96 South Main Street, PO Box 77, Nephi, Utah 84648 - Voice: 435 623-0525 - FAX: 435 623-4735
On our front page this week
By Myrna Trauntvein
A public hearing was held prior to Nephi City Council meeting to take comments on how residents felt about an interfund loan.
There were 24 residents present but most of those were not there because of the hearing.
Mayor Mark Jones explained that a city has authority to loan money from one city fund to another and to charge the borrowing fund interest.
“In other words, we pay the interest to ourselves,” said Jones.
An interfund loan may be defined as when one municipal fund lends money to another municipal fund.
Accounting for interfund loans is similar to accounting for operating transfers.
“As a city council, we have discussed this,” said Jones. “We are taking money from the gas fund and then paying the gas fund interest.”
Equipment for city departments that was once being leased needs to be purchased from Century Equipment rather than being leased from them.
The leasing market has changed, said Jones. It is no longer best to lease but is better to buy.
Needed are three backhoes and a grader.
“After exploring funding options for replacing the street department’s grader and purchasing backhoes to replace the lease deals,” said Seth Atkinson, city administrator, “the option for internally financing these equipment items seems to be the best alternative.”
By internally financing through an interfund loan, the city saves itself loan origination costs as well as dictates the interest rate.
A long-term loan, under state statute, has a term longer than one year and the one proposed at the public hearing has a term of six years.
Utah State Legislature has provided for the provisions allowing local governments to authorize interfund loans.
A city council may authorize an interfund loan from one fund to another at such interest rates and upon such repayment terms and conditions as it may determine.
“The interest rate proposed is 2.25 percent which will go back into the gas fund, the loaning fund, to help build the fund,” said Atkinson.
Under state requirements, a city may use available cash in any fund for any other fund of the city.
An interfund loan must be in writing and specify the terms and conditions of the loan, including the effective date of the loan; the name of the fund loaning the money; the name of the fund receiving the money; the amount of the loan; the term of and repayment schedule for the loan; the interest rate of the loan; the method of calculating interest applicable to the loan; and any other terms and conditions the town council determines applicable.
“The loan payments will be set aside for further capital money for future needs,” said Atkinson.
The term and repayment schedule may not exceed 10 years.
In determining the interest rate of the loan, the council must apply an interest rate that reflects the rate of potential gain had the funds been deposited or invested in a comparable investment.
If the term of the loan is more than one year, the interest rate may not be less than the rate offered by the Public Treasure’s Investment Fund that was created for public funds transferred to the state treasurer or a United States Treasury note of a comparable term.
For an interfund loan, the city council must hold a public hearing; prepare a written notice of the date, time, place, and purpose of the hearing, and the
proposed terms and conditions of the interfund loan; provide notice of the public hearing in the same manner as if the hearing were a budget hearing; and, following the public hearing, authorize the interfund loan by ordinance or resolution in a public meeting.