2. City Hall Remodeling Financing OptionsKal"spell
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Post Office Box 1997 - Kalispell, Montana 59903-1997 - Telephone (406) 758-7000 Fax - (406) 758-7758
December 27, 2006
To: Jim Patrick, City Manager
From: Amy Robertson, Finance Director
RE: City Debt and Financing City Hall Remodel
Last year the City borrowed $1.1 million for the purchase of the Wells Fargo Bank Building.
The cost is being shared with the Building department roughly based on square footage
occupancy. The balance on that loan today is $1,050,782 which has been allocated to the
building department 38% - $410,697 and General Fund 62%-$640,085. The annual debt service
is about $15 0, 000 --- the rate is a variable (4.75% this year) ten year loan. The General fund' s
share of the annual debt payment is $93,000. This will be offset by reduced rents once the move
is made. One of Council's original concerns was to eliminate rent payments and put this into
equity. The plan is to charge the public works departments a rent of $40,000 split among their
funds, and $8,000 from Community Development. Finance Department has tried to determine a
fair rent for the footage occupied.
The Remodel and move will cost approximately $1,500,000. The City budgeted $300,000 from
the building department. Below are options for consideration to fund the remaining $1,200,000.
1. The Board of Investments has approved a loan of $950,000 for a term of 10
years at a variable rate, currently 4.75%. The debt service will be approximately
$1201,000 per year. This leaves us a shortfall of $250,000 to complete the
remodel.
2. An option would be to use water & sewer funds and record a prepaid rent to be
written down over 10 years for the shortfall and borrowing the $ 9 5 0, 000. Water
& Sewer would still have rent for the first loan. Difficulty: It is difficult to justify
that rent for the space being occupied.
3. Make up the $250,000 shortfall with funds from the sale of the Armory
property or use the armory money for the entire remodel and pay the fund back
over time. Difficulty: Money has been set aside pending Council decision on a
Community Center. By considering this an internal loan and reimbursing the
fund back would provide the money for the community center.
4. Borrow a lesser amount from BOI and use the Armory money for more than
just the shortfall. This could also be an internal loan.
5. The entire project could be refinanced using a USDA backed loan through a
bank. The interest rate would be about 7.5%. The interest costs over 20 years
would be $1,913,518 while annual debt service would only be reduced by about
$8000.
6. Municipal Services Group has submitted a financing proposal (handout to be
provided).
City growth has been averaging 7% a year and generated approximately $3 50,000 in new tax
revenue this year. Since the General Fund has over $6,000,000 in salaries even a COLA uses a
goad portion of that increase. There is not a lot left for capital purchases. we reduced our
reserves this year by $500,000 to facilitate hiring the needed firemen for the new fire station. The
City is approaching its limit for borrowing without a vote of the public. Other long term
priorities for financing must also be considered such as a ladder truck. Additional debt service
needs to be minimized in the near future. The debt payment for the two loans will be
approximately $280,000.