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Harmony City Council gets creative in financing community center projects

Fri, May 30th, 2008
Posted in Government

HARMONY - The Harmony City Council discussed a few more options for financing the community center and parking lots projects that are coming up this summer at the May 27th meeting. Mike Bubany of David Drown Associates was there to explain the options and answer any questions.

Bubany explained that there is a limit to how much debt a city can have through Rural Development, which is $450,000. Right now Harmony has two outstanding loans with them that total approximately $200,000, leaving $250,000 to borrow. The projects are estimated to be around $500,000 at the most.

According to Bubany, the most efficient way to borrow money for a project like this is to go with a Capital Improvement Project bond. They would have to have a public hearing, and then wait 30 days for residents to petition against it. If they did, the decision would then go to a referendum. This way would get the city the lowest interest rates.

However, Capital Improvement bonds cannot be used for community centers. A small percentage of the building is used for city hall and the library, and that would be the only percentage of the project cost that the city could finance.

Another option would be to go with bond issue with a general obligation pledge. In that case, the EDA (Economic Development Authority) would have ownership of the building. They would fix it up, then lease it back to the city, using the lease payments to pay the bond. This option would have a slightly higher interest. The two outstanding loans would have to be paid off, and the EDA would have full control during the life of the lease.

Bubany brought up another option that would help get the lower interest rate. Harmony could sell the bond to a pool debt program through MN Rural Water Association. The program takes a lot of debts from cities and diversifies them. Bubany added that there are higher initiatial expenses, but they are offset by the lower interest rates, and there is no fee to participate. The total debt would be $730,000 with the old debt and the new projects. Interest rates would start at 4.05 percent for several years and then increase to 4.4 percent. The city would have to add $41,000 a year to the budget to pay for the projects.

Mayor Dave Kingsley spoke up and stated that he would be willing to use reserve money in the electric fund to pay for part of the project and max out the loan from Rural Development for the rest. The city could borrow another $265,000 from Rural Development, and take $200,000 from the electric fund.

All of the council members agreed that this would be the best option. The electric fund currently has $550,000 in it, and it would be left with $350,000 after the project. Bubany said that he would have liked to see more money in that account, but taking the money out for the project would not cause any cash flow problems. The city would be building the fund back up over the years.

The council will be informing City Administrator Jerome Illg to continue with his application process to USDA (United States Department of Agriculture) for the Rural Development loan.

Other business

• The EDA recommended putting diagonal parking in the west alley behind Main Street and the bank. The alley will become a one-way going north to south, and there will be 21 parking places in a diagonal strip along the west side. The council is going to wait until planning and zoning looks at it to determine what kind of setbacks are required for future businesses along the alley.

• Dwight Scrabeck was at the meeting to request a stop sign at the end of the T in his residential development, and the city will be putting that up. He also mentioned that when his development went up, he had to deed the pond back to the city. He said it has not been maintained, and he would like to have it deeded back to him so he can do some work to the area to make it look nicer. City Attorney Richard Nethercut is going to look into why the pond was deeded back to the city in the first place.

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