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INDIAN RIVER COUNTY ,INTER -OFFICE MEMORANDUM OFFICE OF MANAGEMENT AND BUDGET TO: Members of the Board of County Commissioners DATE: February 26, 1992 SUBJECT: INTEREST RATES FROM: JosephA. B OMB Director DESCRIPTION AND CONDITIONS Recent reductions in interest rates over the last year have prompted several questions about the county's policies regarding interest charges. Below are policy questions that have been asked and my recommendations. I. Should we reduce the interest rate on existing assessments (previously approved at 12%) in order to grant relief to those wishing to finance their fees? The fixed rate of 12% fairly reflected the prevailing market conditions at the time the assessment was done. If interest rates had increased, we would not have the ability to increase the rate charged; conversely, if we took the approach of reducing rates every time the market went down (but did not increase them when they rose), we would lose a significant amount of money on the assessments. As a result, over the life of an assessment we will make money in some years and lose in others; this is no different from any other investment carrying a fuzed interest rate. I recommend that the existing assessment interest rate currently at the 12% fixed rate not be reduced. 2. What interest rate do we charge borrowers? Currently we charge 2% above our interest cost if we do a bond issue or 2% above the prime rate. (Using the Wall Street Journal as our guide for the prime rate.) 3. When are the interest rates changed? Several years ago we were changing the interest rate on petition paving assessments every time the assessment was approved. The Board of County Commissioners found this confusing and wanted it changed annually or if rates changed considerably. I recommend we set the interest rates annually in Janumy of each Year unless interest rates change considerably. 27 MBAR 0 1992 BOOK � ") �