SEQUIM –– On a split vote, the City Council decided to hang onto cash reserves in the water and sewer funds and issue revenue bonds for the $3 million share of City Hall construction that will be paid by the utilities.
The council voted 4-to-3 Monday night to direct City Manager Steve Burkett and Finance Director Elray Konkel to proceed with preparations for a bond issue this fall.
“We should not be afraid to invest in our future,” said Councilman Ken Hays, who voted for the bond proposal with Mayor Candace Pratt and council members Laura Dubois and Dennis Smith.
The three dissenters, council members Erik Erichsen, Ted Miller and Genaveve Starr, worried about adding to the city’s debt load.
“It sounds like a shell game to me,” Erichsen said. “We’re betting on the outcome of what the economy’s going to be 20 years from now.”
Said Miller: “I’m old-fashioned enough to believe you should never borrow money except when there is no reasonable alternative.”
The budget for the $16 million civic center — which will include City Hall, a police station and a community plaza — included $1.5 million each from the water and sewer reserves, which have a combined $10.5 million in cash reserves.
Those offices will be relocated into the 34,000-square-foot building currently under construction on the 100 block of West Cedar Street.
Starr worried about the implications of borrowing when the city has cash to pay for the project.
“We saved that money. We need to use it for this purpose — to not incur more debt,” Starr said.
Konkel, though, recommended the bonds, saying present low-interest rates of 3.5 percent, inflation and having the cash in reserve will make the bonds cheaper than they would be if the city spent the cash in reserve.
He noted the cash set aside from the utility funds has not been spent and will not be until the city spends the $10.4 million it borrowed in a general obligation bond issued last year.
“Once we’ve spent the cash, it’s gone,” Konkel said.
The city has spent $2,973,900 on the civic center project this year.
Burkett noted that cash reserves in the water and sewer funds are part of a council-set policy as insurance for unforeseen repairs, and the bonds would maintain that reserve balance.
Miller worried the bonds would force the city to increase water and sewer rates, but Konkel said he factored in a recommendation from a study last year that said the city needs 4 percent annual growth in revenue to both funds to maintain sufficient funding for operations.
The $3 million in the utility fund savings account currently generates about $40,000 annually in interest for the city.
Lydig Construction of Seattle is building the new civic center, designed by Integrus Architecture of Seattle, under an $11.85 million-maximum contract.
It is expected to be open next summer.
Land acquisition and preliminary design costs account for the remainder of the budgeted building cost of $16,074,200.
The city is paying for the project primarily with a $10,439,000 bond issued at a 4.53 percent interest rate last July.
The first payment this year will cost the city $580,000.
The bonds would be repaid from several sources: $275,000 from a public safety tax approved by voters in 2012, which raised the city sales tax by 0.01 percent; $200,000 from elimination of current rent for city office space, including the Sequim Village Shopping Center spaces; $75,000 from the real estate excise tax; and $160,000 from excess budget capacity.
Other funding sources include $2,190,200 in reserved funds from real estate excise taxes and operational savings, the water and sewer funds, and $170,000 in expected real estate excise taxes for 2014.
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Sequim-Dungeness Valley Editor Joe Smillie can be reached at 360-681-2390, ext. 5052, or at jsmillie@peninsuladailynews.com.
