CCP 03-16-1998 - Laserfiche WebLink

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CITY OF ARDEN HILLS . MEMORANDUM DATE: March 12, 1998 TO: Brian Fritsinger, City Administrator FROM: Terrance Post, City Accountant ffij;) SUBJECT: Interest Rate on Unpaid Assessment Balances Backerollnd At the February 23, 1998 Council meeting, Council directed staff to report and recommend on the use ofa specific interest rate factor for the 1998 Street Improvement assessments for the March 16, 1998 Council Worksession. An eight percent (8%) interest factor has been used each year since the adoption of the Assessment Policy in November, 1990. Statutory/Policy Direction Minnesota Statutes 429.061 "Assessment Procedure"; Subdivision 2, "Adoption: Interest" . provides only limited guidance with respect to interest rates by stating, "All assessments shall bear interest at such rate as the resolution determines." The City of Arden Hills' Assessment Policy deals with this subject on page 6; "Interest Rate on Unpaid Balance" by stating that it shall be calculated based upon the cost of financing over the life of the assessment, plus any associated overhead costs." The policy presumes such projects will be externally financed and is silent on providing direction on internally financed projects. Use 0(8% Interest Factor When the Assessment Policy was being discussed for adoption in 1990, yields on five year, seven year, and ten year Treasury Note securities were 8.37%, 8.52% and 8.55% respectively. Even though these rates would have been reasonable to assess in that year, the existence of an eight percent (8%) usury maximum at that time limited such application since the Assessment Policy specifically allows for up to a ten (10) year assessment period, The following historical data for average yields on ten year Treasury Note securities from the Federal Reserve are provided below: 1991 7,86% 1995 6.57% 1992 7,01% 1996 6.44% 1993 5.87% 1997 6.35% 1994 7.09% 1991 - 1997 Avg, 6.74% .