City council reviews options for two ailing funds

This article submitted by Linda Stelling on 11/29/00.

The city's annual debt management study revealed the city of Paynesville is in good shape financially, but it does have some concerns about a couple of funds.

In early November, Juran and Moody - the city's financial consultant - completed the study using information from the 1999 audit.

Monte Eastvold, a bond consultant with Juran and Moody, informed the city council at their meeting on Wednesday, Nov. 22, that they have 11 bond issues on the books. Most of these bonds come from construction projects that improve the city streets, sewer system, or water lines.

For each bond, the city has an account to which revenue is deposited and from which bond payments are made. A debt management study is done each year to see if the accounts will cash flow over the life of the bond or not.

Revenue into the fund to pay the bonds comes from water and sewer rates, project assessments, taxes, and interest from the fund.

Of the 11 accounts, nine have healthy balances.

Two of the city funds will encounter financial problems before the bonds mature. Eastvold told the council theat the city may have a problem with the 1995 and 1998 improvement bonds. In both cases, prepaid assessments decreased the amount of interest income as a revenue, Eastvold said.

By 2003, the account to pay the 1995 bond will have a deficit of $2,892. In eight years after that until the final payment is due in December 2010, the deficit would grow to $207,834 if nothing is done.

The fund for the 1998 improvement bond will have a deficit balance of $6,121 by 2005 if nothing is done. The final payment on this bond is set for December 2008 and by that time it would have a deficit of $89,344.

Eastvold told the city they can either divert funds to pay off the two bonds in trouble earlier or increase the city tax levy to cover the shortfall.

The 1995 bonds would have a deficit of around $25,000 per year after 2003 to cover with taxes and the 1998 bonds a deficit of about $20,000 a year after 2005.

The 1995 bond can be prepaid starting on Dec. 1, 2003, and the 1998 bond can be paid off in 2005.

Eastvold reminded the council that the city has U.S. treasury bonds that will mature at a value of $472,000 in November 2001. These bonds could be used to pay off bond principal before the deficits increase with interest.

"By paying off this bond, the city will have more financial flexibility," Eastvold said.

He also recommended paying off the 1996 improvement bond early, as this fund has a healthy balance and will have sufficient cash to pay off the remaining principal in 2006.

The city made no decision last week. They have until next November, when the treasury bonds mature, to decide which avenue to take.

The city pays $6.7 million annually on the bond principal and $2.3 million annually in interest.

Eastvold praised the city for keeping bond issues under 10 years. He recommends shorter bond issues to minimize the impact of interest on the funds.

The trend in older portions of town are to pay off the assessments over time, he said. However, more homeowners are opting to prepay, which causes cash flow problems to the city over the life of the bond due to the loss of interest revenue.

Delinquent bills
After a public hearing, the city council certified 12 accounts as delinquent. These included 11 refuse accounts and one for water, sewer, and snow removal. The delinquent accounts range from $35 to $317.

Notices were sent out to 16 delinquent accounts for the year. Four were paid prior to the hearing.

Gayla Orbeck, interim city administrator, informed the council that home owners with delinquent accounts have a week after the hearing to pay their delinquent bills before the amount is turned over to the county auditor and placed on their real estate taxes.

New wells
After benzene contamination shut down two of the city's wells, the city has been exploring sites for two new wells for over a year. The Minnesota Pollution Control Agency is helping the city by funding the project, up to $650,000.

A well drilled earlier this summer near the Morningside Addition near the east edge of town will be put into use this Friday.

Ron Mergen, public works director, informed the council that tests on a new well south of Highway 55 indicate the well is capable of pumping 1,000 gallons per minute. Mergen was pleased with these test results.

The city had already made several test holes earlier this year, which were all disappointments. The city then purchased additional land after another test hole indicated a new site was adequate.

This well, located south of Highway 55, won't be put into use until spring as the control panel has not arrived.

Other business
•The Second Street frontage road received a first layer of bituminous on Nov. 16 and 17. The final layer will be laid next spring.

Paynesville Lutheran Church reached an agreement with the city to connect their new parking lot to the frontage road at a cost of $4,785 to the church.

•The council approved payment of $3,578 to Paynesville Excavating for upgrading the septic system at Veteran's Memorial Park.

•Representatives from the Paynesville Area Ambulance Service, the Paynesville Area Health Care System, the Paynesville Police Department, and the Paynesville Fire Department were each presented with a large bag of stuffed animals by Chris Stanley, manager of the Paynesville office of the Melrose Credit Union. The stuffed animals are distributed to emergency service organizations to help calm children in an emergency.

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