4.c) Staff Report-Fire Engine Funding Options n ��
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SCANDIA
s�arrxepoT:
Date of Meeting: Apri19,2013
To: City Council
From: Kristina Handt, Administrator
Re: Fire Engine Funding Options
Agenda Item#: 4.c)
Background:
At the March regular Council meeting,the Council approved the purchase of a new fire engine
for$344,952.98 from Custom Fire.
At the March work session the Council discussed refinancing the 2005 and 2007 bonds in order
to help offset the costs of the new fire engine. Following that meeting,Northland Securities
provided details on the refinancing and discovered that there would not be enough savings in the
refinancing to offset the fire engine purchase. Although interest rates would be lowered,there
are not enough principal payments left on those two bond issues to realize enough savings.
Staff continued to work with Northland Securities to find a way to pay for the fire engine without
increasing next year's levy. One option would be to pre-pay part or all of the 2005 bond issue
when it is callable later this year. T'he details are discussed below.
Per Custom Fire,the payment for the chassis($95,817)will be due in July and the remainder
($249,155.98)will be due upon completion. We could receive the completed engine as soon as
early or mid-September.
Issue:
How should the City pay for the fire engine?
Proposal Details:
There is projected to be a fund balance of$176,459 in the 2005 G.O. Bonds by the end of this
year. The fund balance was created because state law reyuires municipalities to levy for the
principal payment plus 5%each year. When bonds were paid off in the past, the fund balance
was just rolled forward into a new bond. Required payments for this bond for 2014 and 2015 are
$119,621 and $120,351 respectively. Fund balance must be applied to the last payment first.
Therefore, applying the fund balance would cover the entire 2015 payment and a portion
(roughly $55k)of the 2014 payment. This would allow for an additional payment of the same
amount for the purchase of the fire engine (and possibly other equipment discussed later in
agenda)while still not increasing the levy. The Council would not be able to pass the resolution
to pre-pay all or part of the 2005 G.O. Bond until September.
A new bond could be issued this year for the fire engine. A schedule of payments from
Northland Securities is included in your packet. While interest rates are not locked in yet, this
gives an idea of what the payments would be. Annual payments on a ten year bond for the fire
engine would range from $37,165.63 to $41,880.
As previously mentioned,there is projected to be a balance of about$320,000 in the equipment
replacement fund at the end of 2013. The Council could decide to pay for the chassis from that
fund and bond for less. Alternatively,the Council could pass a reimbursing resolution (if
needed) should the bond proceeds not be available until after the July due date.
Fiscal Impact:
If fund balance is applied to the 2005 G.O. Bonds, the levy could decrease or remain the same
depending on the amount of any new bonds or other spending.
If fund balance is not applied to the 2005 G.O. Bonds this year,the debt service levy would
increase by about $26,000 in 2014. Note, the increase is not the full amount of the new bond
payments because overall debt service payments are projected to decrease by about $10,000 in
2014 if there are no changes to borrowing.
Options:
1) Direct staff to prepare the resolution and other documents to bond for the entire fire
engine purchase. This would include a reimbursing resolution.
2) Direct staff to prepare the resolution and other documents to bond for$250,000 for the
fire engine with the remainder coming from the Equipment Replacement Fund.
3) Direct staff to prepare the resolution to pre-pay part(an amount equal to the fund balance
for the 2005 Bond)to be placed on the September Council agenda.
Recommendation:
Options 1 and 3
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