Wednesday, June 17, 2009 | 2 a.m.
Facing declining revenue, a $150 million shortfall over the next five years and an inability to sell municipal bonds, city leaders were in a quandary last year over how to pay for their favorite downtown redevelopment projects, including the mob museum and Symphony Park.
Enter the “interfund loan,” a way to shift money from one pot of municipal dollars to another.
In November the City Council approved a plan to shift up to $80 million by interfund loan from the Sanitation Enterprise Fund to the Capital Improvements Fund. The city has insisted that the money will be repaid within a decade and that the sanitation fund can temporarily spare the cash.
But state and city officials, concerned about the ability of the city’s Redevelopment Agency to repay an $80 million loan, in the end sanctioned $15 million to be advanced.
The first major expenditure of that money — $11.5 million for renovations to the building that will house the museum — is set to be approved by the council today.
“By lowering the amount, we wanted to make sure the funds were there,” said Venetta Appleyard, the city’s manager of financial services.
Here’s how the process came about, according to Appleyard, state and city agency documents, and city responses to questions from Sun columnist Jon Ralston, who first reported the loan in January:
In October top city staffers spotlighted about $80 million in projects for which there was no funding.
The thinking was, “let’s try to keep redevelopment efforts going,” Appleyard said.
Officials said the sanitation fund — drawn from sewer fees paid by homeowners and businesses — was chosen because it had a fund balance of $148 million. Much of that money had been set aside for a sanitation plant expansion, but because North Las Vegas, which had outsourced its treatment to Las Vegas facilities, was going to build its own project, the expansion wasn’t considered urgent.
Officials said risks that the loan wouldn’t be repaid are small because an economic recovery would allow the Redevelopment Agency to sell bonds to raise money within the next 10 years.
The City Council approved an interfund loan for up to $80 million in November.
In February the state Taxation Department, which must sign off on such loans, wrote city finance guru Mark Vincent to tell him the agency had concerns that the city wouldn’t be able to repay its sanitation fund if it borrowed the full $80 million.
The following month the Redevelopment Agency was able to sell bonds that would net the agency about $75 million, reducing the need for an interfund loan as large as $80 million.
Yet city officials still wanted the state to approve a loan of up to $80 million. According to an April 27 letter from Taxation Department Executive Director Dino DiCianno to Appleyard, “city representatives wanted the availability of the additional money ‘to be able to respond to development changes as needed.’ ”
DiCianno still wasn’t sold on the idea, and only conditionally approved the smaller amount.
This month the state agency formally approved the $15 million interfund loan — with reservations.
The 10-year window to repay the $15 million “seems to us to be an unfortunate expansion of time for an interfund loan,” DiCianno wrote to Appleyard on June 1.
Some municipal finance experts say interfund loans are often used appropriately by officials with temporary cash-flow problems.
But others say such loans are often used irresponsibly by political leaders to help pay for pet projects despite any adverse economic consequences.
“Is this good finance? The answer is, this is lousy finance,” said municipal finance expert Louis Schimmel of the Mackinac Center for Public Policy in Michigan. “It’s a telltale sign that there are bad things coming down the line.”
Schimmel noted that projects paid for with interfund loans aren’t always completed and in some instances, the lending agency is never fully repaid.