Bonuses for city directors, sewer project costs rise, inter-fund loans are likely and the city looks to the bond market for money savings.

It was a mixture of sweet and sour uncertainties at the city this week.

Cost overruns on the sewer plant, bonus payments to directors, the potential for savings on refunded bonds and the strong likelihood of inter-fund loans all added to a frenetic financial situation that seems to be changing on a daily basis.

Bonuses

In public documents leaked to the media, it was revealed that Mayor Darlene Kordonowy and City Administrator Mark Dombroski approved in December a total of $27,503 in bonuses to all five of its department heads and the city attorney in December. Another bonus for Dombroski was verified by the mayor, but the actual amount was not known.

In 2007, department heads earned $31,632 in bonuses. Then City Administrator Mary-Jo Briggs also received $6,600 in year-end bonuses.

The program, established in the late 1990s and reauthorized by the council in 2004, allows for bonuses up to 5 percent of a director’s current wage.

Bonuses were budgeted for 2008 as part of the city’s overall salaries appropriation, however, some council members questioned why the bonuses went through while the city was firming up labor furloughs and program reductions.

“I remember when the council approved the bonus-pay program, and it was an effort to keep management salaries in line with other cities of our size,” council member Debbie Vancil said. “However, we have a different circumstance today. The city is cutting costs with printer ink, pens and paper. Do you give bonuses when we’re cutting pennies? It doesn’t seem like a balanced effort.”

The mayor defended the bonuses, saying that management had to make tough decisions all year to consolidate their workforce in light of financial situations.

“We made a number of changes last year, including not filling positions that were open through the year,” Kordonowy said. “That meant that management had to step up to lead and manage the work that needed to be accomplished.”

Kordonowy said she and Dombroski would be reevaluating the program and the standards for bonus pay in the future.

Bonds

Finance Director Elray Konkel brought a sliver of positive news to the city Finance Committee, expressing his belief that the city could save up to $500,000 by refunding outstanding bonds relating to the construction of City Hall.

Those bonds, approved and sold in 1998 for over $9 million, still have about $6.335 million left in outstanding payments.

“Technically what happens is you issue new bonds to pay off the old ones,” Konkel said.

Under the terms of the 1998 bond agreement, refunding could not occur for a period of ten years, that time officially passed in Dec. 2008, allowing the city to recall the old bond and replace it with a bond at a lower, 10-year interest rate.

Because there is some control over how a bond is paid back by the city, it can be structured to give the city its maximum savings over the next two years.

“We can capture the saving on an annal basis, or structure the saving to garner them all in the first two years (of issue), that could be up to $250,000 each year,” Konkel said.

Konkel’s recommendation to the committee was to take all the saving up front.

He also cautioned that, while bond markets are seeming to settle into lower rates, fluctuations are still likely.

Sewer

It was also heard at the finance committee that there were discrepancies in the amount of budgeted expenditures for the wastewater treatment plant as cost projections have increased by almost $1 million.

Last year, consolidated projections supplied by the city’s Public Works Department put the total price tag for the plant at $14.7 million.

On Tuesday, numbers running up to $15.6 million were given to the committee as budgeted expenses.

However, discrepancies between estimates made by the finance department ($15.6 million) and public works ($15.4 million) on the total cost leave a gap of roughly $200,000 in overall expenses.

Konkel noted these amounts were budgeted expenditures, and that all actual expenditures to date were confirmed.

“I’m disappointed to learn that the all-in cost of the project includes about $700,000 to $900,000 of expenses that had not previously been identified by the administration,” council member Barry Peters said.

Rising costs were attributed to outside management and supervision expenses, rental fees for an adjoining property and an additional 5 percent of contingency reserves.

The city will need to go forward with a $7 million bond for the WWTP in March or April of this year.

Konkel expects to release a confirmed all-inclusive budget by March 1, before the council approves its bond issuance.

Loans

It is almost certain the city will have to make inter-fund loans to sustain operations until May.

“The amount of money in the city’s general fund might go negative in April,” said council member Kjell Stoknes.”

Details of the inter-fund loans were discussed, though an actual amount has not been confirmed.

Money would most likely come from the city’s water utility fund. That account is flush with almost $3.74 million in user payments.

The large sum in the account led some council members to decry utility fees, which they believe are too high.

Currently, the utility monies are sitting in investment pools with state and county agencies and are gaining 2 to 3 percent interest.

Money will have to be borrowed from the utility at an equal interest rate plus an additional loan fee to ensure there is no shorting of the utility fund, Konkel said.

Money in the water utility is earmarked for the Winslow Way reconstruction ($2 million) and other projects such as the multi-million dollar High School Road resevoir project.

Council member Chris Snow raised the concern that inter-fund loans were an issue highlighted by a recent audit of the city. He warned against being complacent with inter-fund loans.

“This shouldn’t be a routine funding mechanism,” he said. “It’s also important to make sure we don’t get into a situation of building a fund that is used to subsidize, even for a short period, our tax-supported funds.”

Stoknes was still skeptical about the loans and the ability to repay them, which he said the city needed to prove.

“The administration needs to show us at least a two-to-three year projection of revenues and cash flow that demonstrates they have the capacity to pay it back,” he said. “If they can’t demonstrate that then we have a real problem and that is what next Wednesday is about.”

The council is convening for a special finance meeting from 5-7 p.m. on Jan. 28.