Special Assessments, Part 1: What Makes Up a Special Assessment

A Special Assessment is comprised of project costs and some additional fees. The project costs are the actual construction costs that the City incurs to complete that project. There may also be some other costs such as easements that are included in the project. I'll get into a bit more detail about the process but the costs of the projects are shared with the City Commission when bids are received. Most often these do not change, however there may be unforeseen events or items that need to be added in but this is a rare situation. In this case the Commission is also notified.

When looking at a Special Assessment there are a few things that can be a little concerning. There is an amount from Specials that are being directed to the General Fund. With an assessment, there is an Engineering and Administrative Fee that is 3% of construction costs that does go into the general fund (2020 budget is $225k). This is applied to all projects and goes to the City to cover Engineering and Administrative costs of the projects, including the handling of the bonds that pay for the project over the next 20-25 years. This 3% fee goes into the general fund as that is where expenses are paid for that are incurred by City departments.

The City pays for the Special Assessments with bonds. When the City gets the bonds, they add 1% to the interest rate, another concerning item. So, if the bond they're paying is 4% they'll base assessment payments on 5%. What that extra 1% does, however, is help cover any pre-payments that are made and any delinquencies. The pre-payments are the biggest piece of this. As entities like the Park District gets assessed, they may bond out the assessment and pay it all off at once, leaving some risk/liability for the City. Eventually what happens is everything comes together in the end and ultimately, because of the extra 1%, the number of payments (number of years) are reduced. Think of it as an extra principle payment to your mortgage or car loan. The 1% goes towards the debt service and, per the West Fargo Staff I've talked to, the money does not go into the general fund. This is something different than the 3% Engineering and Administrative Fee discussed in the previous paragraph.

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