TO: Mayor and City Council
THROUGH: Keith Stahley, City Manager
FROM: Josh Eggleston, Chief Financial Officer
SUBJECT:
title
Internal Borrowing from the City’s Building & Safety Fund to the Emergency Services Fund for capital improvements.
Ward(s): All Wards
Councilor(s): All Councilors
Neighborhood(s): All Neighborhoods
Result Area(s): Safe and Healthy Community.
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SUMMARY:
summary
In March 2024, the City Council provided direction to proceed to an ambulance services transport provider model operated and administered by City staff. This internal borrowing is required to fund the startup capital expenses for the of City-provided ambulance transport.
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ISSUE:
Shall the City Council adopt Resolution No. 2024-24, approving an internal borrowing from the City’s Building & Safety Fund to the Emergency Services Fund for capital expenses in an amount not to exceed $6,000,000?
RECOMMENDATION:
recommendation
Adopt Resolution No. 2024-24, approving an internal borrowing from the City’s Building & Safety Fund to the Emergency Services Fund for capital expenses in an amount not to exceed $6,000,000.
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FACTS AND FINDINGS:
The Building and Safety Fund is in good fiscal health due to prudent financial management including the conservative expenditures and the economic environment, with high building permit revenue and interest gains on existing fund balance. This has resulted in sufficient balances and reserves to meet the requirements of Council Policy C-10, the Building and Safety Fund Balance / Reserve Policy.
If the internal borrowing is approved, the Building and Safety Fund is still able to meet its programmatic expenses and reserve requirements while the debt service is being repaid. Interest received by the Building and Safety Fund approximates the interest it would have received if the funds remained in the City of Salem’s investment portfolio. The budgeted FY 2025 fund balance for the Building and Safety Fund is over $15.7M. The interest rate for the borrowing will be 4.21% and will begin on July 1, 2024, in the new fiscal year. If the loan is approved, budget appropriation will be added to the FY 2025 City budget for the budget public hearing on June 10 since it was unknown at the time of budget development. After fiscal year 2025, the interest rate for the debt will coincide with other internal loans at a rate of 0.5% above the prior year’s combined portfolio rate as outlined in Council Policy C-2 on debt. The loan will be paid back over a 10-year term with an estimated annual payment of $740,063 (adjusted annually for investment returns).
Funding from this internal loan will be used to purchase and upfit seven ambulances and update the three current City ambulances, radio and tablet devices, chair/backboards/stabilization equipment and other items. The total amount to be funded will be up to $6,000,000. These funds will be available on July 1 and available for these improvements at competitive rates and favorable terms.
BACKGROUND:
Oregon Revised Statue 294.268 allows the City to conduct an internal borrowing between funds for capital projects provided that the funds are repaid within 10 years and that the borrowing is approved by resolution or ordinance. The City of Salem’s Council Policy C-2 further outlines the City’s debt management policy, including internal borrowings. In addition to the requirements outlined in ORS 294.268, consideration for an internal borrowing include cost benefit analysis where the rate of interest and borrowing costs from external sources are weighed against the anticipated interest earnings for internal funds, proper budget authority, and whether the borrowing fund can repay the loan.
Attachments:
1. Resolution No. 2024-24
2. Resolution No. 2024-24, Exhibit A, 2025 Building and Safety Fund / Emergency Services Fund Interfund Loan - Amortization Table