Sitka is facing another hydro project that’s likely to cost more than expected. The Green Lake Dam hydro equipment is nearing its 40th birthday and in need of major repairs. However, not only has borrowing the money to make those repairs become more expensive, the repairs themselves will only grow more costly the longer the city delays taking action.

Sitka’s Electric Department has a plan to rehabilitate the Green Lake Dam in three phases. Phase 1 was estimated to cost around $3 million dollars, but in mid 2021 at the peak of the COVID pandemic, interest rates for borrowing dropped, and the assembly saw an opportunity to borrow $4 million from the United States Department of Agriculture, assuming the same debt service they’d budgeted for $3 million. 

Municipal Administrator John Leach said the intent was to use the extra million dollars to cover some of phase two. The USDA greenlit the city’s application in July of 2021, but the process to get the loan took a long time – there were some legal and logistical questions to resolve – and the loan agreement wasn’t finalized until December of last year.

“Here we are a few years later. Rates have gone back up I think they’re at about 3.5% right now. So our cost of debt has changed from when we first applied for this…And we’re in a bit of a difficult predicament here,” Leach said. “We still need the money for the project…the first phase is essentially sunk. We’ve already spent our own funds out of working capital to make that happen. But we still need to move forward with the rest.”  

Phase one of the Green Lake Dam project covered repairs to the water supply portion of the dam. Now, they need to replace two generators that haven’t been overhauled since they were installed nearly four decades ago. And while they’re working fine for their age, Utility Director Scott Elder said the city would be risking a lot to further delay maintenance. 

“But it’s kind of like any other vehicle or piece of machinery,” Elder said. “If you make a choice to delay maintenance, then you’re running a higher risk. If you repair something while it’s still in relatively good condition, you can expect more life out of it. Delaying maintenance on it [is] probably not our best idea. Our insurance companies are definitely watching.”  

Kent Barkau said, no matter what the assembly decided, he hoped Sitka’s long-term energy needs carried weight in their decision.

“I’m looking at this with an eye to the report from ETIPP,” he said. “And the good work of our Electric Department highlighting the fact that our community is on the cusp of exceeding our capacity of our current hydro facilities…What is our plan, our energy plan long term for building out more capacity? And I think now’s the time to start that planning.”

Leach said they’d put a pin in the loan discussion while they were waiting for word from another funding opportunity, a $10 million dollar appropriation in the omnibus bill approved by Senator Lisa Murkowski. But the funds didn’t end up in the bill. So the assembly had to again consider the pros and cons of borrowing from the USDA.

The higher interest rate would mean nearly double the interest payments over a 30 year period. But the federal interest rate is still lower than borrowing from the Alaska Municipal Bond bank.

Assembly member Chris Ystad asked what the consequences of not accepting the loan would be. 

“As I understand, we’ve already spent the money for phase one, and potentially somewhat into phase two. How much does this hurt the capital fund for this? Can we operate with what is in there?” Ystad asked. “Do we truly need this money to keep moving forward with matching and phase two and three of this project?”

Finance Director Melissa Haley said the capital needs were huge, and even if the assembly passed on this loan, eventually they’d have to borrow money. 

“It might not be tomorrow, it might not be for this specific project,” she said. “But not borrowing will certainly make it more difficult to move forward as quickly as we’d like to at the next phase of Green Lake. 

Haley added that the rate of inflation for capital projects is much higher than the regular rate of inflation and any delay to funding for the project could end up making repairs much more expensive. 

“In my mind, choosing nothing, not to move forward, is not an option,” said Assembly Member Kevin Mosher, who said he’d likely support the loan agreement resolution. “We put off all these things for too long and we don’t want to push our luck, so it has to be done.”

Mayor Steven Eisenbeisz understood the need to balance the increased loan costs against the rising costs of inflation, if the city were to delay any further. However, he  hoped the city would hold off on spending as much of the extra money as it could. 

“Going through this process does give us the $4 Million, I think John [Leach] understands to only pull out as needed to try and reduce some of the costs of this loan,” Eisenbeisz said. “And I would just hope, for at least my sake, kind of a gentleman’s agreement that as this money has started to expand, that we’re just updated on it,” he added. “I really do think that we can keep including this in grant applications as we go forward.”

Ultimately the assembly voted unanimously in favor of the resolution. Work on the Green Lake Dam continues, with plans to overhaul the two aging generators next on the docket.

The assembly’s vote on the loan resolution was one of many 7-0 decisions the assembly made on Tuesday night. The group also unanimously approved $97,000 in funding for the Parks and Recreation office and unanimously approved a 25,000 grant for the Alaska Trollers Associations Legal Defense Fund.  You can read more about Tuesday’s Sitka Assembly meeting on our website at KCAW dot org.