by Bradley Parsons
Staff Writer
In an effort to bridge current and future budget gaps, the City is turning to . . . used cars.
An ordinance circulating through the mayor’s office seeks to establish a new pay-as-you-go replacement plan for aging vehicles within the City’s fleet. The current system requires that a fund be set aside for future vehicle replacement and repairs. Interim Chief Financial Officer Walt Bussells said the City should recoup millions by investing about half that fund with the City’s pension.
Bussells said the City would take about $17 million from the $58 million fund to pay for this year’s replacements and repairs. After contributing $5.8 million to a contingency fund, the City seeks to invest the $35 million remainder into the General Pension Fund. Bussells said the funds currently earn about 1 percent in a money market account.
The General Pension targets 8.5 percent earnings on its investments. At that rate, the City would earn more than $2 million annually. However, the fund lost 2 percent in 2002 due largely to stock market struggles following the corporate scandals and Sept. 11 terrorist attacks.
Bussells said the pension would undergo periods of “boom and bust,” but said the fund would earn money long term. The pension has earned 6.2 percent over the last six years.
“There have been times, in the past decade, when the pension fund has earned over 25 percent,” said Bussells. “If you look at a five-year rolling average, the extreme highs and lows balance out.”
Preliminary drafts of the ordinance — Bussells said four or five had already made the rounds — codify explicit criteria for deciding whether a vehicle should be replaced or repaired. Bussells said vehicles would be replaced when the cost to maintain them became prohibitive.
With the vehicle ordinance, the City will present to the Council legislation that clears the way for a “matched book” approach to City investing and borrowing.
Mayor John Peyton is counting on the new financial strategy to return $15 million to the City next year. The proposed budget lists that money as revenue.
Bussells said the ordinance would link investing and borrowing through the transactions’ durations. He said the City’s current investments mature in the short term while its borrowing is financed long term.
He said the City has been locked into paying interest rates on some bonds that have not allowed refinancing as interest rates have dropped to recent historic lows. Lower interest rates have also meant less return on money market accounts meaning, in some cases, that the City is paying more to borrow than it receives to invest.
“We’ve been paying more than we had to in net interest,” said Bussells. “We’ve missed some opportunities to reduce the cost on borrowing.”
Both ordinances will require Council approval. Bussells said the Council will consider them as a package with the budget. He said the mayor’s staff has been working with Council Auditor Richard Wallace “every step of the way,” in drafting the ordinances.
Bussells said the ordinances represented a lot of the Council’s thinking and the administration’s efforts at early cooperation represented a new approach to the budget approval process.