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Bonding may be used to cover Cottage Grove City Hall costs

The Cottage Grove City Council may consider bonding to pay back city funds used to finance construction of the new City Hall. (Bulletin file photo)

The Cottage Grove City Council may consider bonding to repay an interfund loan used to build the $14.99 million City Hall.

The council will hold a public hearing on whether to secure a general obligation capital improvement bond to shore up funds it tapped for the municipal building construction. It is the same type of bond that was initially proposed as a City Hall funding source, before the city changed course amid public opposition.

"A G.O. capital improvement bond is a full faith in credit of the city behind it. The city is literally on the hook," Finance Director Robin Roland said in an interview. "The city has to levy taxes in order to pay the bonds back and the bond is a financing mechanism."

The issuance of a G.O. bond, Roland said, would erase the interfund loan debt and allow "financial flexibility" during upcoming annual city budget preparation.

As it planned a new City Hall, the council in 2011 intended to use capital improvement bonds to fund the project. But citizens who were unhappy with the project collected signatures on a petition to trigger a public referendum on the funding plan. Because the building was a "necessity," Roland said, the council reversed its decision to use capital improvement bonds and instead used cash the city had accrued over the years. There was no public referendum on cash financing.

"Under state law, we have roughly 18 months after the completion of construction to issue G.O. capital improvement bonds to reimburse the city for expenditures," Roland said. "We are still within that 18-month window, and in order to budget accordingly we wanted to know fairly quickly if we are going to issue this bond to know what to put in the levy for next year."

The council could forego seeking G.O. bonds and opt to continue repaying the city funds as it currently is with the property tax levy, Roland said, adding the recommendation is merely to "show that the city has options."

If the council supports the issuance of G.O. bonds, citizens opposed to it would have 30 days to respond with a petition that could trigger a public vote.

With a public hearing on the matter set for the council's next regular meeting, Roland said she is hopeful the city will be given the green light.

"We anticipate just substituting the amount we're repaying in the levy for the interfund loan to repay the bond," Roland said. "The money is already in the city levy, we would just be redirecting it toward the bonds. I wouldn't anticipate an increase in the levy."

The public hearing is scheduled during the regular Cottage Grove City Council meeting at 7:30 p.m. Wednesday, July 17.