City of Hudson plans to borrow $700,000 from itself

by Laura Freeman | Reporter Published:

Hudson -- The city will try a new way of financing one of its debts. It will loan itself the money and pay it back in a year with interest.

"Neither a borrower nor a lender be," said Council President Hal DeSaussure at the July 8 workshop, quoting Shakespeare. "We violate it on both ends, but I think it's a creative way [to pay the debt]."

The city issued $1.4 million in short-term notes to pay Baumann Enterprises Inc. to remove hazardous materials and demolish 14 buildings at the former Youth Development Center on 135 acres on the south side of Hines Hill Road in the summer of 2013. The 135 acres is part of 429 acres purchased by the city in 2009 from Cuyahoga County for $6.9 million. The property contained a school, seven dorm-like cottages, three administrative buildings and other structures.

Normally, larger notes are sold in order to issue long-term bonds, but Finance Director Jeff Knoblauch said the amount is small and due in one year.

"We haven't done it in the past because our debt issuances have been larger, long term and more permanent in nature," Knoblauch said.

He proposed a new way of paying a city debt. The city would issue a new, one year note for $700,000, which would be purchased by the city at a rate of 0.25 percent.

"When the new note matures, we will pay ourselves the interest," Knoblauch said. "We have the funds. One year, simple and short."

Keeping the loan in-house reduces staff time involved and the city saves on issuance costs, he said.

The current plan is to pay off the remaining $700,000 in 2015 so there will be no need to use this method again for this particular issuance, Knoblauch said.

"We're not paying ourselves very much," DeSaussure said.

"We're not paying someone else," Knoblauch added. "It's an investment of the city treasury and a journal entry on the books."

"It's a great thing to do," Council member Keith Smith said. "It utilizes the balance sheet for other projects."

Email: lfreeman@recordpub.com

Phone: 330-541-9434

Twitter: @LauraFreeman_RP

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