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Springsted Incorporated <br /> 380 Jackson Street, Suite 300 <br /> Saint Paul,MN 55101-2887 <br /> Springsted <br /> Tel: 651-223-3000 <br /> Fax: 651-223-3002 <br /> www.springsted.com <br /> MEMORANDUM <br /> To: Nancy Malecha, Finance Director <br /> Sandy Peine, Clerk <br /> From: Paul Steinman,Vice President <br /> Date: February 24, 2015 <br /> Subject: Cash vs. Financing <br /> The purpose of this memo is two outline the advantages and disadvantages of using cash vs. borrowing for a project. <br /> There are multiple objective fronts on which this question can be addressed but ultimately the decision will <br /> be based upon each councilor's personal interpretation of the facts listed below. In our experience,the <br /> following objective factors should be considered in the context of the discussion: <br /> Advantages to using cash: <br /> • Save on the fixed costs and interest costs associated with borrowing <br /> • Puts cash to use that is otherwise earning an insignificant return(in today's market) <br /> • More financial flexibility by not having fixed future debt costs <br /> • Retain your borrowing capacity for future projects <br /> o The City's remaining legal debt margin is 3%of the 2015 taxable market <br /> value of$235,656,000, minus the outstanding principal on your 2014A <br /> Equipment Certificates and USDA loan for the Fire Truck. <br /> • $235,656,000 X 3%=$7,069,680 <br /> • $7,069,680-$156,000-$331,859(after 3-26-15)=$6,581,821 <br /> Disadvantages to using cash: <br /> • Shorting yourself of cash <br /> o What are your future capital needs vs. replenishment rate of the fund? <br /> • Future users of the project do not pay for the cost if cash is used, sometimes referred <br /> to as intergenerational inequity <br />