Describing the action as a dual benefit for both the borough and the city of Homer, the Kenai Peninsula Borough Assembly gave the thumbs-up Tuesday to a multi-million dollar loan to help build a Homer natural gas grid.

“It makes good sense,” Kenai Peninsula Borough Mayor Mike Navarre said. “I can understand why some think maybe we shouldn’t be in this business, but all we are in the business of is investing funds that we have available and getting a reasonable return that can be used to offset expenses for the borough.”

The assembly approved, 5-0, Resolution 2013-024, which approves a $12.7 million loan agreement between the Kenai Peninsula Borough and the city of Homer to finance a natural gas utility special assessment district. Assembly member Charlie Pierce abstained due to a conflict of interest and members Linda Murphy, Ray Tauriainen and Sue McClure were absent.

The potential loan comes on the heels of last year’s state capital appropriations that will bring a gas line from Anchor Point south. The loan would fund construction of distribution lines from the trunk line to the edge of properties. Homer property owners will pay the principle back through their property taxes via a special assessment district, but those property owners who want to connect their homes or businesses via a service line would pay for that themselves.

In early February, the assembly approved an ordinance amending borough code dealing with investments to allow for two loans to Homer and Kachemak City to help create the natural gas grid. The assembly’s Tuesday action was only for Homer; a future loan for Kachemak City — up to $600,000, according to code — would have to be approved by the assembly.

Homer assembly member Bill Smith said both municipalities would benefit from the loan. He clarified that the loan money will not come from reserve funds or taxes, but rather funds the borough already has in an investment pool.
“The money is coming from our funds that we have invested for earning interest,” he said. “Those investments earn well under 2 percent … (and) this loan agreement with the city of Homer will bring the borough a 4 percent interest on its investment monies. It is over a 10-year period and the city of Homer has agreed to pay lenders costs as well.”
During public testimony, Soldotna resident Fred Sturman said he was against the loan, adding he felt the borough “had no business being in the banking business.”
“I do feel that if you guys pass this and give the money to Homer, if anything happens down the road … I think you guys should be held responsible for not taking good care of the borough money,” he said, adding “Homer should support their own.”
Navarre said the borough has done its due diligence investigating the idea and has found the loan to be well-secured and that it would be a prudent investment.
“The schools down there will save money because of this project … the hospital is projected to save as much $300,000 on an annual basis in energy costs,” he said. “Is there some conversion costs to it? Absolutely. But the real benefit comes from the energy savings you get with natural gas over fuel oil, propane and other forms.”
Homer City Manager Walt Wrede said the Homer City Council appreciated the borough’s consideration of the loan and reiterated that it would benefit Homer residents through the lower interest rate than the city could get with a commercial lender.
“I think the thing the council likes best about this is (that it is) just good public policy,” Wrede said. “You are taking taxpayer money you are investing anyway and you are reinvesting it right back into the borough for a lower cost of living, a higher quality of life and economic stimulation.”
Ordinance 2013-10, confirming the assessment roll for the Anchor View Estates Utility Special Assessment District in Anchor Point, was introduced at Tuesday’s assembly meeting. It is now scheduled for a public hearing at the assembly’s April 2 meeting. 

This USAD is similar to one formed in Anchor Point in 2011 for the purpose of constructing a natural gas main line to 268 parcels within the USAD boundaries. Through the Anchor Views Estates USAD, 49 additional parcels will receive natural gas for a total cost of $162,144.90. Each property is assessed $3,315.20.

The assembly has already given its approval to formation of the USAD. The gas line has been constructed and a bill has been presented to the borough for payment. 

“This is like the last step,” Borough Clerk Johni Blankenship said of approving Ordinance 2013-10. “Not approving it would mean the borough would pay for it.”

According to the ordinance, assessments may be prepaid without interest within 30 days. If not prepaid, they are payable over a period of 10 years in equal installments with interest accruing at 5.25 percent per annum. 

“Natural gas is going into the little neighborhoods. It’s going to be a great thing,” said Mako Haggerty, who represents the Anchor Point area on the assembly.

Bill Smith, who represents Homer on the assembly, is looking for a way to simplify the multi-step, time-consuming approval process for USADs. 

“That’s been an issue because of construction time, if you’re trying to beat winter frost or get under a price change,” said Smith.

Brian Smith can be reached at brian.smith@peninsulaclarion.com. McKibben Jackinsky contributed to this story and can be reached at mckibben.jackinsky@homernews.com.