PINE-STRAWBERRY WATER IMPROVEMENT DISTRICT
Pine-Strawberry Water Improvement District (District) was established by the Gila County Board of Supervisors under Resolution 96-011954 July 6, 1996, under Arizona Revised Statutes 48-903.
In the Satisfaction of Judgement in Superior Court of Arizona, Yavapai County, No. P1300CV20090785, the District purchased the assets of the Pine Water Company, Inc.; Strawberry Water Company, Inc.; and Brooks Utilities, Inc.
The District entered into a Promissory Note in the amount of $4,164,000, (2009 Single Advance) and not to exceed $2,250,000 Promissory Note (2009/2010 Line of Credit) with Arizona Compass Bank.
The Security Agreement in the amount of $4,164,000 with Compass Bank with a fixed interest rate of 7.8% with the maturity date of September 30, 2012. The Line of Credit was used to purchase and drill wells for the District. The purchased wells were Milk Ranch 1 and Strawberry Hollow 3 along with other Strawberry Hollow wells. Milk Ranch 2 and 3 were drilled on District property and all wells were equipped and added to the distribution system.
On July 15, 2011, the District refinanced their line of credit and note agreement in the amount of $7,414,000 maturing in 2019 with an average interest rate of 4.55% with $1,031,712.40 being deposited into the Project Fund.
On July 15, 2015, the District refinanced their 2011 loan balance in the amount of $6,444,398 maturing in 2025 with the interest rate of 3.85% with the estimated principal balance of $4,200,000 due in June 2025. The total interest payments were calculated to be $2,045,870.42. Per the audit report of June 30, 2016, the remaining principal balance was $6,286,378 and interest was $1,857,562.
The Board of Directors, being concerned about the payment due in June 2025 and not knowing what type of refinancing would be available at that time, began discussing options for increasing revenue to begin making additional principal payments on the debt to reduce the balance due at the end of the pending period. They presented options to the public in several meetings discussing increasing the property tax rate from 1.048% to obtain the additional funds needed to reduce the debt by approximately $400,000 per year. The final decision made for the Fiscal Year beginning July 1, 2017, was to increase the tax rate to 1.3981% as well as increasing water rates to obtain the additional $100,000.
At that time, the annual debt payments were $448,437 annually and the plan was to make 4 additional principal payments each year in the amount of $100,000. Compass Bank allowed the District to make the additional principal payments without any penalty from July 2017 to July 2019. Interest rates changed and the next 3 $100,000 payments had penalties of $19,139. During that period, the District paid additional principal payments in the amount of $1,282,967 and the $200,000 for July and October 2020 were deposited into the Public Funds Interest Earning checking account due to the commitment of the loan and grant funds received from USDA in September 2020. The Compass Bank monthly interest prior to July 2017 was over $19,000 per month. The interest dropped over the period and when the debt was paid off in June 2022, the interest was $11,800 per month. The remaining principal paid off by the first USDA loan was $3,617,675.
At that same time, the District was budgeting $500,000 per year in capital improvements funds as well as funding for potential grants. In June 2017, the Board decided to meet with WIFA to secure grant/loan funds for capital improvements. We completed all the required documents and committed to being able to pay $500,000 in payments and find out how much we could get in funding.
In February 2018, the District was awarded $8,000,000 with $500,000 in forgivable principal. These funds were used over the period of 2018 to 2022 to complete a long list of waterline and tank replacements, tank rehabilitations and system meter replacements. This loan is for 20 years at 2.1042 interest with semi-annual payments not to exceed $504,000 annually.
In May 2019, the Board of Directors approved the process of applying for additional grant/loan funding with USDA in the amount of $25,000,000. The District has previously committed to payments to Compass Bank in the amount of $825,000 annually so this was the amount used to commit to obtaining USDA funding. In the August 27, 2020, Board meeting, the Board approved proceeding with the USDA funding commitments.
The USDA commitments are as follows:
$9,500,000 with the interest rate of 1.125% for 40 years
$8,000,000 with the interest rate of 1.125% for 40 years
$5,030,000 with the interest rate of 1.125% for 40 years
$510,429 of grant funds
Replacement well in Strawberry in the amount of $1,497,000 with interest rate of 1.175% for 40 years. Grant funds in the amount of $499,071.
These funding commitments will end on December 31, 2025.
The $5,030,000 loan was closed on June 27, 2022, with Compass not PNC Bank being paid in full. While the loan period is 40 years, the first 2 years payments are interest only. Beginning July 27, 2024, payments in the amount of $13,581 per month will be due and will be automatically withdrawn from the Public Funds bank account. The remaining available funds from this loan will be used to pay off the Design loan listed below.
However, USDA requires interim financing to pay for all the engineering and construction of all the projects. Therefore, the following funding was secured through WIFA in the form of 2 loans. The first loan is the Engineering and Design loan in the amount of $2,500,000 for 36 months at 1% interest. The second loan is the Construction loan in the amount of $17,500,000 for 60 months at 1% interest. Both of these loans require semi-annual interest payments as the funds are drawn over the loan periods.
The Design loan payment is due on July 1, 2024, and will be paid off with the remaining funds from the first USDA loan and funds in the Public Funds account.
While the $17,500,000 Construction loan extends to July 1, 2027, it will be paid off by December 31, 2025, when the USDA funding commitments end.
The District Funds in the Sweep Account average between $2.5M to $2.8M and earn anywhere from
$6,000 to $8,000 per month in interest depending on the current interest rate. As of January 2024, the interest rate was 3.23%.