COLUMBIANA - The city is looking into borrowing money from the sewer fund to pay for a new fire truck already ordered by the fire department.
City Council discussed the matter Tuesday, with City Manager Lance Willard explaining that borrowing the money is less costly than going forward with a contract with Community Leasing Partners, the original financing entity.
Fire Chief Rick Garrity told council last year the department needed a new ladder truck and the money for the down payment was already available in the fire levy fund. He said the 79-foot-tall, 26-inch-wide steel ladder truck is the largest in the industry and has the highest side rails in the industry.
Council approved his request then and the truck's total cost is $585,432.
The truck was manufactured through Pennsylvania-based KME and is ready to be delivered soon, Garrity said Tuesday.
Finance Director Mike Harold said the department has enough in fire levy funds to make the $385,432 down payment and the remaining $200,000 will need to be financed, whether through borrowing from the sewer fund or another entity.
The levy generates about $240,000 a year and expires in 2015. The city plans to have the truck completely paid for by that time.
Willard, Harold and council began considering other financing sources after Municipal Attorney Daniel Blasdell said he didn't approve of the terms of the Community Leasing Partners contract and wouldn't recommend moving forward with them.
He said he didn't have any issues with the company, but did not believe the terms were beneficial for the city. When asked what he objected to after the meeting, he didn't offer specifics, only stating that the interest rate was "considerably high."
The city received the contract for the first time July 25, Harold said.
Willard said once Blasdell voiced his concerns they looked at financing through two different banks and taking out a note through Squires and Sanders.
Harold said one bank didn't do leasing and the other had similar terms to the Community contract, so Blasdell didn't recommend that either. The financing on the note through Squires and Sanders has not been made available yet, so it wasn't discussed much during the meeting.
Willard said the city has never before leased equipment through Community Leasing Partners.
Blasdell said what he didn't agree with in the contract, and the other similar contract, is a new practice by lenders to protect their interest payments from taxation, and that could potentially be a liability to the city.
He suggested council move forward with borrowing from the sewer fund, and said it is legal to do so.
He and Willard said they contacted the state auditor's office to make sure the borrowing of funds is allowable under state law, and they were advised it was.
Blasdell noted during the meeting the city has done the same thing with the electric fund over the years.
Councilman Bryan Blakeman voiced his concerns about the borrowing and believes it is "equivalent" to taxation without representation.
He doesn't believe the city should use enterprise funds to cover other costs, as those funds are fed by customer bills.
"To do this just because it removes somebody from liability or risk is not right ... we are sending the message to everyone in this city that your utility bills, no matter whether we say it is not true, we have used your electric bills to pay for things outside of these funds. So if we are bringing in money to pay for them and we have extra money sitting in those funds then our rates are too high."
Willard said borrowing from the sewer fund will have no effect on the utility rates, and Councilmen Richard McBane and Lowell Schloneger argued Blakeman's statement was not accurate.
The men said the funds need to have money for contingencies.
"If something goes wrong with the sewer plant, a new requirement, whatever happens, we get sabotaged, we have the money to pay for it. And that's where businesses fail that are under-capitalized," Schloneger said.
He added that spending $13,000 on the Community Leasing Contract takes money away from taxpayers that could be spent on other things, like paving streets.
Willard said the city would pay $13,000 plus interest through that contract, whereas borrowing from the sewer fund will result in only about $1,400 over two years in interest.
Blakeman continued to argue residents would be paying twice, in the fire levy and through utility bills, which he stressed are too high in the first place.
"We agree to disagree. The only reason you get attacked, if that's what you just called it, is the way you present it, and you present it like we are stealing money from somebody," Councilman Tom Ferguson said.
To which Blakeman responded, "I believe we are taking money."
Blasdell said Blakeman's taxation argument is not valid and referred to an Ohio Supreme Court case in which the court judged in favor of the municipality doing a similar thing.
Harold said the sewer fund received about $1.2 million from last year's sale of Firestone Farms and is currently at $1.5 million.
Garrity urged council to make a decision soon.
"We've known that we've had to pay for this truck since December and now we're at the zero hour and I still don't know how we're going to pay for this thing. It's very frustrating," he said.
Council members approved authorizing Blasdell to draft a resolution allowing for the borrowing of funds and a special meeting was set for 6:30 a.m. Saturday to vote on the resolution.
The terms of the borrowing will be specified in the resolution and council also approved including a clause that sewer rates will not be affected during the term of the borrowing, which is over the next two years.