Finding Text
Criteria: The USDA Rural Development loan documents and Letter of Conditions require the City to establish and maintain designated reserves for short-lived assets and debt service. Condition: The City did not establish and fund the reserves required by its USDA Rural Development loan documents and Letter of Conditions. Specifically, the City failed to: • Reserve $6,000 annually for short-lived asset replacement for the life of the loan; and • Reserve $988.31 per month for debt service, up to a maximum required reserve of $118,597. As a result, the City had not accumulated the required reserve balances as of fiscal year-end. Cause of Condition: The City did not have adequate procedures to monitor the reserve requirements contained in its USDA loan documents and to ensure that the required monthly and annual transfers were made to separate reserve accounts. Potential Effect of Condition: The City’s failure to establish and fund the required reserves resulted in noncompliance with the terms of its USDA Rural Development financing. The City may not have sufficient resources available for the replacement of short-lived assets or the payment of future debt service, and the condition could place the City at risk of violating its loan agreement and Letter of Conditions.