The city of Sisters may need to increase sewer rates to avoid default on a loan from the U.S. Department of Agriculture, according to an Aug. 6 letter from Pam Swires, a U.S. Department of Agriculture community programs specialist.

The USDA, which administers the rural development loan the city obtained to build its wastewater treatment plant, wrote Sisters City Manager Andrew Gorayeb, asking him to submit a written plan to bring the city out of default.

“The City’s wastewater system is not financially sustainable,” the letter reads. “The City has lost approximately $373,000 over the last three years in current assets, which we feel is the major factor contributing to the current situation, as all other factors seem to be relatively consistent.”

Gorayeb said the problem began three years ago when the city decided to lower sewer rates for customers, making it impossible to make the debt service on the loan to the USDA. Gorayeb called the situation a “technical default” and stressed that the City is still making payments on its loans.

Swires, a community programs specialist with the USDA who handles the loan to Sisters, said the city is not in default at this point.

“As of fiscal year 2012, the City has fallen below the sustainability current ratio rate of 1.5 percent and debt service rate of 1.1 percent,” Swires wrote. “The City is at 1.34 percent and .76 percent respectively.”

The current ratio rate reflects the city’s liquidity and is found by dividing current assets by current liabilities, Swires said.

The letter indicates that rather than increase user rates, the city has the option of refinancing the loan at a lower rate.

“It is a condition of borrowing funds from USDA Rural Development that at any time that the borrower can obtain reasonable rates and terms to refinance from a commercial/private lender they may be asked to do so,” Swires said.

Gorayeb and Swires are working together to come up with an action plan to get Sisters back on track in repaying its loan. Swires said the USDA has not set a deadline to implement the plan.