MONROE - Can the city of Monroe afford to spend a third of its savings or should it sell bonds to pay for all or part of a $1.8 million street reconstruction project?
That's a question that will be addressed by the Finance and Taxation committee Tuesday, March 1.
Last week, council members voted 7 to 1 to authorize the issuance of general obligation bonds, with Thurston Hanson voting against. The city's Ward 6 seat is vacant and Neal Hunter was absent.
But officials stopped short of actually putting the bonds out for sale. The Finance and Taxation committee voted to hold that final step by up to 90 days, to consider alternative ideas for financing the three-part project.
Hanson wants the city to use some of its $5.2 million in undesignated reserve funds to pay for the project.
The move, he said, would save taxpayers more than $90,000 immediately, and about $1.1 million over the 20-year life of the bonds. The city would still have a "very healthy" reserve fund of about $3.5 million, he said.
Hanson said Wednesday that he will offer the Finance and Taxation committee one more option that a citizen of Monroe suggested to him - for the city to pay itself back.
"There are solutions here we should be looking at," Hanson said. "(The city could) pay ourselves back with a little interest to offset what we lose (from investments in interest-bearing accounts)."
City Administrator Phil Rath had presented several options for the committee's consideration last week. Among those were a mix of selling bonds for the $1.1 million road work, paying $140,000 cash for the foot bridge, and loaning $615,000 to the Water Utility for its costs.
Hanson maintains that, even if the city paid cash for the entire project, it would still have more than $2 to $2.6 million in reserves, 15 to 20 percent of its total current budget, as recommended by Ehlers, the city's preferred bonding firm.
In addition, Hanson finds the new bonds would push the city's debt up from 37.5 percent of its debt limit to 43.6 percent. The legal debt limit for Monroe, as set by the state for 2009, is $33 million, or 5 percent of it equalized valuation. By including interest, Hanson said the city's debt grows to almost 62 percent of its limit.
Rath agrees with Hanson's general calculations.
The bonds have an interest rate ranging from 0.69 percent in the beginning and increasing to 5.08 percent over their 20-year life. The Finance and Taxation Committee opted to make interest payments only at the beginning of repayment, which adds $69,000 in interest over the life of the bonds, compared to starting principal payments early.
The interest totals $1.7 million.
He advises bonding for major repairs or replacement, but not for longer than the life of a road, in this case, 20 years.
The foot bridge is not an annual routine expense for maintaining or replacing, he said, and the city could pay cash for it.
Rath said the sewer utility has enough cash on hand to pay for its own infrastructure replacements, but the water utility does not. The city could loan the water utility the money for this project, which would be repaid with interest, but at an interest rate lower than the utility would pay on bonds.
The city could borrow the entire $1.8 million and still stay below the 50-percent margin of indebtedness, Rath said. Going over the 50-percent margin starts to affect the city's financial rating, at which bond buyers look closely when purchasing.
Moody's Investors Service gives Monroe a municipal rating of Aa3, about 22nd on a scale of 30 places.
"Reducing the undesignated funds could affect the city more than borrowing," he said.
Reducing the undesignated funds "limits the availability of funds to handle economic factors beyond our control," he added.
He noted some of those factors as increasing fuel or energy costs; potential loss of state aid, business revenue or jobs; the chances of Tax Increment Districts not supporting themselves to the end of their lives; and emergency natural disasters.
Rath would like to see the city keep between $2.5 and $5 million in reserve for these unforeseen expenses.
"On a year-to-year basis, you want to have on hand three to six months of the operating budget," he said. The city has an expenditure budget of $13 million for 2011.
He said gasoline prices are expected to reach $4 to $5 per gallon and some departments, like police and public works, depend upon vehicles.
"I don't know if anyone budgeted an increase to that magnitude," he added.
He also said the city's financial stability depends on state aid and a steady flow of taxes collected from assessed values. And if TID values fail, the city is responsible for making payments for improvements from its general fund, increased taxes or re-bonding.
Hanson said he would like to cancel doing the entire project at this time, partly because of the expense involved, even though the city is receiving some grant money to do a portion of the road work. But he is adamantly against borrowing funds to complete the projects, while the city has a healthy reserve balance.
"Financing half is better than financing it all," Hanson said.
Hanson expects Rath will know how much the city will receive in future state-shared revenues by March 1 and will be able to advise the Finance and Taxation Committee on the idea of the city paying itself back.
"Now is the time to have that discussion," he said.
The 8th and 9th Street reconstruction project is set to begin mid-March, with or without financing options in place. Between 7th Avenue to 20th Avenue, the city will replace water and sewer lines and a foot bridge, while the state will reconstruct the street, widening it and adding turn lanes in some places.
The project had been delayed last year, and the city had to apply for extensions to remain eligible for the grants. It would not get any more extensions.
That's a question that will be addressed by the Finance and Taxation committee Tuesday, March 1.
Last week, council members voted 7 to 1 to authorize the issuance of general obligation bonds, with Thurston Hanson voting against. The city's Ward 6 seat is vacant and Neal Hunter was absent.
But officials stopped short of actually putting the bonds out for sale. The Finance and Taxation committee voted to hold that final step by up to 90 days, to consider alternative ideas for financing the three-part project.
Hanson wants the city to use some of its $5.2 million in undesignated reserve funds to pay for the project.
The move, he said, would save taxpayers more than $90,000 immediately, and about $1.1 million over the 20-year life of the bonds. The city would still have a "very healthy" reserve fund of about $3.5 million, he said.
Hanson said Wednesday that he will offer the Finance and Taxation committee one more option that a citizen of Monroe suggested to him - for the city to pay itself back.
"There are solutions here we should be looking at," Hanson said. "(The city could) pay ourselves back with a little interest to offset what we lose (from investments in interest-bearing accounts)."
City Administrator Phil Rath had presented several options for the committee's consideration last week. Among those were a mix of selling bonds for the $1.1 million road work, paying $140,000 cash for the foot bridge, and loaning $615,000 to the Water Utility for its costs.
Hanson maintains that, even if the city paid cash for the entire project, it would still have more than $2 to $2.6 million in reserves, 15 to 20 percent of its total current budget, as recommended by Ehlers, the city's preferred bonding firm.
In addition, Hanson finds the new bonds would push the city's debt up from 37.5 percent of its debt limit to 43.6 percent. The legal debt limit for Monroe, as set by the state for 2009, is $33 million, or 5 percent of it equalized valuation. By including interest, Hanson said the city's debt grows to almost 62 percent of its limit.
Rath agrees with Hanson's general calculations.
The bonds have an interest rate ranging from 0.69 percent in the beginning and increasing to 5.08 percent over their 20-year life. The Finance and Taxation Committee opted to make interest payments only at the beginning of repayment, which adds $69,000 in interest over the life of the bonds, compared to starting principal payments early.
The interest totals $1.7 million.
He advises bonding for major repairs or replacement, but not for longer than the life of a road, in this case, 20 years.
The foot bridge is not an annual routine expense for maintaining or replacing, he said, and the city could pay cash for it.
Rath said the sewer utility has enough cash on hand to pay for its own infrastructure replacements, but the water utility does not. The city could loan the water utility the money for this project, which would be repaid with interest, but at an interest rate lower than the utility would pay on bonds.
The city could borrow the entire $1.8 million and still stay below the 50-percent margin of indebtedness, Rath said. Going over the 50-percent margin starts to affect the city's financial rating, at which bond buyers look closely when purchasing.
Moody's Investors Service gives Monroe a municipal rating of Aa3, about 22nd on a scale of 30 places.
"Reducing the undesignated funds could affect the city more than borrowing," he said.
Reducing the undesignated funds "limits the availability of funds to handle economic factors beyond our control," he added.
He noted some of those factors as increasing fuel or energy costs; potential loss of state aid, business revenue or jobs; the chances of Tax Increment Districts not supporting themselves to the end of their lives; and emergency natural disasters.
Rath would like to see the city keep between $2.5 and $5 million in reserve for these unforeseen expenses.
"On a year-to-year basis, you want to have on hand three to six months of the operating budget," he said. The city has an expenditure budget of $13 million for 2011.
He said gasoline prices are expected to reach $4 to $5 per gallon and some departments, like police and public works, depend upon vehicles.
"I don't know if anyone budgeted an increase to that magnitude," he added.
He also said the city's financial stability depends on state aid and a steady flow of taxes collected from assessed values. And if TID values fail, the city is responsible for making payments for improvements from its general fund, increased taxes or re-bonding.
Hanson said he would like to cancel doing the entire project at this time, partly because of the expense involved, even though the city is receiving some grant money to do a portion of the road work. But he is adamantly against borrowing funds to complete the projects, while the city has a healthy reserve balance.
"Financing half is better than financing it all," Hanson said.
Hanson expects Rath will know how much the city will receive in future state-shared revenues by March 1 and will be able to advise the Finance and Taxation Committee on the idea of the city paying itself back.
"Now is the time to have that discussion," he said.
The 8th and 9th Street reconstruction project is set to begin mid-March, with or without financing options in place. Between 7th Avenue to 20th Avenue, the city will replace water and sewer lines and a foot bridge, while the state will reconstruct the street, widening it and adding turn lanes in some places.
The project had been delayed last year, and the city had to apply for extensions to remain eligible for the grants. It would not get any more extensions.