The Free Press, Mankato, MN

Local News

June 16, 2013

N. Kato study: Unpaid assessments spawned debt

Fund transfers were only short-term solution


The debt report refers to these uncollected special assessments with the only two lines in the report that are underlined for emphasis: “If the city were able to collect all of the outstanding special assessments, as originally anticipated, it would have enough cash to pay debt service and repay the internal loans. The financial planning challenge rests with the timing and certainty of the collection of the special assessments.”

An assumption in the report is that the city will collect 10 percent of its delinquent special assessments, now at a total of $721,000, annually beginning in 2013.

But the report also envisions the city relying less on special assessments to pay back its debt, and more on property taxes.

The city's original plan to pay back its $35 million in total debt called for 21 percent to be paid with property taxes and 29 percent with special assessments.

The new plan, at least as suggested by this study, calls for 37 percent to be repaid from property taxes and only 9 percent from special assessments. It also plans on paying 5 percent of debt with cash, while the original plan didn't include cash at all.

The city's original plan for paying back these special assessments involved “borrowing” the money from various city funds that had excess balances.

This is “not what you're supposed to be doing,” Freyberg said.

Moody's seemed to frown on the practice, too, warning that an “increase in interfund loans to the debt service fund” could make its credit rating go down.

The debt study includes a plan to pay off those loans by 2017.

Dehen said the council was aware of these loans to some extent, but former City Administrator Wendell Sande “carried it all in his head.”

“Not all of that is apparent to us,” he said.

Dehen said the city was a victim of a “perfect storm” of financial misfortune in the past few years — the recession and the retirements of Finance Director Steve Mork and Sande.

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