MOUNT VERNON — It is not unusual for a municipality to borrow money to pay for capital improvements or other projects.
Faced with a purchase price of over $1.3 million for a new fire engine and medic, Mount Vernon City Council members decided to do just that at a special meeting on Monday.
What is different, however, is that the city will borrow from itself rather than from a financial institution. The city will issue bonds up to a maximum amount of $1,143,160. The money will come from the city’s investment portfolio.
City Auditor Terry Scott said the funds in the portfolio are either interim or inactive funds. He explained that in essence, the city has 50 “checkbooks,” one for each account. Not all of the funds use their dollars all the time, so those dollars are combined and invested.
“This is a unique opportunity. Our investment portfolio is a bit over $27 million, so we’re really not using any funds that were not already invested,” Scott said. “We’re just taking part of the portfolio and segregating it over here like another investment.”
The bonds mature in 10 years and pay 3.5-percent interest. The city will repay about $138,000 annually over the 10-year period. The interest goes into the general fund; the principle payments go back to the portfolio fund.
The city can accelerate payments or prepay at any time and in any amount.
“If we decided we want to shorten it up and do two payments at a time, or whatever’s available, that can be done,” Scott told council.
The city will use money generated through EMS billing to pay the $138,000. Scott estimates EMS billing will generate about $1.06 million in 2022. EMS billing money goes into the general fund. He said that Fire Chief Chad Christopher agrees with taking some of the EMS billing to help retire the debt.
“Taking on a debt service of $138,000 out of a million dollars is not going to be a major undertaking from the general fund,” Scott said.
The ordinance language includes a provision that debt repayment can come from the 1% income taxes dedicated to police and fire. However, Scott said the city is “not going to be going in that direction,” adding that the loan will not cost the taxpayer anything.
The fire department annually allocates some of that dedicated income tax revenue toward savings. The fund currently stands at $600,000. Scott said Chief Christopher does not want to use that money to repay the debt or purchase equipment because it is earmarked for a future third fire station.
At council’s Nov. 28 meeting, the fire chief said if the city did not sign a contract for the new equipment by Dec. 1, the city would face a $57,000 price increase. The company waived that requirement to allow the city to arrange financing details and bring the matter before council.
Scott told council that an equipment purchase typically would be done through fire department funds and is a four-year process to allocate funds and apply for grants. However, the department wanted to proceed now because the lead time for receiving the equipment is currently 18 to 20 months.
“If we don’t act now, it could be two years to get the equipment by the department,” he said. “Overall, the taxpayers are going to be the beneficiaries (of this financing method).”
