Pale City Finances In Need Of A TAN–Borrowing To Pay Operating Expenses

Analysis and Comment, City Budget, City Council6 Comments

This item on tonight’s City Council agenda is expected to be referred to the Budget and Appropriations Committee:

Communication from Finance Department re: Approval of Tax Anticipation Notes to Pay Current Expenses and Obligations of the City ($110,000,000), referred to Budget & Appropriations Committee.

The city borrowing to pay operating expenses has become common practice, but it also points out the city is running low on cash. Tax Anticipation Notes (TANs) provide short-term borrowing at a low interest rate that is paid off as tax revenues come in. Historically the city uses this practice as it approaches the end of the budget year. The city is now into its eighth month for the budget year that ends June 30. TANs are used to finance operating expenses as well as capital improvements such as roads, buildings and bridges.

See the full council agenda here.

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6 comments

  1. Is there anything to stop them from borrowing against next year’s taxes to pay for this year’s expenses? I certainly wouldn’t put something like that beyond them.

    And a question for JML:
    These tax anticipation notes aren’t free. Have you ever seen this expense show up in the budget anywhere?

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    1. Booty,
      Regarding the tax anticipation notes: they are issued for short-term periods (say 3-4 months), less than a year, and interest rates for borrowers continue to stay at a reduced level from former years. So the cost to borrow by the City is not a cost barrier from this point of view. However, one assumes there is some legal expense incurred and probably earned by the bond counsel to the City. And there may be some issuing expense also.

      There is a section in the Monthly Financial Analysis report #01600 titled General Purpose Bonds Payable. Line item 53213 is titled Tax Anticipation Notes and the budgeted expense for 2012-13 for this item is $439,950 that is less than interest payments (Line Item 53210) budgeted of $2,759,781. Through the first four months of the year (September, 2013) $2,363,928 had been spent of a projected $3,724,731. It is interesting to note that NO funds are budgeted for PRINCIPAL PAYMENTS (Line item 53205) in this year’s budget category.

      Ask your Council Rep some questions about this in person. Invite them to have their copy of the latest monthly report to show you the totals in the latest monthly report. By the Charter they should have had December 10 days ago. Why did they only have October? Keep asking. Time will tell.

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