Homer isn’t the only city trying to figure out how to finance natural gas delivery to city residents and businesses. Homer’s little neighbor to the east, Kachemak City, is in the same boat.
For Homer, population about 5,000, the estimated cost of natural gas distribution within city limits after Enstar pipes the gas to the southern peninsula from Anchor Point is expected not to exceed $12.7 million.
For Kachemak City, population about 475, the price tag is estimated at $1 million, according to Kachemak City Mayor Phil Morris.
“One of our council members said we’ve got to borrow money from somewhere to do this gas deal and it was too bad we couldn’t borrow it from the people,” said Morris, whose response to that idea was, “That’s too complicated.”
Or is it?
“The next morning at 3 a.m., I sat bolt upright in bed and said, ‘Oh, that’s not a bad idea,'” said Morris.
A little conversation later and a plan began taking shape, as advertised by an ad in the Homer News of Nov. 29: The city of Kachemak is investigating the possibility of forming a local investor group to finance the construction of its natural gas distribution system and subsequently those lot owners who wish to pay their assessment over time.
Cost to participate: $50,000 per unit, with interest figured at 5 percent.
“It’s like a construction loan for building a house,” said Morris. “We need the money for about a year, to build the thing and it can be assessed.”
The city has $400,000 to put toward the effort, meaning $600,000 — 12 investors — more is needed.
“It sounds like a lot and not very practical, but the reality is we’ve already got eight,” said Morris.
“Actually we had eight before I even had it in the paper and that’s probably enough to do it, even if it’s not enough to do the whole deal.”
Morris said once the gas line project is complete, individual assessments are expected to run $2,000-$3,000 a head with a 10-year payoff. He predicts many Kachemak City residents won’t want to pay the annual assessment.
“They’ll want to pay it off and get it off the books,” said Morris. “So, at the end of the project, we’ll assess everyone and, once it’s decided, how many are paying cash and how much we need going forward, we’ll determine how much gets turned into a long-term loan. We may not need a total of $600,000.”
Investors will be paid on the principal and interest every quarter or semi-annually, “whatever we work out is the way to do it,” said Morris. “It wouldn’t be all $50,000 in there for 10 years. In eight years, you’re pretty well down to nothing.”
Even if four more investors aren’t found, Kachemak City may proceed with the ones it has “because people are looking at a reasonable opportunity to earn some interest,” said Morris of the opportunity to give local residents with available cash a better rate of interest than they might be getting. “Why borrow money from a third party if local residents are sitting around earning half a percent? It doesn’t make sense.”
If the Kenai Peninsula Borough makes a financing offer that’s an easier, cheaper way to build the gas line, Kachemak City might not pursue the investment option.
“On the other hand, if its essentially the same, I think local residents should have the ability to do it if they want so and I’m encouraged with the interest we’ve had so far,” he said.
There are still some questions to resolve. For instance, what if an investor wanted out after a year?
“We’re trying to figure out if we can do that,” said Morris.
Once 12 investors, plus one or two extra as alternates, have expressed interest, Morris will call a meeting to discuss payments, partnerships and other details still to be worked out.
“We don’t need the money until April or May, but we do need a commitment of sorts,” he said.
Anyone interested can call Morris at 235-8383.
McKibben Jackinsky can be reached at email@example.com.