By Kevin Gaboury
In an effort to restructure previous debt in the railroad fund, the City of Prineville has been authorized to borrow $450,000 from South Valley Bank and Trust.
According to Finance Director Liz Schuette, in 2005-2006, the city authorized $450,000 in interfund loans from the railroad fund. The loans included $100,000 for the Crooked River Dinner Train, $150,000 for the industrial park debt service fund, and $200,000 for the freight depot fund, totaling $450,000 at 5 percent interest.
"We had some interfund loans that we wanted to restructure so that we could pay the railroad back," Schuette said.
However, rather than authorize another interfund loan with many city funds already dwindling, the city opted to borrow the $450,000. The loan has an interest rate of 4.5 percent and needs to be repaid within the next two years.
"We wanted to reimburse the railroad for its dollars with financing from the bank rather than take dollars from any other funds," Schuette said. "We didn't want to use another fund to repay those dollars because we didn't want to draw those funds down. This allows the return of needed cash flow back to the railroad."
As security for the loan, the city will deposit $500,000 of city funds into a South Valley Bank certificate of deposit that will pay the city 1.3 percent interest annually.
"It's not new debt, it's just restructuring of existing debt," Schuette said. "We have no new debt in our budget this year."
If you're wondering why the city needed to borrow $450,000 when it already has $500,000 on hand, this is where it gets complicated.
According to Schuette, the city has around $5.4 million in what is known as pooled cash. Part of this is in a money market account, part is in a government pool account, part is in a checking account and now part is in a certificate of deposit.
Each city fund is represented in a claim on this pooled cash, of which the current balance is $5.4 million. Instead of taking money from a particular fund like the railroad, the city opted to borrow the money and place a security on it with cash it already owns.
"If you want to break it down per fund, each fund owns a piece of that pooled cash. If we wanted to pay back the railroad from funds within the city, we would have to do another interfund loan from another fund. That's what we're trying to avoid - borrowing dollars from a particular fund."
Schuette added that the city has also budgeted a restructuring of debt within the wastewater fund for 2009-2010. Doing this will allow the city to spread existing debt into the future, which in turn will take some of the burden off the rate payer.
"That's why we didn't have to raise wastewater rates this year," she said. |
