By Myrna Trauntvein
Nephi’s Electric Fund has two major projects in the budget this year.
“The first will be complete within the next few weeks,” said Seth Atkinson, city administrator.
It was the electric line upgrade on the north end of the city near the hospital and industrial park and was planned to assist with future growth in that area.
“There are several companies already taking advantage of the additional capacity,” said Atkinson.
The second project scheduled for this fiscal year is a new substation on the south end of the city.
Capacity in this area of the city is at a maximum and the new substation will also assist development needs in that section of the city as well as provide the ability for three-phase power to be supplied.
“There is currently a development in the design stages that could benefit from these improvements,” he said.
The substation is slated to begin in the spring with the city going out to bid early next year.
A parameters resolution will need city council approval in order for it to dictate the limits allowed for any bond issuance.
“The bond counsel was not able to get us the information we need for this meeting,” said Atkinson. “The parameters resolution will be postponed until our next meeting.”
Although a bond would be allowed by the resolution, staff will explore other funding options, such as a direct bank placement, that may save costs.
“The Electric Fund has a fairly healthy fund balance and could probably fund these projects with existing resources,” said Atkinson.
That may not be the best solution, however, he said. If the interest rates remain low it would be better to keep the money in the fund balance and take out a loan.
“The benefits to financing these projects would be twofold: one, taking advantage of low interest rates in the current market and two to allow cash to remain in the Electric Fund balance for any emergency situation and to respond to any additional development needs,” said Atkinson.
“If we had a transformer go down, we would have the funds,” said Greg Rowley, council member. “We would have the money when an emergency occurs.”
It does give the city a hedging ability, said Mark Jones, mayor.
Is it right to consider the capital projects fund as a rainy day fund? asked Don Ball.
A Capital Project Fund has several advantages over socking money away in the General Fund. First,monies allocated to projects in a Capital Project Fund do not expire. In other words,they stay with the project until the project is completed.
The monies do not revert to the Capital Project Fund balance or the General Fund balance at year-end.
A council can,as a result,create a project in the Capital Project Fund and apply multiple years’ funding to it until it is fully financed. Second, because money dedicated to a project in a Capital Project Fund stays with the project, it does not impact the General Fund’s balance.
It is wise to keep a close watch on the balance of the General Fund to ensure compliance with State Law. Cities can accumulate up to 18 percent of a fiscal year’s projected revenue in fund balance, while towns may accumulate up to 75 percent.
If the General Fund’s balance exceeds these limits,a property tax reduction can be ordered.
“Many bonds or direct loans from banks have a call option after a certain period of time and if needed, the Electric Fund could pay the balance at that time without penalty,” said Atkinson.>