Agenda Packets - 1983/11/28 - Laserfiche WebLink

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r -3- Stall sacks direction from Council as to what is do acceptable minimum rate of return for defeasance. At what interest rate should we undertake a cash defeasanco? Staff does not feel it is appropriate to make this decision alone, 'fryirg to determine when to defoase to maximize return is an art not a science. It is very much a judgment• call. A defea- sdnce could be undertaken for example at 12% and next month rates could be 13% or possibly 11%. No one can accurately predict where interest rates will go in the future. For that reason we recommend that a rate be determined as a goal and when that rate is reached a defoasance be undertaken. Staff further recommends that prior to undertaking a cash defeas- ance, policy be established as to the uses of the anticipated surplus. A cash defeasance will result in the commitment of a large amount of cash. Without proper planning this could result in problems for other City funds. As our auditors have stated in past audit reports and in the Debt Study an adequate fund balance for the General Fund is required for sound financial management of the diversified services provided by the City. The auditors have recommended that the minimum required fund balance be one half the budgeted tax levy and local government aid. For 1984 that is $630,000. Presently the fund balance of the General Fund is $392,000; this is $238,000 short of the minimum required. Staff recommends that if a defeasance is undertaken $238,000 be transferred to the General Fund to bring the fund balance to the minimum amount recommended by the auditors. The Debt Study indicates that the Improvement Bond Fund of 1981 will experience a temporary cash overdratt of $231,700 in 1986. If a defeasance is undertaken staff recommends that a loan of that amount be made to the fund from the anticipated surplus from the defeasance to be repaid in 1992. The Debt Study projects that if a cash defeasance is undertaken at a 10% rate of return the anticipated surplus would be $714,700. If the fund balance of the General Fund is brought to the minimum required level and a loan is made to the Improvement Bond Redemption Fund to cover a projected temporary cash deficit a balance of $245,000 remains plus collections of special assess- ments due between 1984 and 1995. Those fends present an opportunity for long range financial planning and policy. Staff would recommend that Council give serious consideration to establishing an Improvement Revolving Fund with those monies. Loans to be repaid with interest could