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MEMORANDUM <br /> <br />TO: <br /> <br />FROM: <br /> <br />Mayor and City Council <br /> <br />Lori Johnson, Finance Director <br /> <br />DATE: <br /> <br />November 19, 2001 <br /> <br />SUBJECT: City Hall - Police Station Expansion <br /> <br />Item 9. <br /> <br />At the recent city hall/police station expansion committee meeting, the committee discussed <br />the benefits of proceeding with this construction project earlier than originally planned to <br />take advantage of a favorable bidding climate and low interest rates. Before the Council can <br />make a decision on project size and timing, project financing needs to be considered and <br />finalized. The Council has briefly discussed financing, but in concept only. Without some <br />idea of the construction cost, it was difficult to discuss anything but general concepts. Now <br />that construction estimates are available and a time frame has been proposed, there is <br />enough information to begin working on a detailed financing plan. <br /> <br />One way to finance the construction is through reserve funds. Although funds have been <br />reserved in the Government Buildings Reserve fund for future city hall and police station <br />expansion needs, it was never expected that the entire project could be financed through <br />reserves. There will be approximately $1,750,000 available in this fund at year-end <br />depending upon landfill surcharge revenues, the main source of revenues for this fund. <br />However, this is also the source that has been discussed for the city's contribution to the <br />YMCA. A decision on how much of this reserve should be used for this project (including <br />how much is needed to cover furniture and equipment costs) and how much should be <br />reserved for the YMCA needs to be made in order to finalize the expansion project <br />financing. <br /> <br />There are two methods of debt financing for the balance of the project not funded by <br />reserves. General Obligation bonds can be issued with voter approval. Lease purchase <br />bonds can be issued without voter approval. Both bonds allow for a tax levy to fund the <br />debt. The tax levy for a voter approved issue is based on market value while the tax levy is <br />based on net tax capacity for lease purchase bonds. In 1991 when lease purchase bonds <br />were used to finance the city hall and police station construction, the concept was relatively <br />new and interest rates were significantly higher for lease purchase than general obligation <br />bonds. Interest rates on lease purchase bonds are now only around 50 basis points higher, <br /> <br /> <br />