BENSON

— On a 3-2 vote, the

Swift County Board of Commissioners

decided to go forward with a non-traditional approach to finance the construction of a new Highway Department shop building.

They intend to award a $5 million bond to Lake Central Bank, of Benson, to finance the project, although the county has a $5 million cash reserve set aside. The county will continue to earn interest on the reserve fund, and importantly, maintain the fund for the possibility of challenging economic conditions ahead for local governments.

There is some risk involved, but Board Chair Eric Rudningen said the approach is aimed at finding the lowest-cost option for taxpayers, while also protecting the reserve funds for unforeseen needs.

“We hear people saying ‘we wish government acts more like business,’” said Rudningen shortly before the June 3 vote to go forward. “You can bet businesses right now are not trying to get rid of $5 million in assets. They’re saying: I will borrow against that so I have some leverage.”

Rudningen, and Commissioners Gary Hendrickx and Pete Peterson voted in favor of going forward, and Commissioners Edward Pederson and Larry Mahoney voted no.

Their votes were identical to those cast March 4, when the commissioners voted 3-2 to award the $5,230,028 low bid of Kue Contractors of Watkins to construct the highway shop building in Benson on the grounds of the current shop. It was among 10 bids for the project, and well below an estimate of approximately $6 million for it.

Pederson and Mahoney said the commissioners had built the reserve fund with the intent of using it to pay for the highway project. They also expressed concerns that the financing approach could cost more than projected.

Pederson said he was concerned about the impact of expected state and federal spending cuts on the county. Mahoney also noted that some taxpayers would criticize the county for holding on to their monies in the reserve account as if an investment bank.

With the vote, the county will be calling for a public hearing and taking other steps in the next two months to award a bond to Lake Central Bank for financing the project. The tax-exempt financing will be offered at a fixed rate of 4.1% over a seven-year period. It is structured to allow the county to earn interest earnings on its reserve fund.

A calculation by Northland Securities estimates that the net cost to the county for the financing will be $66,721, according to George Eilertson, the county’s consultant with the company. It is based on projections that the county will earn $794,064 on its reserve funds to use toward total costs of $5,860,785.33 on the fixed rate financing.

Along with the estimated $66,721 in net costs, Eilertson said the county would also realize costs of $18,626 for financial consultant services and an estimated $12,000 to $13,000 in legal counsel costs for issuing a general obligation bond. The reserve fund will serve as security for the financing.

The financial projections are based on current market conditions. Commissioner Rudningen pointed out that even a relatively small improvement in rates could improve the county’s earnings on its reserve funds and offset the costs for financing. But he also pointed out that a change in the other direction could increase the county’s cost.

The agreement with Lake Central Bank allows the county to pay off the financing at any point without penalty. Commissioner Pete Peterson said he initially was on the bubble over whether to pursue this route knowing the risks and costs, but said the ability to pay off the financing at any point led him to favor going forward.

Rudningen and Hendrickx said the ability to pay off the financing was critical to their support. Rudningen said the effort represented a commitment to fiduciary responsibility “to do the best for taxpayers.”

Both he and Mahoney thanked Auditor/Treasuer Katie Foley for working with Northland Securities to put together the request for proposals and provide the commissioners with a choice of options for funding the highway shop project.

The request for proposals encouraged local financing options. and it received bids from four area financial institutions. First Security Bank, Citizens Alliance, and National Bank of Commerce offered proposals along with Lake Central Bank. The Lake Central Bank proposal offered the lowest-cost option based on the analysis by Northland Securities.