Muskego Spending Resolution Prompts Tutorial on Borrowing

The very first item on the new business portion of the Common Council's agenda was indicative of how the night was going to go.

The resolution for borrowing $14.5 through the issuance and sale of general obligation promissory notes was at issue.  The money would in large part fund the major road projects in Muskego, including Durham Drive, Janesville Road and Pioneer Drive.  Paul Thompson, Executive Vice President with Hutchinson, Shockey Erley & Associates, a public financing firm, presented the advantages of using the short term notes to offer flexibility at a low interest to the city.

The notes, he explained, allow for a two-year term on the loan at 1.6 percent interest. The city would also have flexibility in regard to projects funded by the program as well, as dollars that aren't all spent for one project can be used to fund others. 

Longer-term bonds however, require specific project totals, and if all of the money borrowed is not spent, the city would still have to pay for the full loan amount for the entire term, which can be 10 to 20 years at a higher interest rate of four percent. In addition, money could not be applied to other projects even if the actual costs fall short of what is borrowed.

While it would seem that the first option would have appealed to everyone, the council was not in a mood to agree Tuesday night.

Alderman Neil Borgman explained, "to just borrow a pot of money to spend some here and then some here might work for a business, but we're supposed to be stewards of the public's money, not keepers of the slush fund."

Alderman Dan Soltysiak agreed, saying that he "wasn't comfortable with that kind of flexibility," and he preferred "nailing down the costs of projects now."

However finance director Sharon Mueller cautioned the council that even if they were OK with borrowing via notes, any changes to the amount of the notes would require that the process start all over, which could cost as much as $25,000.

Thompson also said restarting the process might mean the cost of borrowing would be higher than 1.6 percent.

An amendment introduced by Alderman Kert Harenda, which would have removed $1 million from a contingency fund for Janesville Road, $2.5 million in funds marked for Pioneer Drive along with other spending, brought the total amount to approximately $8.2 million.  It was defeated on a vote of 4-3, and the original resolution passed on the same margin.