Columbia Budget Fix - A General Obligation Bond

It was clear to me earlier this year when the city prepared its budget that taking money from the capitol development fund was not the ideal fix to the shortfalls of the city’s finances and I stated that idea at the appropriate time.

The state is currently two months behind on payments to the city which is an improvement over the four it was previously behind. These are sporadic payments at best with no guarantee that they will catch up anymore or not fall behind again.

At the August 9th Committee Meetings the Finance Claims, Bonds, & Interest Committee met to discuss “Finance/Budgetary Issues”. I’ll bullet point my notes from that meeting.

• The city has a bond issue that they may wish to renew. The expiring bond was for $375,000 at a 6 year term.
  
• Alderman Roessler: If the city does not renew it will expire. The cost to renew is low approx. $3,000.
  
• Al Hudzik: Current rate for the bond is .03-.04/$100 which works out to cost someone with a $300,000 house about $30/year or $2.50/month. The cost to renew the bond would be about $3,500 in legal fees.
  
• Linda: Kurt Froehlich in Champaign could handle the renewal of the bond. She thinks we could spend the money over three years and the tax to repay the bond is already built into the city’s tax structure.
  
• Alderman Hejna: Had a few questions about going out to bid for council on the bond.
  Al: Said that the fee of $3,500 was very reasonable and it’s under a $10,000 expense so no bidding process is required.
  
• Alderman Niemietz: Should we look at spending some of this money to expand the lagoon capacity?
  
• Ron Williams: Not right now as our capacity is 1.6 million gallons and we are using under 1 million right now.
  
• Linda: Water and Sewer can issue their own bonds for any of those needs; the issue currently is capitol development depletion.
  
• Alderman Stumpf: Bonds tend to have specific purposes; this is more of a bailout.
  
• Alderman Oberkfell: The city has raised its levy 4.99% over the last three consecutive years.
  
• Alderman Roessler: This would help us keep better fund levels.
  
• Alderman Hejna: She would need a list of things the city intends to buy with these funds, as some items should maybe just not be purchased.

It was determined OK for Al Hudzik and Linda to contact Froehlich to explore the issue. No one voted no on the issue.

I wrote this synopsis some time ago but thought it best to wait until I had the documentation handed out to the council that night 8/9/10 to add for anyone to look at.

At the August 23rd Committee Meetings the Finance Claims, Bonds, & Interest Committee met to discuss “Finance/Budgetary Issues” & “General Obligation Bond Issue Information Presentation/Discussion”. Nothing was discussed under the first heading and I’ll bullet point my notes from the Bond discussion.

• Capitol expenses are an eligible use of these potential funds.
  
• The funds must be spent within the first three years of the issue.
  
• When issuing the bind it is best to use general language and not mention very specific projects/items, this was changes in what to spend the money on later can be made if needed.
  
• Fixing up the Oak Street property may be OK but it would complicate dealings with certain IRS rules that may not be worth the hassle.
  
• $375,000 - $450,000 is a small amount for a 6-year term.
  
• Keep the repayment back loaded as property values should rise Columbia in by the time years five and six are due. Possible payment schedule $70,000/years 1 & 2, $75,000/years 3 & 4, $80,000/years 5 & 6.
  
• Possible use could be to pay off ambulance lease off early as the bond carries a lower rate.
  
• Whole process should take 1-2 months to complete including a public hearing.
  
• There is no need for a call provision since rates are unlikely to drop below the current rates available.
  
• Linda: Had a list of possible projects/items that she pulled form all departments that all get money from the general fund.
  
• Alderman Roessler: Asked if anyone was against proceeding with the idea of renewing the bond, no one said anything.
  
• Alderman Stumpf asked if the bond issue would be more, which he found out that it can if the would like it to be.
  
• The committee decided to move forward at a $450,000 amount. Ebersohl made the motion which Stumpf seconded and Hejna and Roessler voted yes on.

I wrote this synopsis sometime last week but thought it best to wait until I had the documentation handed out to the council that night 8/23/10 to add for anyone to look at.

I received the linked pdf documentation last Friday. I'll be honest I was outside working on the yard and in my garage with the nice weather we had over the holiday weekend. I'll reserve judgement on the issue until I read over the paperwork everyone else was looking at, I've scanned it but not read it thoroughly. I briefly talked with a few of the alderman after the 8/23 meeting. I'll get my opinion posted sometime this week.