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Interest Rates Prompt Discussion

By Staff | Jul 16, 2009

What started as a briefing on upcoming drainage repair work ended up in a discussion about interest rates being paid by Palo Alto County for stamped warrants. Drainage Engineer Don Etler broached the subject during Tuesday’s weekly meeting of the Palo Alto County Board of Supervisors.

Etler appeared before the board to report that preliminary specifications and plans for repairs to Drainage Districts 80 and 175 as a result of flooding in 2008, had been completed following study and work with the Federal Emergency Management Agency.

“FEMA has signed off on the specifications and plans, and since this is a disaster repair, we can forego some of the normal hearing and bidding procedures, so all we need is to obtain three bids on the projects,” Etler explained to the board. “FEMA estimated that the repairs to DD80 would run $196,586, and $32,659 to DD175.”

According to Etler, bids would need to be returned for the projects by August 4, and work would need to be competed by November 20 of this year. “FEMA will pay 80 percent of these costs, and the state picks up 10 percent.”

With little discussion by the supervisors, the board gave its unanimous approval to the plans and specifications.

“As part of this process, however, I would suggest that you as a board look at raising the interest rate above the three percent you are currently offering on stamped warrants,” Etler told the board. “Counties like Monona and Buena Vista are offering five percent, and others are offering six percent interest for these contractors.”

Etler went on to explain that in conversations with some contractors, concerns over the disparity in interest rates they pay for operating loans, and interest paid on stamped warrants for drainage work, was not making for attractive business conditions.

“It is my opinion that three percent is more money for interest than what the banks are paying, and I feel it is enough,” Supervisor Jerry Hofstad answered.

“Banks are paying compound interest, and you are paying simple interest,” Etler replied, “It’s not a fair comparison.”

Palo Alto County Treasurer Mary Hilfiker, who was sitting in on the discussion, sided with Hofstad. “I’d have to say three percent interest is a heck of a deal. You have to remember that Palo Alto County is not everyone else.”

“I would suggest that these other counties are behind the times,” Hofstad spoke up.

“I’m hearing that same feeling from other counties, that they need to be thinking about lowering interest like we did in light of the current economic times,” Hilfiker added. “If these contractors are hungry enough for the work, they’ll bid these jobs.”

“I agree,” noted Supervisor Keith Wirtz. “These contractors will just add a little padding to their bills to make up for the difference in interest.”

“I’m not asking you to make a decision today,” Etler told the board.

“Right now, is the interest rate we’re paying hurting us on this project?” Board Chair Ed Noonan asked Etler.

“I think that you’ll see fewer bids and higher bids, but no, I don’t think it will hurt you right now,” Etler said, bringing the discussion to a close.

In other business, the supervisors approved the Treasurer’s semi-annual Report and Settlement, noting that the county’s finances were $600,000 ahead of the same time in 2008, due in part to interest amounts paid on the county’s secondary road construction bond investments.

The supervisors approved $2,000 to Palo Alto County Economic Development to assist in the printing of economic development information for the county. The organization had contacted the county and all of the communities to assist in the preparation and printing of the comprehensive economic development document.

“Could we give them $1,500 towards this?” asked Supervisor Ron Graettinger. “We need to do something towards this.”

“I think we need to show leadership,” Noonan said, and suggested the board approve the full $2,000 request. After discussing where the additional funds would come from, the board approved the donation.