PORT TOWNSEND — Jefferson County commissioners have approved a $10 million loan to provide the county with cash to pay for the construction of sewer infrastructure in Port Hadlock, which began in August.

The sewer project — estimated to cost roughly $35 million — is largely paid for by state and federal grants, but the county needs cash on hand to pay for work before it gets reimbursed through the grants.

“It’s pretty much all paid for, but it’s reimbursement, so we need the cash flow to pay for the work and then get reimbursed,” said Stacie Prada, Jefferson County treasurer, on Tuesday.

Commissioners unanimously approved the loan Tuesday, and funds from the line of credit will be available on Jan. 18.

The county hired investment group D.A. Davidson and Co. to assist with finding a grant anticipation note from a local bank and, after a Request for Proposal process, selected Kitsap Bank to provide the line of credit.

The county weighed offers from Kitsap Bank, U.S. Bank and Webster Bank but ultimately chose Kitsap for the flexibility offered in the loan.

“It’s a three-year line of credit and it’s up to the amount of $10 million,” said Jim Nelson, placement agent with D.A. Davidson. “The key feature here is that it’s prepayable at any time with no prepayment penalty.”

Nelson said money from the loan will be used on an interim basis and will be used to pay for costs before the county is reimbursed by the grants.

“All of a sudden there’s a need, let’s say it’s $500,000, $1 million,” Nelson said. “You’ll spend that and it will be outstanding for a few months, and then you’ll tap into the grant and then pay that off, and that’s more cost-effective.”

The cost of servicing the debt is estimated to be between $315,000 and $365,000, depending on the timing of draws and reimbursements, county documents say, with the assumption that interest rates will remain at current levels or go down. The county will pay more than $43,000 for the placement agent, bond council and Kitsap Bank’s setup fee.

Money from the loan must be used for the Port Hadlock sewer project and cannot be diverted to other uses, Nelson said.

Kitsap Bank is charging a 5.95 percent interest rate on the loan, 70 percent of Kitsap’s prime rate. Because the county has multiple grants backing its expenditures, Nelson said the bank was willing to offer a lower interest rate.

The Public Works Department will make requests for draws from the loan through the treasurer’s office, Prada said, which will then be reported back to the commissioners in monthly finance committee meetings.

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Reporter Peter Segall can be reached at peter.segall@peninsuladailynews.com.