MONROE - The city of Monroe will start looking at its philosophy on financing big- ticket items, such as fire trucks, police cars, street sweepers and garbage trucks.
At the Finance and Taxation Committee Tuesday, Feb. 21, City Administrator Phil Rath introduced a plan that would set aside needed funds for future purchases instead of the current method of borrowing funds for major purchases. According to Rath, the plan would reduce the need for interest-bearing loans, which are often used to replace equipment and vehicles.
The plan would require the council to allocate a sum in the annual budgets for the fund, calculated on the costs and life spans of the replacement equipment.
In essence, it's a savings plan, commonly called pay-as-you-use.
But Aldermen Michael Boyce and Thurston Hanson pointed out the plan puts the financial burden on current taxpayers for future generation's use.
"It's a fairness issue," Boyce said. "Why pay for it now, when taxpayers in the future get the use (of the equipment)?"
Boyce said he saw the plan as good for "small ticket items," like police squad cars that have a life span of about four years, but for "big ticket items, like a $1 million fire truck with a 20-year life, the fairness issue becomes more important."
According to Treasurer Cathy Maurer, many city supervisors currently use their departmental capital accounts to place some funds in anticipation of replacement vehicles or equipment.
"... but when the budget gets tight, those are the first thing to go," she added. "(Rath's) plan works great if there's a commitment to it."
Rath's proposed plan has one large drawback: getting it up to speed with enough cash for vehicles that are coming due for replacement.
Rath said the specific equipment and vehicle replacement fund could be started with some of the savings already in departments' capital accounts, so not all the funding is coming out of the city's general fund.
"The big thing is that gap," Rath said. "But it's my personal philosophy; it's the way to go."
The "gap" amount has not been calculated specifically; Rath is waiting for the committee's nod to delve more deeply into setting up the fund's structure, and determining what it will take to set the plan in place.
One test of the plan could come with the police department's two replacement vehicles for 2012.
Police Chief Fred Kelley proposed purchasing the vehicles with cash from the general fund balance, and repaying the fund from his budget's capital account.
"Mind you, it would take about four years to pay off, but it would save the taxpayers $3,000," he said.
"If we're able to do it, eventually we'd be able to reduce the capital account," he added.
The police department currently purchases vehicles through a municipal lease-purchase program, which gives the city ownership of the vehicle after the lease term is finished. Kelley sets aside enough money each year in his budget to maintain the payments on all the lease agreements.
The newest lease agreements require 5 percent interest, or about $3,000 over a six-year term, on a $23,000 vehicle.
Kelley did not offer to pay the city interest on its general fund balance money, but Maurer said the city is now getting only about a quarter of a percent interest on the money sitting in savings accounts.
City Clerk Carol Stamm said the city would also benefit by saving city employee and city attorney time.
The committee will meet again next week to consider the amounts it wants to keep in the various fund balance classifications, as required by the General Account Standards Board. Each classification bears a different strength of restriction on how the funds are used.
Rath said if the committee wants to start the Equipment and Vehicle Replacement Fund he is proposing, it could fall within one of the categories.
The committee will also discuss how to deal with a continuing shortfall in Tax Increment District 7. Maurer said Ehlers, the city's financial advisory company, has indicated "right now may be a good time" for the city to refinance, pay down or pay off the TID's loan, with a possible savings of up to $14,000 per year on interest rates.
The meeting time and date have not been set.
At the Finance and Taxation Committee Tuesday, Feb. 21, City Administrator Phil Rath introduced a plan that would set aside needed funds for future purchases instead of the current method of borrowing funds for major purchases. According to Rath, the plan would reduce the need for interest-bearing loans, which are often used to replace equipment and vehicles.
The plan would require the council to allocate a sum in the annual budgets for the fund, calculated on the costs and life spans of the replacement equipment.
In essence, it's a savings plan, commonly called pay-as-you-use.
But Aldermen Michael Boyce and Thurston Hanson pointed out the plan puts the financial burden on current taxpayers for future generation's use.
"It's a fairness issue," Boyce said. "Why pay for it now, when taxpayers in the future get the use (of the equipment)?"
Boyce said he saw the plan as good for "small ticket items," like police squad cars that have a life span of about four years, but for "big ticket items, like a $1 million fire truck with a 20-year life, the fairness issue becomes more important."
According to Treasurer Cathy Maurer, many city supervisors currently use their departmental capital accounts to place some funds in anticipation of replacement vehicles or equipment.
"... but when the budget gets tight, those are the first thing to go," she added. "(Rath's) plan works great if there's a commitment to it."
Rath's proposed plan has one large drawback: getting it up to speed with enough cash for vehicles that are coming due for replacement.
Rath said the specific equipment and vehicle replacement fund could be started with some of the savings already in departments' capital accounts, so not all the funding is coming out of the city's general fund.
"The big thing is that gap," Rath said. "But it's my personal philosophy; it's the way to go."
The "gap" amount has not been calculated specifically; Rath is waiting for the committee's nod to delve more deeply into setting up the fund's structure, and determining what it will take to set the plan in place.
One test of the plan could come with the police department's two replacement vehicles for 2012.
Police Chief Fred Kelley proposed purchasing the vehicles with cash from the general fund balance, and repaying the fund from his budget's capital account.
"Mind you, it would take about four years to pay off, but it would save the taxpayers $3,000," he said.
"If we're able to do it, eventually we'd be able to reduce the capital account," he added.
The police department currently purchases vehicles through a municipal lease-purchase program, which gives the city ownership of the vehicle after the lease term is finished. Kelley sets aside enough money each year in his budget to maintain the payments on all the lease agreements.
The newest lease agreements require 5 percent interest, or about $3,000 over a six-year term, on a $23,000 vehicle.
Kelley did not offer to pay the city interest on its general fund balance money, but Maurer said the city is now getting only about a quarter of a percent interest on the money sitting in savings accounts.
City Clerk Carol Stamm said the city would also benefit by saving city employee and city attorney time.
The committee will meet again next week to consider the amounts it wants to keep in the various fund balance classifications, as required by the General Account Standards Board. Each classification bears a different strength of restriction on how the funds are used.
Rath said if the committee wants to start the Equipment and Vehicle Replacement Fund he is proposing, it could fall within one of the categories.
The committee will also discuss how to deal with a continuing shortfall in Tax Increment District 7. Maurer said Ehlers, the city's financial advisory company, has indicated "right now may be a good time" for the city to refinance, pay down or pay off the TID's loan, with a possible savings of up to $14,000 per year on interest rates.
The meeting time and date have not been set.