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Bainbridge City Council approves inter-fund loan to avoid insolvency

The city council has approved a $600,000 inter-fund loan to keep the city afloat until property tax revenues are received this May.

The move comes on the heels of warnings by the city administration that the city could run out of money in its general fund, and become temporarily insolvent, if a short-term loan mechanism was not approved by the end of February.

Under the terms of the loan, the city can borrow up to $600,000 from the water utility during 2009 to shore up it's general fund. All inter-fund transactions would have to be approved by the city council.

The city would then have to pay back the amount borrowed from the water utility by December 15, 2009.

Numerous rate payers spoke out against the measure at Wednesday's meeting, while council members debated the merits and shortfalls of the loan weighed against other, limited alternatives.

"I don't see that failure is an option," said council chairman Kjell Stoknes. "We need to give the city the flexibility to pay its bills."

The water utility has close to $4 million in cash reserves. Much of that money is earmarked for the Winslow Way reconstruction.

Currently, those funds reside in county and state investment pools, earning roughly 2.75 percent annual interest.

Under terms of the agreement, the money borrowed would be paid back to the utility at a rate of 3 percent. If the city missed its Dec. 15 deadline, interest would continue to accrue until the full amount is repaid.

Major arguments against the loan revealed that the money, while insured in investment pools, would not be insured in the city's general fund.

The council also discussed issuing warrants, tax-anticipation notes and asking for lines of credit as alternatives to borrowing from the city's water utility.

Most proposals were rebuffed based on higher interest rates and the longer time period it would take to set up those lending mechanisms.

A counter proposal to the inter-fund loan, presented by council member Bill Knobloch, was aimed at freezing city services and spending to acquire the $600,000 the city estimates it will need to borrow this year.

When asked by Knobloch how the city could save $600,000 by the end of the month, City Administrator Mark Dombroski said that basic municipal services, required under state law, would be crippled.

Council member Debbie Vancil opined that the $2.3 million in cuts, approved two weeks ago, should have been more extensive to avoid reliance on inter-fund loans.

"Obviously we didn't cut enough when we cut $2.3 million," said council member Debbie Vancil. "The first thing we need to do (before agreeing to loans) is to stop the bleeding."

Part of that $2.3 million cost-cutting package, approved by all council members, was an agreement to find a way to accrue short-term liquidity for the general fund.

The city administration will present another round of cost-cutting measures by the end of March. Based on the options presented at the meeting and further city cuts that are in the pipeline, the majority of the council voted to approve the inter-fund loan.

"We've already demonstrated the willingness to make the cuts," Stoknes said. "It's now our responsibility to give the administration the tools to keep the city afloat."

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