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LETTER to the DECATUR CITY COUNCIL <br /> Financial Management Department <br /> #2018-11 <br /> DATE: August 13, 2018 <br /> TO: Honorable Mayor Moore Wolfe and City Council Members <br /> FROM: Billy Tyus, Interim City Manager <br /> Gregg D. Zientara, City Treasurer&Director of Finance <br /> SUBJECT: Resolution Authorizing Financing of 2018 Public Works Energy Savings Project <br /> 2018-07 <br /> SUMMARY RECOMMENDATION: <br /> City Administration recommends Council approval of the attached Resolution to authorize the <br /> financing of the Public Works energy savings initiative City Project 2018 — 07 approved by the <br /> City Council with Resolution R2018—96, approved by Council August 6, 2018. <br /> BACKGROUND: <br /> City Staff has considered two options to finance the project. <br /> Option 1 —finance with bank loan <br /> Option 2—finance with an interfund loan <br /> Option 1 scenario <br /> • Bank financing to be secured <br /> • City would approach local banks <br /> • Local banks have expressed interest <br /> • Assumed interest rate is 3.5%, subject to bank offering <br /> • Assumed term is 13 years, cash flow breakeven point of investment(Loan term to 2031) <br /> • Assumed semi-annual principle and interest payments <br /> • Principal investment is$1,981,816.00 <br /> • Projected principal and interest payment is $2,483,750.00 based upon 13-year term <br /> • Interest cost to finance ranges from approximately $500,000 to $800,000, dependent <br /> upon the final structure of the loan to be negotiated <br /> • Investment and repayment will be accounted for in the Capital Project Fund <br /> Repayment fund is the General Fund, where the electricity costs are expensed and paid <br /> Option 1 scenario potential issues <br /> • Loan term duration maybe subject to indexed interest rates, pegged to LIBOR or Federal <br /> Prime, which may, in the economic up-turn expectation of interest rates, drive up interest <br /> rate financing costs beyond our assumptions <br /> • External bank financing will likely include additional cost for loan document preparation <br /> fees with the financing institution as well as with outside bond counsel, later required to <br /> protect the city in the financing transaction <br /> Page 1 of 3 <br />