important — and will create such significant savings in the long run — that they will go ahead with them both.
That means the sewage treatment plant will be able to produce electricity with methane and Foster Avenue will become home to the entire Bureau of Services department.
The biggest project is the $20.3 million consolidation of the Bureau of Services, which includes parks, water, sewer, garbage collection, plowing, vehicle fueling and myriad other tasks. All workers will be moved to a new site to be built at Foster Avenue and Seneca Street, across from the crumbling Bureau of Services building that was boarded up last fall.
All of the existing buildings on that site will be demolished. Neighbors had complained about the unsightly structures, two of which have partially collapsed and others are near collapse.
New buildings are expected to save the city money on utility costs, and officials expect savings of scale by grouping the entire department in one place.
The project will also reduce overtime, Commissioner of General Services Carl Olsen said, because workers will be able to leave their plows stocked with salt in heated equipment garages instead of coming in early to prepare trucks during winter storms. Waste collection trucks will also need less maintenance if they can be stored indoors, Olsen said, because the trucks must often be jump-started on cold mornings, wearing down their computers more quickly.
But the new complex is so expensive that the city will have to pay back the loan over the course of 25 years, Finance Commissioner Ismat Alam said. That will add $15 million in interest to the $20.3 million project.
Even with the long payback, the city will struggle to make the first three payments, she said. From 2009 to 2011, the city will be spending more than $9.7 million a year just to pay down its debt. In 2010, the city’s debt payments will balloon to a high of $10.5 million before dropping to $10.3 million in 2011.
Every penny over $9.7 million is a penny the city doesn’t have now. But Alam offered a creative solution: if the city puts its $20.3 million loan in a savings account as construction begins, it will earn so much interest by the time the project is completed that the city will be able to make those first three payments without cutting expenses or raising taxes.
That leaves the city with little margin for error. There won’t be money left over to pay for other capital project loans.
“We have to be mindful of this,” Councilman Mark Blanchfield said. “There are going to be other capital needs. We are making a commitment to not do much in the way of capital projects in the first few years.”
Other council members agreed — but then they all approved another costly capital project that they decided could be added onto the bond needed for the Bureau of Service consolidation.
They agreed in Monday’s committee meeting to approve a $2 million project to harness methane from the city’s sewage treatment plant. The gas will be used to produce 30 percent of the plant’s electricity, Olsen said.
At current electricity rates, the city would save $282,000 a year by using methane, he said. The process also reduces the amount of materials workers need to add to the sewage sludge, saving the city another $37,000 a year.
With those savings, the city could pay off its $2 million loan in less than 7 years. Council members said it was a no-brainer and agreed to the expense despite the city’s tight financial state.
Blanchfield noted that some of the work at the plant must be done for safety reasons even if the methane power proposal was rejected.
He also predicted that the city would save more than expected. Electricity costs are on the rise: the city’s bill has gone from 10 cents to 12 cents per kilowatt hour in the few weeks since Olsen prepared his presentation.
“Assuming electricity costs continue to grow, we’re going to save more and more,” Blanchfield said. “And if electricity goes down … we’ll still have broken even on a really essential project.”
Both projects were made more affordable through grants from the New York State Energy Research and Development Authority (NYSERDA).
The city has received $1.05 million for the methane power plan and expects another $1.5 million for the Bureau of Service consolidation, which includes buildings that will be LEED-certified. The national certification is offered to buildings with environmentally-friendly designs.
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