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City looks to trim $2 million from debts
(by Mike Klimko - September 24, 2008)
City looks to trim $2 million from debts
By MIKE KLIMKO
A windfall in general-fund reserves this year could enable Solon to reduce the debt on three municipal buildings by an additional $2 million, according to Finance Director D. William Weber.
Payment is due Nov. 20 for the new fire station at SOM Center (Route 91) and Bainbridge roads, the Pettibone Road Fire Station and the Solon Community Center, totaling $7.7 million, Mr. Weber told City Council's finance committee last week.
Reserves in the general fund could be tapped to reduce the amount needed to issue notes on the debt to $5.7 million, ne said. The amount issued can be increased or decreased before approval by council, he said.
Councilwoman Susan A. Drucker asked whether other reserves could be used in paying off some of the debt.
That possibility could be determined by November, Mr. Weber said, noting that income taxes remain healthy.
"Some of the other funds involved would be the bond-retirement fund, since we paid off the City Hall bonds last year," Mr. Weber said. "We're accumulating some reserves in that fund."
Extra reserves in the bond-retirement fund are somewhere between $500,000 and $1 million, he said. The earned interest fund is at $2.8 million, up from $2.4 million at the beginning of the year, he said.
The use of notes provides an advantage not provided by the use of bonds to pay off debt, he said. Notes allow the city to pay off debt at a quicker rate, he said.
Notes taken out on the payment of the debt due in November would likely be included among the amended appropriations that will be sent to council, he said.
The November payment includes $2.7 million for the new fire station, $1.65 million for the Harper Road Fire Station and $3.35 million on the community center.
"Our general-fund reserves have increased by over $2 million since the beginning of the year, meaning we can pay down on this debt by at least that much," Mr. Weber said in a report.
"The interest rate on notes has currently dropped to around 2.5 percent, compared to the 3.75 percent we are paying on the notes coming due. Bond rates are still somewhat higher."
Reserves in the general fund can be used to maintain the financial stability of the municipality and support the repayment of debt from the municipal bond-retirement fund.
An ordinance adopted last year directs the administration and council to take steps each year to maintain a minimum cash reserve amounting to 25 percent of the appropriations in the general fund.
Reserves above the minimum can be used for early retirement of debts, capital purchases or projects, with a usefulness of more than five years, and other purposes that will not reduce reserves for any given year.
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