PIERRE, S.D. (KELO) — Local governments that receive loans in the future from the South Dakota Department of Transportation highway projects will have to pay more.
The state Transportation Commission on Thursday scrapped the standard 1.75% interest rate.
Going forward, the commission will base the rate on what state government’s cash-flow fund has been receiving. The commission will use the cash-flow fund’s three-year average.
The commission also decided to add a quarter-percent of interest to offset the department’s administrative costs.
The three-year average from the cash-flow fund was 2.45%. Combined with the 0.25% administrative offset, that means the total interest rate will be 2.7% for the coming year.
The commission plans to review the rates each year in August or September. The commission also reserved the discretion to charge a different rate, if there are unusual circumstances behind an application.
The commission has considered and approved several loans during the past few years. The Legislature gave authority to the commission in 2017 to “to establish procedures for the application and approval of loans to local government highway jurisdictions. The jurisdictions may use the money for the marking, constructing, reconstructing, repairing, and maintenance of the highways and bridges of the state pursuant to terms and conditions determined by the commission.”
The vote to make the rate changes on Thursday was 7-1. Commissioner Larry Nelson of Canton cast the no. One of his questions was whether any other state agency charges for administering loans.
Transportation Secretary Joel Jundt said the state Department of Agriculture and Natural Resources charges a half-percent.
Jundt said the Department of Transportation covers its administrative costs on other projects through a per-hour fee.
Nelson said that charging the additional quarter-percent for administration leaves less for the local government. But, he added, the interest shouldn’t be as much as regular lenders would normally charge.
“I don’t want to lose that incentive by having a high interest rate,” Nelson said.
Jundt said he doesn’t want the department to be the first choice when a local government is searching for funds for a project.
“We don’t want to be taken advantage of,” Jundt said.
The commission has been looking for months at whether to make a change.
“We’ve been kicking this one around a while,” commissioner Mark Roby of Watertown said. He agreed that local governments shouldn’t be charged prime rate, which currently is 8.5%.
“We should put something in place so people know what it is,” Roby said.
