The city of Hannibal is working with its municipal utility, the Hannibal Board of Public Works, to see if the two entities can line up a project to rebuild Main Street’s sidewalks with sorely needed water and sewer main replacements under the street. Those infrastructure improvements would need to be complete within the next year and a half to accommodate the sidewalk construction. Story here.

Further conversations with BPW General Manager Bob Stevenson reveal that the cash-strapped utility — which he recently said has $20 million in debt and is in for years of rate increases to catch up on improvements and cash reserves — has several options for paying for the project, which is expected to cost $425,000 for the water mains and $50,000 to $100,000 for the sewer mains.

To put that in perspective, the BPW has a water improvements budget of $50,000 for fiscal 2012, Operations Director Heath Hall said at last week’s BPW board meeting. That’s $50,000 for the entire city.

However, Stevenson said doing the project in-house, which is a distinct possibility, could slash the price tag by a third to half. For argument’s sake, let’s say that would bring it down to $250,000.

The BPW also may be able to spread the cost of the projects over two budget years. As a stipulation of the grants for the sidewalk project, it must be under contract by the end of 2012, which would put the utility in fiscal 2013. Split between two years, and taking the in-house cost reduction into account, the project cost could look a lot like $125,000 per year for two years.

Stevenson said the BPW and the city also may look at the scope of the various state and federal grants the city has received for the new sidewalks and the mill-and-overlay resurfacing of Main Street that will accompany them.

The utility may even have enough in its depleted cash reserve by the end of next year to make up for the project costs. Depreciation in operating expenses, which typically provides the BPW with some income, may be another funding option.

All of these measures are aimed at avoiding further debt for the project, he said. “(I’m) picking up from (the board) a definite sense that they would rather just spend cash on hand than borrow. … We’re a little vague on that decision right now.”

The Main Street water and sewer improvements are costly, but they’re essential, Stevenson said. The mains for both systems are 100 years old in some places, and the city’s sewer system in particular has run into issues in the downtown area, including a recent citation from the Missouri Department of Natural Resources.

Generally, however, the water system downtown needs more help than the sewers, Stevenson said. It’s also a much more extensive project, with water mains running the length of Main Street. Most of the sewer mains run through alleys, with the exception of mains that run perpendicular underneath Main Street between Bird and Hill streets. That work is likely to be done with trenchless technology, a test for the new innovation that will prevent digging up streets by doing the work underground.

“It’s not nearly as extensive as the water,” Stevenson said.

The water, however, will require extensive work under the streets. That’s why the city and the BPW want to see it finished before the sidewalk project begins. Both agree that it doesn’t make much sense to dig up a brand-new street.

Time will tell how the funding shakes out for the BPW work.

“We’ve got quite a few options, it looks like,” Stevenson said. “We haven’t picked the optimum selection yet.”

At last night’s Hannibal Board of Public Works public hearing on upcoming water and sewer rate increases, one attendee questioned why the city utility finds it necessary to raise rates so often and why it’s in such dire financial straits. In response, General Manager Bob Stevenson offered the most candid, thorough explanation of the utility’s money problems that I’ve heard in my year of covering them.

About 12 years ago, Stevenson said, the BPW entered into a 10-year contract with Ameren to purchase power at a fixed price for that period. That’s common; it negotiates power contracts every couple of years, always working to lock in a competitive rate. This one was particularly competitive, Stevenson said. “It was a pretty sweet deal.”

However, as the purchase power price stayed level, expenses went up over that decade. That included some capital projects, such as a large-scale meter project. At the same time, Stevenson said, there was “political pressure” to keep rates flat. It’s not clear what form that pressure took or why it occurred, but it may have had something to do with the constant price of electricity over that period. On the surface, it certainly makes sense; why pass along rate increases you’re not experiencing yourself?

Unfortunately for the BPW, the only option for covering its increasing expenses was to borrow money. Lots of money.

“Today, we’re out of wiggle room,” Stevenson said. “We’re buried in debt. We should have been raising rates throughout the term of that contract, a little at a time, but we did not.”

The BPW is in debt, in fact, to the tune of $20 million. Its cash reserve stands around $5 milion or $6 million. Stevenson said that’s essentially the opposite of where the BPW was 12 years ago.

The utility is now trying to rebuild its cash reserves while trying to make infrastructure improvements, fall in line with ever more stringent state and federal regulations, and cope with large expenses like its share of the new Prairie State Energy Campus in southern Illinois and the new sewer treatment plant it eventually will need to build. The reserve is among the utility’s biggest concerns, Stevenson said.

In addition, rate increases are tied not only to local expenses but to the ever-increasing cost of electricity. The BPW does work to find competitive rates for power, Stevenson said, but the market for wholesale power is such that those rates are constantly going up across the board.

These are some of the reasons the BPW gave Thursday for the rate increases customers have been experiencing for a couple of years — and may continue to experience annually for a while. The board has said rate increases may be necessary for several years in order to help the utility cover expenses and shore up its reserve. Although 8 percent — the amount of this year’s water and sewer increases — is high, board member Randy Parks said this spring that it may not be high enough to fix the utility’s problems.

The BPW has financial problems, to be sure, but should they be passed on to the consumer? What do you think?