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Elimination of sinking funds could free up millions in city revenues

Justin Addison, Editor/Publisher
Posted 2/9/21

The Fayette City Council is considering the elimination of multiple sinking funds that throttle the city’s access to its own money. Fayette currently has $3,322,913.45 spread over nine sinking …

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Elimination of sinking funds could free up millions in city revenues

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The Fayette City Council is considering the elimination of multiple sinking funds that throttle the city’s access to its own money. Fayette currently has $3,322,913.45 spread over nine sinking funds. Because the money is sequestered into these individual accounts, the city can’t use it for projects such as street repairs and other infrastructure needs. Monies in those funds may only be spent on previously specified uses. 

Elimination of those funds would free up millions of dollars to be put in the city’s general revenue fund to be used at its discretion.

“These sinking funds…this is not how cities do business,” said Nathan Nickolaus, the city’s attorney. 

Nickolaus said that sinking funds act as limitations placed by former city councils on future councils. “Councils from the past were trying to set aside money that you all, as the new council, wouldn’t be able to touch. They can’t do that.”

Currently, Fayette has nearly $396,937.13 in the industrial fund that isn’t being used. From July 1999 to December 2016, the city placed 10% of the 1% sales tax in the Industrial Park Fund, which totaled $355,212.54.

“We have police radios we need. We have employees that didn’t get a raise this year,” said East Ward Alderman Stephanie Ford. “We have things that this money could be helpful with right now.”

“There are a lot of important things that need to happen that haven’t happened because we’ve been broke. And we’re not really broke. The money’s just not allocated properly,” she said.

The issue of the sinking funds was a topic of conversation at the city’s latest Board of Aldermen meeting on February 2. City Administrator Tyler Griffith proposed the city forgive a loan made from the Electric Sinking Fund to the Industrial Fund in the amount of $238,557. The city could therefore keep that money where it may be used, rather than deposit it into a fund that pays for little other than some economic development costs. 

On June 15, 1999, the city advanced $288,557 from the electrical fund to the industrial park fund in order to construct what it called a “Speculative Building,” in the J.T. Golden Industrial Park. Eight years later, on Jun 5, 2007, the city paid back $50,000 of the note. The 20,000 square-feet shell building was erected with the hope of attracting businesses to town. The building’s interior was largely unfinished so that potential businesses could customize the inside, which could have been divided up into as many as 10 sections. But despite the intent, the building sat empty for more than two decades. In October of 2020, the city sold the building and an adjoining lot for $181,330.70, to Ausama and Mohamed Elrai, owners of Tubruck Investments LLC, so they could expand their wholesale spice business, MNE’s Food Products. That $181,330.70 was placed into general revenue when the city sold the industrial building.

According to the city’s agreement with itself, interest on the loan was to be paid starting on June 15, 2000. No interest or any other monies, except for the $50,000 payment, was ever paid toward the loan.

“What my recommendation is for the board to vote on forgiving this loan after seeking the advice of a CPA and city attorney,” Griffith proposed to the city council.

Ultimately, the council voted 4-2 to forgive the loan. Northwest Ward Alderman Pat Roll and Southwest Ward Alderman Grafton Cook were the two dissenting votes.

“What the sinking funds did, was make (the city) not make a budget,” Roll said. “Buying vehicles should be a budget item, not a sinking fund item. It hamstrings how this board wants to use the money.”

Before the matter of the sinking funds was brought up, the council revived the discussion of asking for a 1% sales tax in Fayette for the purposes of public safety. It is not likely the matter would be placed before voters until April of 2022. But the elimination of the sinking funds could keep the burden of further taxation of the backs of Fayette citizens because it would allow for funds already held by the city to be used for such matters as public safety.

During the meeting, City Marshall David Ford told the council that the police department is mandated by the state to upgrade its radios by 2024. The upgrades are estimated to cost around $55,000. Ford also said the city needs to raise the pay of officers. Fayette currently pays $12.75 per hour, while nearby communities pay their police more than $15.80 per hour. Howard County deputies start at $16.10 per hour.

With the release of monies currently held in the various sinking funds, it is possible to implement such changes without further taxation.

“The irony of this discussion now is that half an hour ago we were talking about a sales tax,” said Cook. “We’ve got more than $3 million sitting here.”

Former interim City Administrator John Hancock urged the city to remove the sinking funds and place the money into the general revenue account. 

The council will explore the elimination of the sinking funds in future meetings.

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