ISLAMORADA -- The village is currently carrying $16.9 million in debt. But good news on the financial front could allow the town to pay down a portion of that principal ahead of schedule.

According to estimates in the proposed 2012-13 budget, the village will have $3.4 million in cash reserves come Oct. 1, a healthy 37 percent of daily operating expenses. That's $1 million more than the town had projected to have in reserve when this year's budget was finalized last September.

It's also well above the 20 percent threshold that the village likes to squirrel away in cash reserves in the case of an emergency, such as a hurricane.

The unexpectedly large reserve fund is mainly the result of two consecutive years in which the village's actual savings exceeded expectations. In the 2010-11 fiscal year, the town was able to transfer $802,000 into its reserve funds, or $628,000 more than had been budgeted, largely due to unanticipated revenues from fire watch fees, building permits and taxes related to cell phones and land lines.

This year, Finance Director Maria Aguilar is projecting that the reserve fund will get an infusion of $253,000 more than the budget called for, mainly due to below-budget expenditures spread across most village departments.

The village has also benefited from $243,000 in reimbursements on its contract with the Monroe County Sheriff's Office over the past two years.

Flush with the extra cash, council members say it might be a good time to bring down the village's debt load. In fact, the entire extra $1 million could be put toward debt even while keeping the reserve fund at the 20 percent target.

"When you begin to amass capital to that extent, you are dealing with the people's money and what are you going to do with it," Councilman Don Achenberg said of the cash reserves at a budget workshop last month. "... I think that would be a good use of the people's money, to reduce that debt as we are able to do so."

During the current fiscal year, which ends Sept. 30, the village is scheduled to make $2.04 million in debt payments, of which $1.2 million is going toward principal on seven different loans the village has secured since 2003, Aguilar said. The rest will go toward interest. The loans have funded a variety of projects, including the village hall complex, the Lower Matecumbe Key fire station, the north Plantation Key wastewater system and a renovation of the Plantation Yacht Harbor Marina. Their terms expire between 2019 and 2029.

Of the seven loans, only two could be paid down ahead of schedule without incurring penalties, Aguilar said. Still, the balance on those two loans will be approximately $3.5 million at the start of the next fiscal year, meaning there is plenty of opportunity for the council to apply that extra $1 million in cash reserves.

The move would surely please Councilman Ted Blackburn, a retired bond trader, who in the winter identified speeding up the village's debt payments as one of his main goals this year. Much of the money the village uses to pay off debt comes from sales tax revenues that the state parcels out to the village.

That sales tax money, if not used for debt service, could go toward any number of other government services and daily operating expenses.

"The future of Islamorada will only be rosier," Blackburn said in January.

rsilk@keysnews.com