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Newark council approves exemption from paying interest on contractor retainage
Summary
The Newark City Council approved an ordinance exempting the city from paying interest on withheld contractor retainage after a recent Ohio Revised Code change reduced required retainage to 4% and added an interest-payment requirement. Council and staff said the city generally does not hold those funds and therefore does not earn the interest.
The Newark City Council voted to approve an ordinance exempting the city from the Ohio Revised Coderequirement to pay interest on withheld retainage for public-improvement contracts, a measure staff said is needed because the city typically does not hold the funds that generate the interest.
Brandon, a city staff member presenting the ordinance, said the recent change in the Ohio Revised Code now requires municipalities to withhold 4% retainage on large projects (down from 8%) and to pay any interest earned on those retained funds when a contract is completed. He told the council most of the city's capital projects are funded through loan programs and the city never receives the full project dollars into its own bank account during construction, so the city typically does not earn interest on the retained funds.
"When the city has a project and it's a two- or three-year project, when those retained funds are held throughout the length of the project, the city never sees them," Brandon said. "And so we don't have them in our bank account to actually earn interest with those funds." He gave a worked example for the city's next long-term control plan project, the 16 North project, characterizing it as a $65,000,000 project and saying the 4% retainage and related interest could amount to several hundred thousand dollars over the life of the project as currently structured.
Council members discussed fairness to contractorswho might otherwise have earned interestand the city's financing mechanics. One council member noted the city may already be paying interest on notes tied to those loaned funds, which could make a requirement to pay interest to contractors an additional cost. After discussion, a motion to adopt the ordinance carried on a 4-0 vote.
The ordinance's sponsor and the motion/second were not identified in the transcript; the council recorded the vote as 4-0 in favor and the ordinance will proceed for codification (specific ordinance number not specified in the discussion).
