#2 Action to reduce interest rate for sidewalk installed in 2011 with 5-year payment plan (File Res. #2011-855)
ADMINISTRATIVE SERVICES MEMORANDUM
November 4, 2011
TO: City Council
FROM: Jacob J. Winzenz, Dir. of Admin. Services/Assistant City Manager
SUBJECT: Action on a Proposed Resolution Reducing the Interest Rate for
Property Owners who had Sidewalk Installed in 2011 and Elect to
Have payments Spread Over Five (5) Years. (File Res. 2011-855)
Summary
At the City Council meeting on October 24, 2011 the City Council approved File
Resolution 2011-742 which authorized the installation of sidewalks at various
location in the City of Janesville in 2012. During the deliberations on that
resolution an amendment was approved which reduced the interest rate from 6%
to 3% for property owners who elect to have payments spread over five (5)
years. At that time the City Council expressed their desire to provide the same
interest rate relief to those property owners who had sidewalk installed in 2011.
File Resolution 2011-855 directs that the City Clerk-Treasurer reduce the interest
rate from 6% to 3% for property owners who had sidewalk installed in 2011 and
who elect to have payments spread over five (5) years.
Recommendation
While the amount may not be significant, this proposal is likely to add to the
deficit in the Special Assessment fund which will ultimately need to be funded
through the property tax levy. Therefore, the Director of Administrative Services
does not recommend the adoption of File Resolution 2011-855. However, if the
City Council chooses to proceed I would recommend that a pre-payment penalty
in the amount of $100 be included to offset the interest cost.
City Manager Recommendation
The City Manager shares the concern of the Administrative Services Director. I
also believe it may create concerns with individuals who are on 5 year payment
plans prior to the 2011 program, who may like their interest rates also lowered.
Analysis
The City has historically financed a variety of public improvements and has
historically charged interest at approximately 3% above our borrowing rate. This
3% is intended to cover costs such as:
Debt issuance expense
Administrative costs to process and track payments
Interest costs resulting from pre-payment
In order to go to market and issue debt the city incurs costs for financial advisory
and bond counsel services. In the last several years these costs have averaged
between $44,000 and $48,000. While some of these costs are fixed, others are
related to the size of the note issue. By reducing the interest rate we charge it
will be more difficult to recover these variable costs of debt issuance.
In addition, when property owners who have elected to spread their assessments
over five (5) years pay the balance early (pre-pay) it costs the special
assessment fund money, at least in the current investment environment. This is
because we borrow the funds over six (6) years but cannot repay that debt early.
Therefore, we pay interest on the amount we borrowed (currently 2.0% - 2.5%)
over the entire six (6) years. When a property owner pays early they stop paying
us interest. We can invest the payment, but current interest rates are much less
than our borrowing rate (Local Government Investment Pool is at .11%).
Therefore, every pre-payment costs the special investment fund between 1.89%
and 2.39% per year. If we assume an interest rate of 2.0% and sidewalk cost of
$2,000, this represents $40 for every year the assessment is pre-paid.
2
RESOLUTION NO. 2011-855
RESOLUTION REDUCING THE INTEREST RATE FOR PROPERTY OWNERS WHO
HAD SIDEWALK INSTALLED IN 2011 AND ELECT TO HAVE PAYMENTS SPREAD
OVER FIVE (5) YEARS
WHEREAS
, on October 25, 2010 the Common Council of the City of Janesville
approved File Resolution 2010-742 which authorized the installation of sidewalk at
various locations throughout the City of Janesville during 2011; and
WHEREAS
, under the terms contained within that Resolution property owners
who have sidewalks installed may elect to have payments spread over a period of five
(5) years at an interest rate of 6%; and
WHEREAS
, on October 24, 2011 the Common Council of the City of Janesville
approved File Resolution 2011-834 which also authorized the installation of sidewalk at
various locations throughout the City of Janesville during 2012; and
WHEREAS
, during the deliberations on File Resolution 2011-834 an amendment
was offered and approved reducing the interest rate from 6% to 3% for property owners
who elect to have payments spread over a period of five (5) years; and
WHEREAS
, it is the desire of the Common Council to provide this same interest
rate of 3% to property owners who had sidewalk installed in 2011 and who elected to
have payments spread over a period of five (5) years;
NOW, THEREFORE, BE IT RESOLVED,
by the Common Council of the City of
Janesville, that they hereby authorize and direct the City Clerk-Treasurer to reduce the
interest rate from 6% to 3% for property owners who had sidewalks installed under the
2011 sidewalk program under Resolution No. 2010-742 and who elected to have
payments spread over a period of five (5) years, and to that extent alone, Resolution
No. 2010-742 is hereby reopened, so amended, and closed; and
BE IT FURTHER RESOLVED,
that the City Manager, and his designees, are hereby
authorized to negotiate, draft, prepare, execute, file and modify such other documents,
papers and agreements ancillary and/or pertaining thereto and, from time to time, to
take and/or make whatever other minor actions and/or minor modifications to the above
described agreements as the City Manager and/or his designee may deem necessary
and/or desirable to effectuate the purposes of such agreements and the intent of this
resolution.
Resolution No. 2011-847
Page
2
ADOPTED:
Motion by:
Second by:
APPROVED:
Councilmember Aye Nay Pass Absent
Brunner
Eric J. Levitt, City Manager
Dongarra-Adams
ATTEST:
Liebert
McDonald
Jean Ann Wulf, City Clerk-Treasurer
Rashkin
APPROVED AS TO FORM:
Steeber
Voskuil
Wald Klimczyk, City Attorney
Proposed by: City Council
Prepared by: Director of Administrative Services