With two options to purchase a new pumper for the fire department, the El Dorado City Commission was split on the decision on how to pay for the truck.
They voted 3-2, with Commissioners Bill Young, Nick Badwey and David Chapin approving a lease agreement with Intrust Bank for 2.59 percent.
The lease payment would be $8,088.27 per month and the city will receive the truck at the end of this year.
The discussion began when Mayor Mike Fagg asked how much interest the city receives on its equipment reserves now, which was a quarter of a percent. There is currently enough in the equipment reserve to pay cash for this fire truck.
“This is just me,” Fagg said. “I figure on half a million dollars, 2.59 interest is $12,000 the first year. Why wouldn't we pay cash? We could save enough to buy a new police car.”
Commissioner Nick Badwey said they wanted to save that money in the reserve to go toward a new arial platform fire truck in 2015, which will cost $1.2 million.
Fagg pointed out paying cash would save the interest and save staff the work on making the monthly payment.
“We could take the money we would be making on payments and put back in this (equipment reserve),” he said. “We'd be making payments to ourselves.”
“It's about your comfort level,” said Herb Llewellyn, city manager. “Mike is right. We're not making any money on the interest. We put it back at the end of the year just because we knew these things were coming. There was absolutely discussion on paying cash. We just put the money in last year because we had money we didn't spend.”
Fagg then asked what the rate was on temporary notes, to which he was told it was really low.
“That's our backup to me if something comes up,” Fagg said. “I'm saying you'll save enough to buy a police car.”
Commissioner Bill Young didn't want to be in a position in two years where they needed to buy an arial platform, not have the money in the reserves and they were going out for a lease for $1.2 million instead of $400,000.
“Especially with uncertainty of interest rates at that point,” he said.
Commissioner David Chapin said, “I rely on you (Llewellyn) as our person of contact with the city to come up with the right decisions that are money smart and I totally agree with what Mike is saying but at the same time money is being spent at either end.”
Llewellyn said the reason they lean more toward a lease is because they wanted to keep the lease payment on the arial platform manageable.
Page 2 of 2 - Fagg also pointed out in 2015 they would have two payments.
Commissioner Chase Locke said he understood what Fagg was saying, but also agreed he didn't want to be scrambling on such a big purchase in two years.
Fagg then mentioned the temporary notes again.
“The expectation with temporary notes is you are going to go to bonds,” Llewellyn said. “While the useful life of a fire apparatus is 20 years for us, I can't see I'd ever recommend you make payments on a truck for 20 years. Five I am real comfortable with, 10 I could live with, but I don't ever see me asking to issue debt longer than that on equipment.”
Badwey reminded them of the arial that would need to be replaced in 2015.
“I'm just afraid of putting us in a position where we have challenges in 2015,” Badwey said, “which is absolutely necessary to fight fires downtown and in the industrial park.”
Chapin said he was OK with a lease purchase.
“That's what's been planned on,” he said. “You seem to have wanted to go that direction for some reason.”
Llewellyn also mentioned they could pay off the lease at any time.
Chapin made a motion to approve the lease agreement, which passed.