Council approves a loan for the purchase of fixed assets
With more than $11 million in general fund reserves, the city considered forgoing the short-term funding that the Arkansas Constitution allows local governments to use for capital purchases.
“I’ve been with the city for 20 years, and this is the first time I’ve seen this kind of balance,” City Manager Bill Burrough told the Hot Springs Board of Directors during their business meeting on Tuesday. 1st of March.
District 5 Director Karen Garcia noted that the general fund reserve had been depleted when she joined the council for her first elected term in 2011. The following year, the council raised the reserve requirement to 16.5% of general fund spending, which the council’s 2022 budget passed in November set at $30.9 million. The previous reserve requirement was $2.5 million or two months of operating expenses.
Two straight years of record sales tax collections have helped boost the reserve to more than double what’s required by city code, but Burrough said a long list of unfunded capital expenditures looms.
A committee appointed in 2010 identified more than $25 million in unfunded capital projects. Some have since been funded, such as the 105-foot plowed aerial ladder truck that will provide fire protection for multi-storey buildings. In May, the board approved a $2 million contract for the new ladder truck that will replace the Hot Springs Fire Department’s 1995 model.
The Amendment 78 funding pays for the new truck, the cost of which is being amortized over five years as part of the $2.95 million debt-financed capital expenditure in 2021. Last March, the board selected US Bancorp Government Leasing and Finance, Inc. to carry the five-year rating.
Burrough told council earlier this month that even if the city considered waiving special funding for the current year’s budget, it would have strained the operating revenue the city hopes to apply to the slate of projects. unfunded fixed assets. Appointing a new committee to update the list was one of the 2022 goals the board set in July.
Chief on the list is the demolition of the old St. Joseph’s Hospital on the campus of the Arkansas School of Mathematics, Science, and the Arts. Most of the ASMSA campus is on city property. The University of Arkansas has leased the land since the ASMSA campus opened in the 1990s. In 2018, the city deeded the Whittington Avenue parcel to the university where ASMSA built its creativity complex and of innovation.
The Old Hospital, which the Garland County Historical Society says was built in 1927, houses the mechanical systems for the school’s Pine and Cedar Street wings. An agreement with the University of Arkansas system requires the city to begin demolition of the hospital within 18 months of moving the mechanical systems.
The city estimated a cost of $3 million to downsize and raze the hospital. About $2 million from the city’s general fund reserve has been earmarked for this purpose.
“Knowing our financial situation, we’ve had discussions about bringing this to you to pay them out of operating funds and not lending this year,” Burrough said, referring to capital expenditures of 1, $98 million in 2022 that the board has approved for funding Amendment 78, the board says. “But we know that one of the council’s priorities is to develop the unfunded capital projects. In doing so, we know that we will need a lot of current funds to accommodate them.”
The board selected Signature Public Funding Corp. to carry the note. According to information provided to council, Signature’s borrowing terms were the most favorable of the five lenders that responded to the City’s call for tenders. The Treasury Department said the 1.824% interest rate offered by Signature was five basis points higher than the rate on the five-year U.S. Treasury note traded on Feb. 4.
“We are concerned that the rate a year from now will be much higher than it is today,” Burrough told the board. “That’s one of the reasons we offered to fund it with Amendment 78 funding.”
The Department of Finance told council it would cost $440,000 to pay off the debt in 2022. Depending on the payment schedule, the city will have paid more than $84,000 in interest on the $1.98 million principal. dollars at the end of the 60 month term. The city has provided an interest rate of 1.5%.
“Hopefully we can find savings in other areas that will accommodate the increase,” Burrough said.
The loan will be used to purchase a pump truck for the fire department, the cost of which is estimated at $800,000, and vehicle purchases estimated at $548,600. A Pack Rat garbage truck for the Parks Department, $100,000, a bushhog and tractor, $151,000, a dump truck, $175,000, and equipment, $212,000, will also be purchased with the ready.