Exurbs built infrastructure, but nobody came to pay for it

The city of New Prague just threw a party to celebrate completion of a state-of-the-art sewer plant.

But the gathering that really means something to the city's pocketbooks will take place soon in a conference room in St. Paul, where New Prague officials will ask the state to loosen the financial noose the $30 million project is tightening around the city's neck.

The plant is one of many built amid a turn-of-the-century explosion in the populations of rural towns on the fringe of the metro area. But the exurban boom has gone bust, leaving cities such as New Prague, Avon and North Branch struggling to pay for the facilities.

Without help, Harris Mayor Diane Miller warned in a letter to the state, "the increases in debt service over the next several years will put the city in an untenable financial position."

The projects were supported by the Minnesota Public Facilities Authority, an obscure state agency that dished out nearly $350 million, mainly in low-interest loans, to help exurban cities build sewer and water projects.

When home sales plunged, cities found themselves with fewer-than-expected residents to help foot the bill. That's forced many of them to jack up their water and sewer rates for current homeowners and businesses.

New Prague raised its rates by 35 percent in 2009, 31 percent in 2010 and 25 percent in 2011 and 2012, said City Administrator Michael Johnson, and more jumps are needed to "get those rates to the level needed to cover the debt."

Residents notice, both city officials and outside critics agree. Said Joel Wollin, who's running to become New Prague's new mayor: "It's a big issue. I've heard that over and over again: The utility rate increases are ridiculous. I've lived in my house for eight years and they have doubled."

Some cities have been allowed to lower their annual payments by refinancing their debt. But extending the loan from 20 to 30 years comes at a cost, too. New Prague's financial consultants cautioned that the deal means an extra $8.45 million in long-term interest costs for a community of about 7,000.

Cost of small-town life

Residents of exurbia are often people of modest means who opted to "drive to affordability," as developers used to put it, when the housing bubble had home prices in closer-in suburbs exploding to heights they could not afford.

Jeff Freeman, executive director of the Public Facilities Authority, estimates about a third of the $350 million the agency distributed stemmed from growth expectations. The rest "was driven by the need for replacement and major rehabilitation of aging treatment plants" and pipes, he said, or stiffer environmental mandates.

But he also noted that economies of scale mean that costs for water and sewer in small towns are much higher to begin with, even before these new investments, than in the center of the metro area, where millions of people divvy up the tab. The Metropolitan Council, which handles sewers for most of the seven-county area, points to a recent survey indicating that its rates are about 40 percent lower than the national average.

In outlying areas, though, the economic and demographic trend has taken its toll. New Prague's financial investment had the biggest price tag in sheer dollars since 2003, but many others took on greater debt relative to their much smaller size.

And some places that haven't actually sought refinancing say they're bracing for turbulence.

Todd Bodem, city administrator in Big Lake, in Sherburne County north of the Twin Cities, said residents are already grumbling about the city's utility rates -- at a time when the City Council is about to be asked to hoist them higher. A new wastewater plant will be running soon, the result of a years-long process of planning and financing.

"It's tough for people living in cities like this one," Bodem said. "People are losing their jobs, having their homes foreclosed. I feel it's rebounding, I really do, but believe me, I know what they're going through: I worked for a developer and got laid off and that crushed me financially till I got back into city government."

In cities like Green Isle, in Sibley County southwest of the metro area, streets sit devoid of homes, a visible daily reminder to residents like Todd Burg of what was once expected.

"It's a good quality of life," he said last week. "It's a nice small town -- much better than living in the city. You're not sitting in traffic and everyone knows everyone. I drive to Chanhassen for work, 30 to 35 minutes, and it's worth it for what we have here."

What the future holds for such places remains a puzzle. State Demographer Susan Brower has to issue periodic forecasts, and last month's edition does offer hope of growth, even though it ratchets back from the forecasts of just a few years ago. "We project that population growth will accelerate again in exurban areas, but it will not mirror the levels of growth that we found in the '90s and early 2000s," she said.

On the ground, meanwhile, local officials are being ultra-cautious. Home construction in New Prague has picked up slightly this year, and a recently announced factory expansion promises more jobs. Still, said New Prague's Johnson, "There's no way to develop any forecast."

Looking back, he said, "the best available data at the time this plant was being planned had everything going onward and upward. Then, everything changed. If we had that great knowledge, we might have done things differently. But we didn't."