HomeMy WebLinkAboutRESOLUTION 2002-18Suggested by: Administration
City of Kenai
RESOLUTION NO. 2002-18
A RESOLUTION OF THE COUNCIL OF THE CITY OF KENAI, ALASKA, PURSUANT TO
KMC 22.05.045, SETTING THE RATE OF INTEREST TO BE INCLUDED IN NOTES
TAKEN ON SALE OF CITY LANDS.
WHEREAS, KMC 22.05.045(b)(2) provides that where notes are taken by the City to
finance the purchase of City lands, said notes shall bear interest at a rate to be
determined by Council by resolution; and,
WHEREAS, the current interest rate for land sales was set at 10% in 1981; and,
WHEREAS, AS 45.45.010(b) sets in maximum interest rate for a loan under $25,000
at the discount rate for the 12t~ Federal Reserve District plus 5% unless the
transaction falls under an exception such as credit unions, credit cards, retail
installment loans, small loan companies, interstate banks or premium finance
agreements; and,
WHEREAS, the City does not fall under one of the exemptions; and,
WHEREAS, pegging the interest rate to a set percentage above the discount rate would
also provide flexibility to the rate the City charges, which would reflect market
conditions and make purchase of City land more attractive.
NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF KENAI,
ALASKA, that until change of interest rates by further resolution, the interest rates to
be applied in notes taken on the sale of City lands pursuant to KMC 22.05.045 shall
be five (5) percentage points above the 12t~ Federal Reserve District's discount rate
(the annual rate charged by the federal reserve for advances to member banks).
PASSED BY THE 'COUNCIL OF THE CITY OF KENAI, ALASKA, this 17th da~of April
2002.
ATTEST:
Carol LJ F~e~ Cit~ Cle;k
ILLIAM S, MAYO R
Approved by Finance:
CITY OF KENAI
210 FIDALGO AVE., SUITE 200 KENAI, ALASKA 99611-7794
TELEPHONE 907-283-7535
FAX 907-283-3014 ~
1992
MEMORANDUM
TO'
FROM('/~/
DATE'
RE'
Mayor Williams and City Council Members
Cary R. Graves, City Attorney
April 9, 2002
Interest Rate on Land Sales
KMC 22.05.045(b)(2) provides that notes on the sale of land by the City shall bear interest at a rate set
by council resolution. The current interest rate was set in 1981 at 10% (Resolution 81-36). Obviously,
interest rates have changed a great deal since then. The discount rate (the rate the Federal Reserve
System charges its member bank for advances) now is 1-1/4%. According to a Federal Reserve
System website, in April 1981 it was 16%. That was when Paul Volcker (Allan Greenspan's
predecessor) ratcheted up interest rates to curtail inflation. At the time the Council set the 10% rate, it
was 6% below the discount rate. In 1981, 10% was a very attractive interest rate.
AS 45.45.010(b) sets the legal rate of interest for loans under $25,000 at 5% points above the discount
rate charged by the 12th Federal Reserve System (San Francisco). There are several exceptions to that
limitation: 1) bank credit cards; 2) retail installment loans; 3) premium finance agreements; 4) small
loan companies; 6) credit unions; and 7) inter-state banks. We do not fall under one of the exceptions.
I checked with the Alaska Division of Banking, Securities and Corporations and confirmed the interest
rates' applicability to the City.
The Inlet Woods lots are almost all under $25,000. Therefore, the legal rate of interest is 5% plus 1-
1/4% or 6-1/4%. However, the rate set by the resolution is 10%. We can't legally charge that for land
sales under $25,000 until the discount rate goes up. To resolve that problem, now and in the future, the
rate could be tied to the legal rate of interest as set out by AS 45.45.010. That way we would never be
out of compliance with state usury laws.
Attached is a resolution establishing a new interest rate for city land sales at five points above the
discount rate charged by the 12th Federal Reserve System.
Please let me know if you have any questions.
Attachment