Utility Dept. CD will serve as collateral for fire truck purchase
Deal will save city on interest charges
The West Memphis Utility Commission is backing the city Fire Department’s play, putting up a certificates of deposit as collateral for a loan to buy the Fire Department a new ladder truck. The move helps the city negotiate with the bank for a more favorable interest rate. Securing a Utility Department CD is not without precedent to assist city financing needs. In the past utilities money backed loans for big ticket items like police cars and ambulance purchases. City Treasurer Frank Martin pitched the need to the board during their September meeting citing interest expense savings for West Memphis.
Commissioner Jerry Burns wanted to know if it had ever been done before.
“We’ve done it for police cars,” said Martin. “We’ve done it for an ambulance and other equipment. The bank gives us a break on the interest rate. We’ve done it before.”
The treasurer stressed that the request was to use the funds as collateral only to secure a better interest rate and did not entail cashing it out.
“We don’t cash the CD in, the utility keeps getting it’s interest rate on the CD. It’s just collateral on paper. I estimate that it probably saves the city 2 percent on the interest.” The Ladder truck cost over $900,000 with sales tax. Martin hadn’t nailed down the length of the financing and used some round numbers off the top of his head to express the savings the city would net each year by securing the loan with the Utility’s cash.
The current ladder truck is more than 25 years old according to Martin.
“We can finance it four or five years,” said Martin. “That big fire truck we will use 25 years, so we might finance as long as five years. But, Police cars, three years is about the best you can do because of wear and tear. So we look at the depreciation. And in round numbers a two percent savings on financing on one million dollars is $20,000 per year.”
Commissioner Dana Parker wanted to know where the money was coming from. Martin said payments would be made through city general funds for up to five years. Martin said the loan would come from the same bank holding the Utility’s CDs.
Commissioner Susan Marshall wanted the financial details, and Martin said the interest rate would be 2.7 percent on the loan for the new ladder truck.
The commissioners unanimously voted to allow the CD to be used as collateral in the ladder truck loan.
By John Rech