06. Thelen Report - Sell Urban Renewal Bonds - AlternativesFinancing Plan
for Tax Increment
If bonds are not sold
August 9, 1996
In identifying potential options to fund the Urban Renewal Plan in
July, I indicated that the $7,510,000 program could be financed
without a bond issue. This will require some temporary financing
that can include the borrowing of some funds from our water and
sewer accounts that are now invested in the State investment
program at 5.4190 interest. Funds available include:
Sewer Capital Improvement Reserve $1,600,000
Sewer Replacement 500,000
Sewer Bond Reserve 630,000
Water Department Reserve 300,000
Total Utility Fund Available $3,030 000
We currently have $1,827,000 cash available in the tax increment
fund and $1,500,000 of these funds can be used to finance projects
and we have projected $2,116,000 from tax sources in FY 1997.
These tax funds will become available in November/December and
May/June. We can, however, issue a tax anticipation note with the
State to borrow
rrow approximately $1,900,000 at a current interest rate
of 4.89 or sell a tax anticipation note to local lenders.
A summary of these potential funds reflects:
Borrow from City's Utility Funds $3,030,000
Cash Available Tax Increment 11500,000
Tax Anticipation Note 1997 1,900,000
$6,430,000
I discussed the borrowing from utility funds with our auditors, and
they recommend that the interest rate be approved by Council (I
would recommend 1% above STIP, which would be 6.41% today) and that
the loans be recorded as payablps and receivables rather than "due
Tax Increment
Financing Plan
August 9, 1996
Page 2
to's" and "due from's". It would appear that this financial
mechanism will permit the projects that you have approved to
proceed without a bond issue. In addition, the UDAG loan to
Kalispell Mall in the approximate amount of $2.6 million will be
repaid to the City when that project moves ahead. The City will be
looking for a place to invest these funds. It could be used as a
loan to the Urban Renewal Program and repaid with increment funds
on an annual basis. This would bring the total availability of
funds, $9,460,000, all of which could be used the first year, FY
1997.
The interest rate that we borrow these funds from should be
close to market rates at the time a loan is authorized. We have a
cash flow analysis that reflects a maximum potential loan limit of
$3,036,313. The loans would be made according to demand, and
repaid as money becomes available from the annual increment
revenue. The debt would be amortized by July 1, 2002.
To be sure, the City can finance the projects included in the
proposed bond issue through temporary internal borrowing.