Diversion budget proposal keeps project fast-tracked

FARGO – Diversion Authority officials aren’t letting a shortfall in federal funding stop them from adhering to a brisk schedule that could have the Red River diversion completed by 2021.

The board’s finance committee advanced a proposal Tuesday to set the local budget at $29 million for fiscal year 2013, which begins Oct. 1. That money is in addition to the $5 million the U.S. Army Corps of Engineers should contribute next year.

Before President Barack Obama’s budget proposal came out in February, officials had hoped the corps’ share in 2013 would be $30 million by itself. Adding in a local match, that would have put $60 million toward the flood control project next year.

Without that level of federal funding, though, the Diversion Authority’s finance team began exploring other plans to fund the project beyond the corps’ contribution in order to stay on course to finish within the next 10 years.

Senior project manager Tom O’Hara said a $29 million budget would allow metro diversion officials to push ahead on the project’s design – and potentially initial buyouts and construction – with the flexibility to spend much more.

That all depends on whether Congress votes to authorize and fund the Red River diversion project, which could happen in early 2013, based on local officials’ most optimistic predictions.

Under the local budget proposal for 2013, Diversion Authority members would revisit their finances early next spring and potentially raise the authority’s budget to $50 million, if congressional action comes through, O’Hara said.

“Five million dollars is just inadequate,” Diversion Authority chairman Darrell Vanyo said Tuesday. “I like the idea that there was a compromise with the middle-of-the-road approach. … It keeps us on track and gives us flexibility, without knowing what the federal government is going to do.”

The authority’s local budget for this year was $15 million, which the Army Corps matched for a total budget of $30 million.

Plans for 2013

As recommended, a $29 million budget for 2013 would help fund a variety of ongoing tasks related to the Red River diversion project, including:

  • $6 million in design.
  • $6 million for hardship buyouts and, potentially, initial land acquisition.
  • $7 million to manage the project, including costs associated with the authority’s administrative operations, the Army Corps and CH2M Hill, the authority’s contracted project management firm.
  • $10 million for land purchases and construction of permanent levees on the Red River.

Officials said those levees would be needed to accommodate tentative plans to increase the allowable flows of the Red River through downtown Fargo-Moorhead.

Increasing the river’s flows through town would allow the diversion channel to be used less often, which could reduce the frequency – but not the magnitude – of the project’s impacts on rural communities south of the metro area.

Since Moorhead officials have completed much of their flood defenses along the Red River, the new levees would mostly be needed on the Fargo side, O’Hara said.

Second Street North near Fargo City Hall is a prime example of where a permanent levee would be needed to accommodate the Red River diversion project, he said.

Moving ahead

The full Diversion Authority board will consider the 2013 budget proposal at its meeting on Thursday.

If it’s approved, the recommendation would need formal support from all six local governing boards that created the Diversion Authority last summer: the cities of Fargo and Moorhead, Cass and Clay counties, the Buffalo Red River Watershed District in Minnesota and the Cass County Joint Water Resource District in North Dakota.

The 2013 budget plan will be included in a renewal of the joint-powers agreement that the six member entities need to sign by early September. The JPA gives the Diversion Authority its power to oversee the metro-area project.

The renewed JPA and 2013 budget will be voted on for final approval at the Diversion Authority’s meeting next month.

Funding, financing

Assuming a $29 million budget, Fargo-Moorhead officials said Tuesday they are optimistic they can get through fiscal year 2013 with income from sales tax in Fargo and Cass County.

“The sense is we’re close to being able pay with current sales tax modeling, but if we end up going to the $50 million model, then we have to jump into bonding,” Fargo City Administrator Pat Zavoral said.

The future – sooner or later – will require more long-term funding options, so diversion officials are taking steps to eventually establish a special assessment district that could be used to finance the project over several decades.

Doing so would give the Diversion Authority the leverage it needs to secure bonds to pay for the local share of the $1.8 billion metro project. While special assessments on individual homeowners aren’t off the table, metro officials stressed that sales tax is the method they would prefer to use to pay for the project.

“Because an assessment district is set up, that doesn’t mean that a homeowner would pay anything,” Vanyo said.

Zavoral added: “It’s just a tool for us in financing. It would make the use of the sales tax as efficient as possible.”

An informal committee of local officials – including Cass County Auditor Mike Montplaisir and Mark Brodshaug of the Cass County Joint Water Resource District – plan to put the administrative pieces in place to begin establishing an assessment district, as soon as the end of this year.

Fargo generates at least $10 million a year through its half-cent sales tax, which passed in 2009 to fund permanent flood protection. Cass County’s sales tax passed in 2010 and generates a bit more, at least $11 million a year.

If sales tax dollars come up short in 2013, a variety of short-term options – such as loans – could fund the Diversion Authority’s work through the end of September 2013, said Jessica Cameron-Mitchell, the Diversion Authority’s financial consultant.

Fargo initially used its sales tax to pay for inner-city protection projects, including a $50 million bond that paid for home buyouts in the city.

Because of that, Fargo has about $5.8 million in annual debt payments to make through 2015, which leaves $5 million available next year for the diversion project, Fargo Finance Director Kent Costin said.

That means Cass County – which, in contrast, has saved most of its sales tax revenue for future diversion costs – will need to cover the lion’s share of the Diversion Authority’s financial needs in 2013.

“We’d be short,” Costin said Tuesday. “We might need to get to the point where we use that money from the county on the pay-as-you-go basis.”

The situation presents a role-reversal for the county and city.

Before Cass County started receiving its own sales tax revenue in 2011, Fargo fronted many of the early costs for the diversion project, which the county ultimately reimbursed Fargo for, Montplaisir said.

Aside from local income, Fargo-Moorhead leaders said they might also seek state funds to help cover next year’s project costs.

With North Dakota’s surplus projected to exceed $2 billion by next summer, Diversion Authority leaders hope the Legislature will grant them a cut.

“It wouldn’t take much of the surplus to do us a lot of good,” Cass County Administrator Keith Berndt said.