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• Option #2—Cash on Hand <br /> Current budget concerns and recent allocation of reserves (such as the funds used to <br /> redevelop Central Park)has reduced our reserves. The recent balancing of the State's <br /> operating budget impacted all Cities. Further reductions in State Aid are not out of the <br /> picture, which could require additional budget adjustments. In uncertain/changing <br /> economic times, it seems financially prudent, to not spend down our reserves. <br /> Option #3 —Internal Loan <br /> Given the cost of issuing debt, interest payments and the need to retain our reserves, an <br /> internal loan appears to have the most merit. In reviewing potential funds for an <br /> internal loan, the water filtration funds can support this project. <br /> A review of the fund balance is as follows: <br /> Fund Balance on 12/31/2000 $5,785,715 <br /> Central Park Allocation ($1,000,000) <br /> 2001 Interest Earnings $ 198,579 <br /> 2001 Operation/Maintenance ($ 149,192) <br /> • <br /> 12/31/2001 $4,835,102 <br /> 2002 Interest Earnings $ 293,149 <br /> 2002 Operation/Maintenance ($ 67,849) <br /> 12/31/2002 $5,060,402 <br /> The present financial plan for use of these funds is to use the annual interest earning of <br /> the money to pay for cost of the operation and maintenance of the plant. In order to <br /> accomplish that goal, an amount of$4,000,000 should remain in the fund. <br /> Recently, as part of the new Public Works/Fire Station projects, Council authorized the <br /> transfer of$437,000 from the water filtration fund to the lease revenue bond reserve <br /> account. While serving as a back up, those funds will earn interest. When the lease <br /> revenue bonds are paid off, the principal and interest earnings will be paid back to the <br /> water filtration funds. <br /> When considering an internal loan, the goal is to receive a fair return on investment. <br /> Funding of the new off sale, with an internal loan, allows for repayment of the principal <br /> with interest earnings. To establish a fair rate of return, the interest rate should be equal <br /> to the amount of interest we could earn by investing the funds. When doing so, the <br /> interest rate should be set at 5%. <br /> • <br />