By the end of the year, Akron will owe lenders $1 billion for the first time in history. And it won’t stop there.

Decades of borrowing for new schools, public facilities and economic development have been replaced by a new form of debt: $601 million in loans for an “unaffordable” sewer project.

Before this project, federally mandated in 2014 and originally estimated to cost $1.4 billion, city accountants had been looking forward to 2015 as a financial point of inflection when Akron would begin to see its public debt go down. Now, all signs point toward more borrowing, pushing back that break-even point to 2025 or beyond and threatening another sewer rate increase for customers.

The city will reconsider sewer rates no earlier than 2020. That’s when a $257 million loan comes due for a 27-foot-deep tunnel being dug beneath downtown Akron today.

When the tunnel is complete, the city’s debt will be closer to $1,338,600,861.

“This is the amount of all outstanding debt that the city tracks in our debt-monitoring software,” said Deputy Director Steve Fricker, who noted that actual debt could be lower if project costs come in under budget.

That unprecedented level of debt, though staggering, is not unmanageable, city officials said. And Budget Director Diane Miller-Dawson said Akron residents should not be worried.

Since incorporating in 1936, the city has never defaulted on its debt obligations, and there’s no talk of that happening today. Still, what Akron owes could soon triple what it collects each year in taxes, fees and other revenue.

Down the pipes

Last year, Akron paid off $122 million in debt while borrowing $255 million more, including $139 million for sewer projects.

The sewer overhaul project is single-handedly driving up debt. It now accounts for $601 million of all the city owes, or nearly half.

That’s a fairly recent phenomenon.

A decade ago, the city was spending around $10 million annually on all public utility projects and more than $100 million for economic development. This year, $222 million will be spent on sewer and water projects and $15 million on economic development.

The federal consent decree, among the stiffest in the nation, has flipped spending priorities. Akron’s capital budget didn’t single out sewer and water projects until they consumed 51 percent of all spending in 2013. Today, they account for 60 percent.

The sewer project, in effect, is hogging resources.

That’s partly why Mayor Dan Horrigan and City Council are supporting a 0.25 percent income tax increase on the Nov. 7 ballot. Proceeds of the tax increase would prop up police and fire equipment purchases, new fire stations and road repairs that have been neglected for decades.

Fricker said this would allow the city to pay cash for some future projects, avoiding interest on loans.

The debt conundrum

The city is operating between two mandates.

At one end, it must spend hundreds of millions of dollars it does not have to complete a sewer project by 2027. At the other end, it can only borrow what it’s capable of paying back.

“We’re working every day to reduce” the overall $1.4 billion cost of the sewer project, Miller-Dawson said. “It’s important to our citizens that we control costs. That’s why we’re working so hard.”

When construction ends, two things are expected: no sewage will spill into local waterways when it rains and the city will have borrowed another $277 million for the project, on top of loans for nonsewer-related construction.

The city’s bond ratings (AA- from Standard & Poor’s and AA3 from Moody’s) are as high as they were a decade ago. That is evidence of responsible budgeting, Miller-Dawson said. “The market is never going to let us borrow more than we can pay back,” she said.

Cutting costs

The city is taking a two-pronged approach to flushing out savings.

With near-zero percent interest rates on new state-subsidized loans, the city is seeking ever-longer repayment periods, up to 45 years in some cases. In effect, an Akron resident born today will be a senior citizen by the time the project is totally paid off. This ensures today’s sewer customers aren’t eating the bill all at once.

Meanwhile, engineers are designing cheaper options. Green infrastructure projects like wetlands, which are cheaper than boring tunnels and digging up pipes, have more than doubled as the number of storage basins have been cut in half. One pipe heads north to the waste water treatment facility where two were originally planned.

Public Service Director John Moore has his fingers crossed that federal officials will let the city forgo a second massive tunnel under downtown, this one running along the north end of downtown.

The engineering tweaks and requests, made possible by a more amicable relationships with federal authorities, could trim $300 million from the $1.4 billion overall project.

“Eventually this community is going to have to pay for all this, so we’re working to bring down costs,” Horrigan said at a news conference this month, during which he detailed $57 million in cost reductions this year.

Other debt

The city also is looking, as it does every year, at whether it’s getting the best deal on other loans.

On Monday, the City Council will vote to permit Fricker and Miller-Dawson to refinance up to $234.5 million in debt, all borrowed since 2010 and mostly to build new schools. Some of these bonds, which are repaid through income taxes, will accumulate 6.45 percent interest until they’re retired in 2033.

That’s nearly the highest interest rate on the city’s ledger of debt, which includes loans and bond sales dating back to the 1990s.

Refinancing to a lower rate could save $8 million — taking a 0.6 percent nibble out of the city’s $1.3 billion in projected debt.

Reach Doug Livingston at 330-996-3792 or dlivingston@thebeaconjournal.com. Follow him @ABJDoug on Twitter or www.facebook.com/doug.livingston.92 on Facebook.