The municipally funded revolving loan program is the core of the town’s Wastewater Management Plan, which answers the state Department of Environmental Management’s (DEM) mandate that Portsmouth come up with a plan to repair failing septic systems in Island Park, Portsmouth Park and elsewhere.
Town Planner Gary Crosby, who drafted the plan, said there may be hundreds of on-site wastewater treatment systems in Portsmouth that are considered failed under the 2007 Rhode Island Cesspool Phase-out Act.
“Last time I checked with DEM … they had 130 known cesspools that needed to be replaced in those neighborhoods (Island Park and Portsmouth Park). They have another additional 150 to 180 people who did not respond at all,” said Mr. Crosby, adding that DEM is assuming those homeowners are using cesspools.
After the meeting, Mr. Crosby said DEM has sent 471 letters to Portsmouth homeowners who are suspected of possibly having failed cesspools “and they intend to get to the bottom of this.”
Town Administrator John Klimm said his office and Mr. Crosby’s have been receiving an increasing number of inquiries from homeowners asking about the loan program. “It’s clear that more and more of our citizens are under huge financial strain” when it comes to fixing their septic systems, he said.
Under Mr. Crosby’s plan, the town will initially fund the program by issuing a general obligation bond of $2 million — with a borrowing cost of 3 percent over 10 years — to be placed into an account and loaned out to qualified homeowners on a first-come, first-served basis. All homeowners are eligible to participate.
Homeowners may borrow up to $25,000 at terms not to exceed 10 years, with the initial interest rate expected to be 5 percent. The initial rate will vary annually, tied to a common interest rate index to be determined.
Some residents with a failed system might not need the entire $25,000, Mr. Crosby said. For others who require a large or advanced new system, however, the maximum allowable loan might not be enough.
“All the calls I’ve been getting are from the Cesspool Phase-Out Act people, so it’s sort of self-selecting … for where the need is,” he added.
There will be no pre-payment penalties and payments will be made on a monthly basis. The town will hold a lien on the property — to be released upon successful re-payment of the loan — as security.
Funds are to be used for septic system repairs or replacement only, including engineering and installation costs and permitting fees. A DEM certificate of conformance, issued after the septic system is installed or repaired, will be required before disbursal of borrowed funds, which will be paid directly to the system designers and licensed installers.
Rhode Island Housing, which currently provides lending services to 13 municipalities offering septic repair or replacement programs, would do the same for Portsmouth.
Do you qualify for a loan?
Here’s the lending criteria outlined in the program:
• Qualified septic systems must be subject to the 2007 Rhode Island Cesspool Phase-Out Act; or determined to be “failed” as defined by current DEM regulations and/or the Portsmouth Wastewater Management District Ordinance.
• The homeowner must has a DEM-approved septic design (with permit number) and all state and local permits.
• Only licensed and insured septic installers may be used on the project.
• The loan program is for residential properties only — no commercial properties and no group or cluster systems. It’s also not for condominiums or apartment buildings with more than four units per structure.
• There are no owner-occupancy restrictions. Seasonal and rental properties are permitted.
• Homeowners must be current on all financial obligations to the town.
• Homeowners must not have any federal tax liens nor current bankruptcies or bankruptcies discharged within the previous 24 months.
• While there are no income restrictions, the ratio of a homeowner’s debt to income must not exceed 45 percent. Although the program attempts to avoid prying into people’s income, Mr. Klimm said, the lender needs to be reasonably satisfied that the loan will be repaid. “This is not a grant program,” he said.
• The homeowner must have current property and liability insurance on the property as it will become security for the loan.
• Loan applications may be approved on a case-by-case basis for systems installed or repaired prior to the inception of the loan program, but in no case before Jan. 1, 2013.
Is $2 million enough?
Several council members said they were concerned that $2 million in loans wouldn’t be enough for the qualified homeowners with failed septic system who apply under the program.
“Worst-case scenario, if 80 homes come in at $25,000 each, we’re done,” said council member Keith Hamilton.
Mr. Crosby said the town could always choose to increase the amount of funds to be borrowed.
“Not all 130 cesspools will want to borrow at 5 percent when they could get it cheaper somewhere else, so you’ve got that going for you,” said council member Liz Pedro.
The council voted unanimously to accept the framework of the program and to move forward in budgeting $2 million for the loans.