Troy Council considering equipment loan

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The Troy City Council tabled discussion of a new backhoe purchase at their Oct. 17 meeting, after a discussion that went into some of the finer points of municipal finances.

Compounding the discussion, the council was at the same meeting considering whether to renew a Certificate of Deposit with First Montana Bank for $235,000.

That renewal — with First Montana offering to exceed returns and match early withdrawal allowances offered by the Montana State Short Term Investment Program, or STIP — was approved by the council on Oct. 17.

The City is considering financing the purchase of the new backhoe, estimated to cost around $100,000. However the actual financed amount — set off by a down-payment and the sale of the existing backhoe — would be about $36,000.

That amount presumes a sale of the existing backhoe for $25,000, and could change depending on the final sale price.

The council also approved the sale of the existing 2002 580 Super M backhoe loader with just under 5,000 hours on it. The minimum bid is $22,700, and bids will be accepted by the city until 5 p.m. on Wednesday, Nov. 21.

More information on the 2002 backhoe is available at Troy City Hall.

Government funds

Council Member Chuck Ekstedt fist raised the question of whether the city could use some of the money from the CD to cover the financed amount, and pay interest to themselves instead of to the bank.

City Clerk/Treasurer Tracy Rebo explained that the money in the CD shows in the city’s accounting under separate funds for several city departments.

First Montana offered to the city to allow them to use the CD as collateral for the loan rather than the equipment, Rebo said.

An offer First Montana emailed to the city states that the city could move funds from the existing CD into a separate CD earning the current APY, which is 1.26 percent.

That money would serve as security for the loan while still earning interest over the five year term of the loan. The interest rate on the loan then offered by First Montana would have been 3.26 percent, or 2 percent over the earning rate for the security amount.

However, by approving the renewal of the CD under the terms designed to compete with STIP, the city no longer has that option, Rebo said in a Nov. 1 phone call.


If the city chose to, under the terms of the CD with First Montana Bank, it could still withdraw funds from the CD.

This was an important consideration for the council in going with the CD rather than STIP, which also allows withdrawals, since the funds are designated within the city’s accounting for covering costs such as emergency repairs to the sewer.

In regard to the need to keep that money intact, Council member TJ Boswell noted that the city has a sewer system that is over 20 years old, though he said later that a severe emergency might exceed the funds available through the CD.

Additionally, Rebo pointed out that a recent audit of the city’s finances showed the sewer fund is in danger of being completely out of compliance if it were allowed to go much lower.

A fund in this case is an accounting word that does not relate to a specific bank account, but rather tracks how much of the money the city has on hand must be used for a specific purpose. The money in the CD belongs to several different funds, and one of them is the sewer fund.

If money were taken out of the CD to pay for the backhoe, a portion of that would count against the sewer fund for accounting purposes.

Removing money from the CD could make the sewer fund completely out of compliance, Rebo said.

Alan Gerstenecker, the editor of the Kootenai Valley Record, broke into the discussion. He offered a comparison of the difference in interest earned on a CD at 2 percent — the rate offered by First Montana would be 2.12 percent based on the most recent STIP rate — and the interest that would be lost per month if the city took out $70,000 or $75,000 from the CD.

“I can’t see us giving the bank your interest money,” he said.

Rebo re-explained that the sewer fund is not currently in compliance, and a withdrawal from the CD would make that situation worse.

After some discussion by the council, Gerstenecker said that the city would still make $3,300 a month interest even off $165,000 at 2 percent.

“I don’t think you have your decimal point right,” Rebo responded.

“No, I do,” Gerstenecker said. “It’s 2 percent. You multiply the number times .02. I do taxes, OK?”

This led to some disagreement in the audience regarding the advantages and disadvantages of a loan.

On Nov. 1, Rebo confirmed that interest earned on the CD is rolled back into the CD, increasing the interest earned the next month.

Over the next five years at the current rate, the $235,000 CD would earn an average of $443 a month.

Over 5 years, $36,000 in the CD would accrue $4079.24 at the current rate — approximately $68 a month.

Under the most favorable loan rate — a variable rate offered through the state — of 3.15 percent presented at the Oct. 17 meeting in documents distributed to those in attendance, the city would pay $2,957 in interest over five years.

Under the highest interest rate presented, the city would pay $5,109 in interest over five years.

The council is expected to discuss the loan further at their regular work meeting on Wednesday, Nov. 14.

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