Describing the action as a dual benefit for both municipalities, the Kenai Peninsula Borough Assembly gave the thumbs up Tuesday to a multi-million dollar loan to help build a Homer natural gas grid.

“It makes good sense,” Kenai Peninsula Borough Mike Navarre said. “I can understand why some think maybe we shouldn’t be in this business, but all we are in the business of is investing funds that we have available and getting a reasonable return that can be used to offset expenses for the borough.”

The assembly approved, 5-0, Resolution 2013-024, which approves a $12.7 million loan agreement between the Kenai Peninsula Borough and the city of Homer to finance a natural gas utility special assessment district. Assembly member Charlie Pierce abstained due to a conflict of interest and members Linda Murphy, Ray Tauriainen and Sue McClure were absent.

The potential loan comes on the heels of last year’s state capital appropriations that will bring a gas line from Anchor Point south. The loans would fund construction of trunk lines from the main gas line to the edge of properties. Homer property owners will pay the principle back through their property taxes via a special assessment district, but those Homer residents who want to connect their home to the trunk line would pay for that themselves.

In early February, the assembly approved an ordinance amending borough code dealing with investments to allow for two loans to Homer and Kachemak City to help create the natural gas grid. The assembly’s Tuesday action was only for Homer; a future loan for Kachemak City — up to $600,000, according to code — would have to be approved by the assembly.

Homer assembly member Bill Smith said both municipalities will benefit from the loan. He clarified that the loan money will not come from reserve funds or taxes, but rather funds the borough already has in an investment pool.

“The money is coming from our funds that we have invested for earning interest,” he said. “Those investments earn well under 2 percent … (and) this loan agreement with the city of Homer will bring the borough a 4 percent interest on its investment monies. It is over a 10-year period and the city of Homer has agreed to pay lenders costs as well.”

During public testimony, Soldotna resident Fred Sturman said he was against the loan, adding he felt the borough “had no business being in the banking business.”

“I do feel that if you guys pass this and give the money to Homer if anything happens down the road … I think you guys should be held responsible for not taking good care of the borough money,” he said, adding “Homer should support their own.”

Navarre said the borough has done its due diligence investigating the idea and has found the loan to be well-secured and that it would be a prudent investment.

“The schools down there will save money because of this project ... the hospital is projected to save as much $300,000 on an annual basis in energy costs,” he said. “Is there some conversion costs to it? Absolutely. But the real benefit comes from the energy savings you get with natural gas over fuel oil, propane and other forms.”

Homer City Manager Walt Wrede said the Homer City Council appreciated the borough’s consideration of the loan and reiterated that it would benefit Homer residents through the lower interest rate than the city could get with a commercial lender.

“I think the thing the council likes best about this is (that it is) just good public policy,” Wrede said. “You are taking taxpayer money you are investing anyway and you are reinvesting it right back into the borough for a lower cost of living, a higher quality of life and economic stimulation.”

Brian Smith can be reached at brian.smith@peninsulaclarion.com.