HomeMy WebLinkAboutRes2014-061 Sponsored by: Hunt
CITY OF SEWARD,ALASKA
RESOLUTION 2014-061
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEWARD,
ALASKA, AUTHORIZING AN INTERFUND LOAN FROM THE MOTOR
POOL INTERNAL SERVICE FUND TO THE SMIC ENTERPRISE FUND IN
THE AMOUNT OF $1,029,087 FOR THE PURPOSE OF PURCHASING A
330-TON TRAVELIFT
WHEREAS,at its meeting of July 14,2014,the Seward City Council approved Resolution
2014-054, authorizing the purchase of a 330-ton boat lift and further authorizing a loan from the
Motor Pool Internal Service Fund to the Seward Marine Industrial Center("SMIC")Enterprise Fund,
as part of a funding package; and
WHEREAS, SMIC will borrow$1,029,087 from the Motor Pool Fund for a period of seven
years,representing the standard amortization period for a capital equipment lease term;resulting in
annual debt service payments of$147,012.43.
NOW,THEREFORE,BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF SEWARD, ALASKA, that:
Section 1. The Seward City Council hereby authorizes an interfund loan from the Motor
Pool Internal Service Fund to the SMIC Enterprise Fund in the amount of$1,029,087,for the term of
seven years,resulting in annual debt service payments of$147,012.43,with the first payment due on
March 1, 2015 and each September 1 and March 1 thereafter, maturing on September 1, 2021.
Section 2. The amount of$1,029,087 is hereby transferred from the Motor Pool Internal
Service Fund to the SMIC Enterprise Fund.
Section 3. The 2015 Budget is hereby amended to account for the annual debt service
payments, as follows: SMIC debt service principal is increased by $147,012.43.
Section 4. This resolution shall take effect immediately upon its adoption.
PASSED AND APPROVED by the City Council of the City of Seward, Alaska, this 28th
day of July, 2014.
CITY OF SEWARD, ALASKA
RESOLUTION 2014-061
THE CITY OF SEWARD, ALASKA
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an Bardarson, Mayor
AYES: Keil, Terry, Squires, Butts, Darling, Bardarson
NOES: Casagranda
ABSENT: None
ABSTAIN: None
ATTEST:
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ohanna KiW, CMC
ity Clerk
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Agenda Statement 'moo SFt
Meeting Date: July 28, 2014 *�
ASKP
Through: James Hunt, City Manager
From: Kristin Erchinger, Finance Director Miti
Agenda Item: Interfund Loan from Motor Pool to SMIC to purchase 330 Ton Travelift
BACKGROUND & JUSTIFICATION:
On July 14,2014,the Seward City Council approved Resolution 2014-54,authorizing the purchase
of a 330-Ton Travelift and authorizing a loan from the Motor Pool Internal Service Fund to the
SMIC Enterprise Fund in the amount of$1,029,087.
The standard amortization period for a capital equipment loan is seven years,so SMIC will repay this
loan over a period of seven years at an interest rate of 2%,resulting in annual debt service payments
of$158,276. The benefits of inter-fund borrowing include: 1)reduction in overall borrowing costs;
2) the SMIC Fund lacks cash reserves to pay for this equipment outright; 3) the travelift is a loss
leader for the enterprise fund,but provides a vital service to vessels operating out of Seward;and 4)
interest costs will be repaid to the City rather than an outside financing entity, saving taxpayer
money.
The SMIC Enterprise Fund does not currently generate sufficient revenue to make the required
annual debt service payments of$158,276. The administration has recommended an increase in
travelift rates which would generate approximately $20,000 per year,plus the expected increase in
lifts resulting from the higher capacity of the new lift is expected to generate $20,000, and higher
demand due to the new shipyard operator is expected to generate an estimated$10,000 per year,for a
total annual increase in revenues of$50,000. Existing repair and maintenance costs are expected to
decline$10,000 per year in the short-term. Boat lift and storage fee revenue is expected to increase
$15,000 over currently budgeted levels. When taking into account the above estimated cost savings
and new revenues, the annual estimated shortfall from this transaction is $83,276. If new SMIC
economic activity fails to generate sufficient revenues to pay this shortfall, the General Fund will
need to cover the annual costs.
INTENT:
This transaction authorizes an interfund loan between the Motor Pool and SMIC for the purchase of
a new 330-Ton travelift. SMIC will make annual debt service payments and if it fails to maintain
sufficient cash flow to make annual debt payments, the City Council may be asked to authorize the
General Fund to make the debt payments.
CONSISTENCY CHECKLIST: Yes No N/A
1. Comprehensive Plan : Continued development of SMIC(p. 6) X
Strategic Plan : Expand development in the Seward Marine Industrial
2. Center (p. 8); The City of Seward is fiscally responsible and utilizes X
creative and responsible funding alternatives (p. 20);
3. Other (list): Resolution 2014-54 X
FISCAL NOTE:
This loan will reduce the cash balance in the Motor Pool Fund to approximately$200,000,assuming
that budgeted capital purchases are made. The Motor Pool has no outstanding debt. Annual cash
inflows into the Motor Pool include $29,221 from the Harbor Enterprise Fund (final payment due
January, 2015) and $98,576 from the Hospital Enterprise Fund for unfunded pension liability
payments for Seward General Hospital PERS(final payment due 2026). In addition,annual inflows
from vehicle rent are approximately $480,000 per year. The historic cost of vehicles and heavy
equipment in the Motor Pool Fund totals $5.9 Million.
Approved by Finance Department:
ATTORNEY REVIEW: Yes No X
RECOMMENDATION: OW\
Seward City Council adopt Resolution 2014- ,authorizing an interfund loan from the Motor Pool to
the SMIC Enterprise Fund in the amount of$1,029,087.