Des Plaines committee recommends repaying debt with reserves

The Des Plaines city council’s finance committee members Monday night discussed repaying a portion of the city’s bonded debt with cash reserves to save on long-term interest payments.

Finance committee chairman Matt Bogusz said the city could pay off $810,000 of outstanding debt on a loan used to purchase land for a future fire station that never materialized, as well as refinance roughly $3.5 million of debt on four special taxing districts at lower interest rates.

“It saves $500,000 in real dollars and it also removes $100,000 from the annual property tax levy,” Bogusz said. “We need to eliminate the interest payments by paying the debt early. It will allow us to accelerate future debt payment.”

The original $1.27 million debt issued in 2001 to finance the purchase of land on the south end of the city at Lee Street and Prospect Avenue was scheduled to be retired in December 2021 but will be paid off this December, City Finance Director Dorothy Wisniewski said.

City officials had long hoped to build a fire department headquarters at that site to replace the Oakton Street station. However, the land itself cost the city about $2.5 million. Construction of the controversial fire station at the time was expected to cost an additional $9 million.

Yet, the city never had enough money to get the project off the ground, Acting City Manager Jason Slowinski said.

Over the years, the city’s cash reserves dipped and its debt increased dramatically. Officials say that course has been corrected by the actions taken over the past three years.

The city laid off 12 employees in 2009 and cut 38 employee positions through layoffs, attrition and early retirement incentives in 2010. This year, the city eliminated four administrative positions.

Bogusz said the debt acquired for the fire station land costs taxpayers $100,000 annually supported by general fund revenues. Repaying the loan early saves the city and taxpayers $198,000 over the life of the debt.

“The decision to purchase land for the prospective fire station, tear down the structures, and bond $1.27 million in debt was shortsighted,” Bogusz said.

Refinancing and restructuring the debt owed on four tax increment financing districts also will save $301,000 over the life of the loans that mature in 2021, he added.

The city’s general fund reserve balance, which was roughly 2 percent four years ago, is projected to be at 34 percent of operating expenses at the end of the 2012 fiscal year. If the city council authorizes repaying the fire station land debt early, the new cash reserve balance would be 32.8 percent or $18.8 million, Wisniewski said.

The city’s debt load is projected to go down from $70 million to $63.5 million in 2012.