Sinking funds, sales tax increase finance rec projects

$11,731,000 is amount budgeted for rec projects

By RON LARSEN

Journal Staff Writer

NEW ULM -- When the city council gave architects the green light last week to go to final design on the three referendum construction projects, the estimated cost was pegged at $12,482,000, 6.4 percent over the city's $11,731,000 budget figure.

The architects also listed a total of $599,000 in "add/alternates," but they are not included in the total project cost.

The 2000 referendum that authorized, by a wide margin, a .5 percent addition to the sales tax and a $20 per vehicle excise tax to pay for the construction listed the bond issue to finance the three projects at $9 million.

So why the difference of $2.2 million?

"The difference comes primarily from sinking funds that were set up a number of years ago in anticipation of these projects and from the city's capital improvement fund," City Treasurer Gary Gleisner explained.

These funds total $843,000, with a projected $400,000 coming from capital improvement, $81,000 from Family Rec Center fund, $117,000 from Park and Rec Building Nunn Donation account, and $245,000 from the Senior Center account.

"Sinking funds are like a savings account that someone would open to pay for college expenses or a big vacation," Gleisner said. "The city had the foresight to start saving for these expenditures some time ago, and now these monies are available for use."

Appropriations from the 2002 and 2003 budgets to these accounts are estimated to total $80,000. With related lease/purchase financing from the operating budget totaling $1 million, $400,000 from the General Obligation Improvement Bonds fund and an estimated $328,000 in interest earned on bond proceeds, that brings the grand total to $11,731,000.

"That figure is the bottom line; I've told them (the council) that's as far as we can go in spending on these projects," Gleisner said.

The city can't use a lease/purchase plan with structures because the city owns the buildings, Gleisner said. Where lease/purchase will be used is with equipment such as that necessary to make ice and furnishings.

The bonds must be sold in two batches, Gleisner said. The Series 2001 bonds totaling $7,378,000 will be sold in August, and the Series 2002 bonds amounting to $1,622,000 will be sold in December.

Because of complex Internal Revenue Service regulations on bond sales, Gleisner had to set up a complex time line for disbursing money received from the bond sales for the individual construction projects. If the construction payment time line doesn't keep up with the bond-money disbursements, "we're in big trouble," Gleisner said.

In handling the revenue from the bond sales and the sales and excise taxes, Gleisner will work with three funds: construction, bond revenue and bond sinking funds.

Because the bond sinking fund can only be used for debt retirement, any sales and excise tax revenues go directly into that fund. The bond revenue then will be disbursed into the construction fund, based on the complex time line developed by Gleisner to avoid penalties from the IRS.

"This is a complex task," Gleisner said. "We can't miss any of the disbursement deadlines."

The "referendum" cost estimates, used by the architects in developing the schematic designs approved by the council, were made from rough project designs prior to the referendum to establish the amount of the bond issue.

While a potential 6.4 percent deficit isn't huge, it shrinks to 1.4 percent when the 5 percent contingency fund built into each project is removed, Gleisner said.

"As we heard from the architect (Ted Rozeboom of Rozeboom Miller Architects, Inc.) at Tuesday's meeting, the trend in southwest Minnesota appears to be for projects like this coming in under budget," Gleisner said. "So we're hoping that we'll be just as fortunate."

If the bids do come in significantly under budget, as happened with the city's bid letting on 2001 street improvements which was 20 percent under city engineer's estimate, it will allow Gleisner to reduce the amount of additional funding now built into the overall budget.

The other big question mark is how much revenue will be gained from the half-cent sales tax and excise tax.

"I was purposely very conservative in estimating that revenue," Gleisner explained. "We just got our first excise tax check, and that was stronger than expected. We are expecting the first sales tax check sometime next week. Then, we'll have a little better idea as to how it is going to go."