A $48 million water treatment and sewer system in East Bethel, meant to spur business development in the small Anoka County city, produced plenty of controversy a couple of years ago.

Now, more waves may be on the way, as residents face a possible 17.5 percent levy increase to cover bond payments that are coming due.

Projected business growth was supposed to create the tax base to pay much of the bill. But only three businesses are connected to the system, with nine more existing operations expected to link up by next August.

A frustrated City Council that came into office after the project was greenlighted in late 2010 approved the preliminary levy in September. Under the “worst-case scenario” of a 17.5 percent hike, the levy could rise from $4.6 million in 2013 to $5.3 million in 2014. For a home valued at $150,000, city taxes would increase from $720 to $900.

There’s still time to lower the levy number, which must be finalized by December. City Administrator Jack Davis, under orders from the council, has been looking for ways to cut costs, including refinancing the debt. Other options include reducing line items in the budget, imposing special assessments, fees from new development and other city fund balance transfers.

“We still have a lot of options on the table,” Davis said. “We have a huge financial challenge ahead of us. It’s not going to be just this year. It’s going to be every year.”

Not ‘carved in stone’

“That’s pretty hefty,” said Mayor Richard Lawrence of the possible levy increase. “We are still hoping we can drop that maybe a percent or may two by the end of the year ….”

“The thing about the levy right now is, the 17.5 percent isn’t carved in stone,” said Council Member Robert De­Roche. “There are a lot of things that could fall into place that would lower it, hopefully significantly. You plan for the worst and hope for the best.”

But DeRoche said any cost-cutting measures have to be thoughtful and well planned. “I won’t gut the city,” he said.

This could be first of several tax increases, Davis said. In 2014, the city needs to cover $790,000 in bond payments that come due. An additional $1.3 million comes due in 2016-17.

The background

In late 2010, an outgoing City Council approved construction of the water treatment facility and sewer system. The proposal to bring water and sewer services to 1.5 miles along Hwy. 65 had been in the works since 2004; it was intended as a tool to attract businesses while preserving most of East Bethel’s rural feel.

The city eventually issued $18 million in general obligation bonds to pay for part of the project. The Metropolitan Council financed $30 million to build the wastewater treatment plant.

The decision to build the facilities proved highly controversial in part because the city’s 12,000 residents will not be hooked up to the new systems.

“Unfortunately, this just serves a very small area,” Davis said. “It’s a mile and a half along 65. It doesn’t serve a residential area. It serves a commercial area.”

In early 2011, a newly elected City Council majority debated halting the project, but moved ahead with it, with some modifications, after a feasibility study was done by a consulting firm. Still, some expressed concern at the time about the potential effect on taxpayers.

The water and sewer project was essentially completed four months ago, Davis said.

Point, counter-point

Mayor Lawrence said the previous council was unrealistic about the type and number of businesses they could attract to East Bethel. Lawrence said they promised big-box retailers.

“I talked to a Target executive. He said, ‘Your city is too small. We can’t come there.’ That’s what we are hearing from other big-box stores,” Lawrence said.

Lawrence is critical of the Met Council and the previous council for pushing the project through. “The Met Council pushed it hard. They wanted it real bad. They didn’t do their due diligence,” he said. “The Met Council really hurt us bad.”

The Met Council issued a statement in response to Lawrence’s criticism.

“The investment in wastewater infrastructure was requested of the Met Council by the City of East Bethel in 2007 to serve expected development. When a subsequent city council was seated, the project was scaled back and the Met Council helped in a number of ways to mitigate and reduce costs for the city. Any additional efforts to provide relief to city residents, however, have not been formally requested, and would result in additional costs to other communities in the region. Discussion of relief for cities experiencing similar financial distress may occur next year with Metro Cities (which represents other cities served by the Council), but has not yet been initiated.”

City staff expect some feedback when preliminary property tax statements hit the mailboxes later this month.

“That’s why we are trying to have some public meetings and get out in front of this,” Davis said.

The city is hosting two public meetings to discuss the levy increase. The first one is at 6:30 p.m. today, Thursday, Oct. 10, at City Hall. (Please note: A previous version of this story listed a different time.) The second will be at 7 p.m. on Nov. 21 at City Hall.