Fiscal Note
The proposed land contract amendment contains three changes with a direct financial impact. First, the payment schedule would be lengthened from the current ten year contract with semi-annual payments and a balloon payment of $741,348.94 due on January 30, 2014. The amended contract provides for a twenty-five year term with semi-annual payments and no balloon payment due at contract completion on January 30, 2036. Second, the interest rate would be reduced from the current five percent to a new level of three percent. And third, no payment would be due on January 30, 2011. This payment would be rolled into the new financing package, with the new schedule of semi-annual payments commencing on July 30, 2011.
The new contract would have both short term and long term impacts. In the short term, the City would earn less interest revenue in each of the years 2011 through 2013. Lost interest revenues would amount to $29,721.42 in 2011, $15,001.60 in 2012, and $13,336.92 in 2013.
In the long run, however, interest revenue is increased as the payments are made over a much longer length of time. Beginning in 2014, interest revenues would be higher in each of the years through contract end in 2036. Total net interest revenues would increase by $231,509.18 under the new contract over the next twenty-five years.
In addition to the direct effects of the new land contract, there are at least two indirect financial impacts to consider. First, keeping the two facilities in nonprofit private sector hands has allowed the City to avoid payment of an operating subsidy. This subsidy amounted to $237,616 in 2003, the last full year of budgeted subsidy. And second, the current nonprofit management group has indicated that the financial relief provided by the refinancing will be used to implement a new capital improvement program. To the extent that the two facilities are kept modern and up to date, the City would benefit in the event of a default on the land...
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