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515 Little Canada Road, Little Canada, MN 55117 -1600 <br />(651) 766 -4029 / PAX: (651) 766 -4048 <br />ww w.ci.little -ca nad a. mn.us <br />MEMORANDUM <br />TO: Mayor Blesener & Members of the City Council <br />FROM: Joel Hanson, City Administrator <br />DATE: August 9, 2013 <br />12E: Info Update Workshop <br />MAYOR <br />13111 13lesener <br />COUNCIL <br />Rick Montour <br />John Keis <br />Michael McGraw <br />Shelly Boss <br />ADMINISTRATOR <br />Joel R. Hanson <br />For the Info Update workshop, here is some background concerning the issues staff would like to <br />discuss with you: <br />Public Works Garage — Financing (Mark Ruff — Ehlers Associates) <br />Mark Ruff has prepared the following schedules (Attachment #1) showing what financing <br />various alnounts ($1.5M, $2.0M, and $2.5) would look like over a 20 year period. While interest <br />rates have surged up the past couple of months, it still seems to be a feasible option. As we <br />discussed, the goal in financing the new building is to retain liquidity with our existing cash and <br />to finance the debt service with depreciation from the water and sewer funds. Another benefit if <br />interest rates continue to rise over the next number of years is our ability to earn interest on our <br />money above the rates we are paying on the bonds. (If we used cash to pay for the project on the <br />front end, this opportunity would be lost.) <br />It is important to note that we will need to ensure we adequately fund depreciation to make these <br />payments and still provide some dollars into Fund 604 (Water & Sewer Capital Replacement <br />Account). Based on our history, this should not be a problem if we maintain current practices. <br />Our fund balance in 604 at the end of 2012 was $3,298,311 and we have been transferring in <br />$250,000 with budgeted projections taking that amount to $300,000 in 2013! Even at $2.5 <br />million, the annual debt service depicted in the Ehler's runs has debt well under that amount <br />($190,000). <br />There are a few different ways to approach financing the project. One way would be with <br />Water /Sewer G.O. Revenue bonds. This would allow us to only pay for the proportionate share <br />of the building used for water /sewer activities versus streets or parks. I believe interest costs <br />could be slightly higher with this approach versus others. <br />Another option would be to use a straight Capital Improvement (CIP) O.O. bond. (Attachment <br />#2) While this should attain slightly lower interest costs, the risk here is the process is subject to <br />1 <br />