HomeMy WebLinkAbout#06 - Interfund Loan & Fund Transfers1
STAFF REPORT
DATE: February 18, 2025
TO: Mayor & Council
FROM: Clarissa Hadler, Finance Director
AGENDA ITEM: Interfund Loan and Transfers for Ballfield Property Purchase
BACKGROUND:
Attached is the draft of a resolution approving an interfund loan and fund transfers to pay for the
recently approved land purchases for future ballfield development. The money will be used for
the land, as well as closing costs.
Fund Transfer from Park Dedication
This transfer is in the amount of the contribution provided by Royal Golf for the purpose of
ballfield development.
Interfund Loan from Sewer Fund
An interfund loan is a simple mechanism where we borrow money out of one fund to be used for
purposes of a different fund. In this instance, from the Sewer Fund – which will not need this
cash during this loan period – to the newly established Ballfield Fund. To do this, Council
adopts a resolution that lays out where the funds are coming from, a repayment schedule, and a
method for raising the revenue for that repayment.
Similar to how we lay out levies for each bond issuance, I recommend planning out a
recommended levy for the life of this interfund loan. That levy amount is then incorporated into
the budget and levy process each year. Which is not to say that those projected levy amounts can
actually be adopted at this time; it is simply a plan for future levies. These levies are only visible
in our levy resolution each year; not on the property tax statement.
While this method does spend down cash, it also provides a path and method for rebuilding that
cash in whatever fund it is borrowed from. This tactic provides some reassurance to the rating
agencies that the cash will, in fact or in theory, be replenished over time. Council should
recognize that any large expenditures like this might affect our bond rating, which in turn might
affect our interest rates.
The table below shows what the repayment schedule and the tax impact on a Median Value
Home over a 10-year period. Over a 10-year straight-line repayment, it would add
approximately .8 percentage points to the tax rate in the first year, and decrease over time, as tax
capacity grows and the loan balance decreases. For 2026, this would add $50 in property tax to
the median value home.
2
2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Tax Capacity/
MVH Increase 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%
Tax Capacity for
Local Tax Rate $ 37.1 M $ 38.2 M $ 39.3 M $ 40.5 M $ 41.8 M $ 43 M $ 44.3 M $ 45.6 M $ 47 M $ 48.4 M
Annual Payback /
Ballfield Levy
300,000
290,000
280,000
270,000
260,000
250,000
240,000
230,000
220,000
210,000
Ballfield Levy
Rate 0.81% 0.76% 0.71% 0.67% 0.62% 0.58% 0.54% 0.50% 0.47% 0.43%
MVH
599,151
617,126
635,639
654,708
674,350
694,580
715,418
736,880
758,987
781,756
Est. Tax on MVH $ 50 $ 49 $ 48 $ 46 $ 45 $ 43 $ 42 $ 40 $ 39 $ 37
These projections are purely theoretical; actual tax capacity and median home values will be determined by market
conditions and county valuation practices.
RECOMMENDED MOTION
Motion to Approve Resolution 2025-016 Approving Interfund Loan and Fund Transfers for
Land Purchases
ATTACHMENTS
1) Resolution 2025-016
CITY OF LAKE ELMO
WASHINGTON COUNTY
STATE OF MINNESOTA
RESOLUTION NO. 2025-016
RESOLUTION APPROVING INTERFUND LOAN AND FUND TRANSFERS FOR
LAND PURCHASE
WHEREAS, the City Council has approved for purchase two properties for the purpose
of future development as park lands and ballfields (PIDs 15.029.21.41.0001 &
15.029.21.42.0004 ; and
WHEREAS, the City Council has determined that said purchase shall be paid via the
combination of funds
1. $ 1,000,000 provided by the Royal Golf development for the purpose of ballfields
(originally deposited in the Park Dedication Fund).
2. $ 2,000,000 interfund loan from the Sewer Fund
NOW THEREFORE BE IT RESOLVED by the City Council of the City of Lake Elmo,
Washington County, Minnesota, as follows;
1. Fund Transfer: A transfer of $ 1,000,000 shall be made from the Park Dedication Fund (Fund
404) to the newly established Ballfield Fund (Fund 412).
2. Interfund Loan: Interfund loans (the “Loan”) in the amount of $2,000,000 shall be made from
the Sewer Fund to the Ballfield Fund.
3. Terms: The Loan shall bear simple interest in the amount of 5% annually starting August 1,
2025 and shall mature on July 31, 2035.
4. Repayment: The Loan shall be repaid with transfers from the Ballfield Fund to the Sewer
Fund as follows;
Payment Date Principal Interest Total Payment
7/31/2026 200,000 100,000 300,000
7/31/2027 200,000 90,000 290,000
7/31/2028 200,000 80,000 280,000
7/31/2029 200,000 70,000 270,000
7/31/2030 200,000 60,000 260,000
7/31/2031 200,000 50,000 250,000
7/31/2032 200,000 40,000 240,000
7/31/2033 200,000 30,000 230,000
7/31/2034 200,000 20,000 220,000
7/31/2035 200,000 10,000 210,000
Total Payments 2,000,000 550,000 2,550,000
5. Planned Levies: To fund such repayment, levies in the amount of the Total Payment above
shall be planned for the year in which the payment is due. Each levy should be incorporated
into the annual Budget and Tax Levy for any given year and deposited into the Ballfield Fund.
Failure to levy the planned amounts shall result in the delay of repayment back to the Sewer
Fund until such time as other payment arrangements are made.
6. Prepayment: The principal sum and all accrued interest payable under this Interfund Loan
are prepayable in whole or in part at any time by the City without premium or penalty. No
partial prepayment shall affect the amount or timing of any other regular payment otherwise
required to be made under this Interfund Loan.
7. Amendments: The City may amend the terms of the Interfund Loan at any time by resolution
of the City Council, including a determination to forgive the outstanding principal amount and
accrued interest to the extent permissible under law.
8. Note: The loan shall not be evidenced by a note or writing other than this resolution.
ADOPTED, by the Lake Elmo City Council on the 18th day of February, 2025.
______________________________
Charles Cadenhead
Mayor
ATTEST:
__________________________________
Julie Johnson
City Clerk