Friday, January 03, 2014

TOP STORY >> Council reworks loan for budget

Leader staff writer

The Jacksonville City Council on Thursday passed an ordinance to refinance a five-year loan with Motorola for 911 equipment.

Officials agreed to extend the loan into a sixth year, make monthly payments instead of annual payments and pay interest on the loan, which was first offered at an interest rate of zero percent.

Jacksonville made one annual payment in 2013, Finance Director Cheryl Erkel told the council. The city still owes $2.66 million, which includes 3.243 percent in interest, she said.

Director of Administration Jim Durham added that the refinancing is the same as it would be if the city got a new loan at a 2.5 percent interest rate for the entire loan period.

The city will pay less each year for 2014, 2015 and 2016 than the $602,528 annual payment that would have been due this month without the refinancing, Erkel continued.

The $602,528 would have been due in January 2015, 2016 and 2017 too, she explained.

Erkel said, if Jacksonville does not pay the loan off early, it will spend $417,862 this year, $324,135 in 2015, $324,135 in 2016, $797,650 in 2017 and $797,650 in 2018.

There isn’t a payment due this month. The first monthly payment will be $147,750, which is due in February. For the next 34 months, the payment is $27,011, Erkel continued. Payments will increase to $66,470 for the remaining 24 months, she said.

Erkel added that there is no penalty for making higher payments and taking care of the loan early, which would help the city avoid footing the bill for some of the interest.

The ordinance was unanimously approved with an emergency clause, meaning it went into effect immediately.

Mayor Gary Fletcher said, “Another really good thing about this, it’s not just the smaller payments. It also gives us a better ability for cash flow.”

He said Motorola representatives weren’t surprised when the city approached them about reworking the deal.

“We’re not the first city. A lot of other cities are having to do the same thing,” Fletcher explained. “This is going to give us a lot of relief, some breathing room.”

Alderman Mike Traylor asked if city officials had looked at refinancing the loan with another company to get a lower interest rate.

The answer was no, but Traylor was told the loan could be refinanced at any time with another entity if the city finds a lower interest rate.

Durham pointed out that, under state law, Motorola can’t repossess 911 equipment and must work with Jacksonville if the city chooses to get the loan from another source.

But, he explained to The Leader on Friday, Motorola is the only state-approved vendor for the 911 system the city chose to use. The system was the most economical option, Durham said.

Refinancing the loan was one step Jacksonville took to balance the 2014 budget. Erkel presented an unbalanced budget to the council in early November. It included all funding requests from every department.

The budget presented then showed that the city had to make up for a $2.95 million shortfall by making cuts and/or generating more revenue. The council did both.

Last month, aldermen approved a $22 million budget for 2014.

It includes $40,000 in revenue from an increase in the sales tax on alcoholic beverages and more than $157,000 in cuts to employee benefits.

The tax was recently increased to 10 percent of a business’ gross profits, the same rate several surrounding cities have, according to the mayor.

He has blamed the tight budget on flat tax revenue and the city’s loss of $1 million in federal turnback revenue, which happened when the 2010 census — certified in 2011 — showed Jacksonville had lost about 1,500 of its population.

The population drop can be attributed to airmen who were overseas or elsewhere while homes were renovated on Little Rock Air Force Base, Fletcher has said.