AZTEC — The city commission agreed to take on nearly $3.6 million in debt to replace crumbling underground sewer pipes and celebrated catching-up with its financial audit report Tuesday night.

Roughly 7,500 feet of 15-inch clay pipe that carries wastewater to treatment facilities was installed over 60 years ago. Because of poor maintenance during that time, the pipe is deteriorating, and sections of the line have insufficient sloping that hinders water flow.

The public works department will replace the clay pipe with a larger diameter high-density polyethylene, or HDPE, a durable material that has a service life of 100 years. New manhole covers will also be added.

A loan-grant package from the state environment department's Clean Water State Revolving Fund will disburse a loan of nearly $3.6 million and a subsidy of $350,000 in the form of a grant for the project. The city will have 20 years on which to pay back the money, at 3-percent interest.

That's close to $500 for each foot of pipe.

To help cover the interest, commissioners talked the possibility of raising the current $2.50 monthly water fee customers pay to $9.85.

"We always hate to spend this much money, but we need to do this," said Commissioner Sherri Sipe. "As much as people are not going to like the hike, they're really not going to like major system problems later on."

Josh Ray, Aztec city manager, proposed tempering the sticker shock of the added monthly fee by finding ways to lower water and electric rates in the coming years.

"We have a lot of our citizens who live on a fixed income," said Mayor Pro-Tem Jim Crowley. "We need to make sure we are putting our best foot forward to ensure that the need is met without adding any further financial burden on our people."

The city has made great strides paying down its debt in recent years, but still has just over $9 million outstanding from three projects -- construction of the city's wastewater plant, library and Tiger Park.

Bidding on the infrastructure project will likely occur in spring and construction is expected to begin this summer.

The commission was more upbeat over its completion of the city's fiscal year 2012 comprehensive financial report.

Though roughly 60 days late, the finished audit means the city's books are current for the first time in nearly a decade. In 2004, the commission severed its contract with an auditing firm and fell years behind.

"When I arrived in 2010, we had a lot of catching up to do," Ray said. "So to arrive to this point, especially Kathy Lamb, our finance director, and her team have led us out of financial darkness."

Starting next year, the city will aim for completing a two-year budget, Ray said.

"Being able to have our budget finished for multiple years makes it easier to do long-term planning," he said. "It's a real big deal for the city and citizens with increased transparency. This lays the foundation for greater projects and progress going forward."

James Fenton can be reached at jfenton@daily-times.com; 564-4621. Follow him on Twitter @fentondt.