A Partnership That Is Cooperative
By Shelly Eldridge, Senior Financial Advisor
Sometimes economic development means partnering with a business already in your community. And
for Litchfield, MN, that means the cheese business. Litchfield is home to a dairy cooperative that makes
over 180 million pounds of cheese per year. The cooperative, called First District Association, is an
economic engine in the region, and a major employer in the City of Litchfield. And it’s growing, in part
driving the need for the City to invest over $10 million in its wastewater treatment plant and water
system.
“As a community, we’re challenged to
manage the financial risk of such a large
investment,” said Dave Cziok, City
Administrator. “First District pays over
50% of all the wastewater utility revenue
we collect. If their production drops, so
will our utility revenues. That’s a big risk
for us when we’re looking at over $10
million in new debt.”
The City of Litchfield partnered with First District dairy
Ehlers devised a two-pronged financing
cooperative to finance a wastewater treatment plant.
strategy to mitigate the City’s risk. The
As a result, First District can expand production and
first strategy was to ensure that First
add jobs.
District Association pays a fixed share of
the annual debt service, regardless of their
utility usage. To accomplish this, the City assessed $5.9 million of the project costs to the cooperative
and agreed to levy the assessments at the true interest cost of the bonds, without adding the typical 1% 2% spread.
Clint Fall, President of First District Association, calls the financing a true public-private partnership.
“We depend on City services for our everyday operations,” he said. “It was in our interest to get the
wastewater treatment plant expanded. By agreeing to the assessment we ensured the project could be
financed at 3.45% over 20 years – which is cheaper than the capital we can access as a private business.”
The second financing strategy was to structure the 20-year bonds into two separate issues. The first
series of bonds, issued in 2013, financed $9.4 million of the plant. “By keeping the first bond issue
under $10 million, we kept it bank qualified and got lower rates,” said Administrator Cziok. “In
addition, Standard & Poor’s upgraded our bond rating from A+ to AA-.”
The low bid on the first series of bonds produced a true interest cost of 3.45% and a $168,000 premium,
which helped defray the cost of the project. The second series of bonds, competitively bid during a
period of low supply in early 2014, attracted 6 bidders and resulted in a true interest cost of 3.25% for 20
year debt. The unassessed portion of the project will be paid with utility fees, backed by the City’s
property tax levy.