Crestwood board to consider defeasing bond-like certificates
July 06, 2005 - The Crestwood Board of Aldermen next week is scheduled to consider defeasing nearly $10 million in bond-like certificates is-sued in late 2002 to fund the construction of a new police facility.
The Board of Aldermen will meet at 7 p.m. Tuesday, July 12, at City Hall, 1 Detjen Drive.
Defeasing the $9.83 million in certificates of participation is-sued to fund the police facility likely would sound the death knell for the project, which has become a focal point of residents' dissatisfaction with the city's precarious financial condition.
Originally proposed as a stand-alone police building in 2002, roughly $1.6 million has been spent to date on the project. Due to the rising costs of concrete and steel, aldermen in June 2004 scrapped the construction of the stand-alone police building and decided to renovate City Hall to include a new police facility. Aldermen authorized City Administrator Don Greer to renegotiate an agreement with Horner & Shifrin to begin designing a police facility that would be incorporated into City Hall. But bids for the renovation project recently were opened and the lowest base bid totals roughly $1 million more than the cost estimated by the project's architect, Horner & Shifrin Inc.
Public sentiment against the project has been rising, culminating in a petition drive by a citizens' group, the Crest-wood Citizens for Financial Responsibility, seeking reconsideration of an ordinance approving a lease agreement with the Westfield Corp. The city had planned to lease office space at the Westfield Shoppingtown Crestwood for roughly 18 months while the renovation of City Hall to include a new police facility takes place. Under the agreement, the city would have leased roughly 14,827 square feet of office space at a cost of $3,333.33 per month.
About 1,125 signatures of the city's registered voters were needed for reconsideration of the ordinance and the county Board of Election Commissioners certified the group collected 2,201 valid signatures. The City Charter states that if an ordinance is returned to the Board of Aldermen and the board fails to repeal the measure, voters then will consider it at a city election.
Aldermen voted 7-0 June 28 to repeal the lease ordinance. Ward 3 Alderman Don Maddox was absent.
In a June 13 letter to Greer, Westfield Development Director G. Todd Rogan wrote, "... We do not want the lease to be an issue of concern for either the city or residents. Please accept this correspondence as Westfield's offer to cancel the temporary lease of office space at West-field Crestwood.''
Compounding the city's financial situation is a letter it received from Southwest Bank regarding its $2 million line of credit with the bank.
In the June 23 letter, Southwest Bank Assistant Vice President Mark C. Niemeyer noted that the city's line of credit was renewed last year "without incident, thanks in large part to the bank's knowledge of the general obligation bond proposition, which served as a concrete plan of action to improve the city's financial condition.''
Voters, however, defeated the bond issue in April, which would have authorized the city to issue up to $6 million in general obligation bonds to retire its line of credit with Southwest Bank, establish reserves sufficient to meet the city's cash-flow needs and reconcile debts the general fund owes other city funds.
"With the bond issue failing to pass this April the city currently lacks a defined plan of action to make marked improvement in its overall financial position,'' Niemeyer wrote. "Please understand that Southwest Bank values the relationship we have with the city of Crestwood, however, when it comes time to begin the renewal process on the city's line of credit later this summer, it will be imperative that the city provides a concrete plan of action to improve the current financial situation.''
During a work session before last week's regular board meeting, aldermen discussed the police facility bids with some advocating defeasance of the bond-like certificates of participation as a critical step in developing that "concrete plan of action.''
Voters in August 2002 approved Proposition S, the extension of a half-cent sales tax to fund construction of a new police building, fund repairs at the Government Center and allow the continuation of the city's street repair and replacement program. The half-cent, capital-improvements sales tax had been scheduled to end in 2008, but voter approval of Proposition S extended the sales tax until 2023.
During the work session, Ward 1 Alderman Richard Breeding referred to Proposition S, saying, "... There are some who believe that if we do defease, this should go back to the voters and say: You said increase the sunset to 15 more years to pay for this new building. Well now we're not going to build the building, so maybe morally we owe the voters an opportunity to say: OK, don't extend the capital improvement sunset. Some would think that way, I personally don't.''
Director of Finance Diana Madrid outlined the costs of defeasance to aldermen, noting that $10,307,397.50 would be needed to fund an escrow account until the COPs are callable in 2007. Calculations provided to the city by A.G. Edwards indicated the escrow account would earn interest of roughly 3.653 percent or $1,070,676.03. Therefore, the city would need $9,236,721.47 to fund the escrow.
Based on the remaining proceeds of the certificates, money owed Horner & Shifrin and money saved by defeasing before the next principal and interest payment is due Oct. 15, the city would have to come up with $398,335.18 to fully fund the escrow. The city's line of credit could be used for that purpose.
At one point, Ward 1 Alderman Richard LaBore proposed a "compromise'' in which two-thirds of the COPs would be defeased with the remaining one-third of the funds being used for the renovation of the existing police facility, furnishings and debt service. But Ward 3 Alder-man Jerry Miguel opposed partial defeasance.
"We have an overriding issue at this time. We need to get the city back in financial condition. I think that is the overriding issue and I think that if we start getting into splitting the repayment here and we only do two-thirds of it, it's going to affect our financial restructuring,'' Miguel said.
Miguel also quoted from the letter from Southwest Bank regarding the city's line of credit.
"I think they want, they want to see a concrete plan in place, not half a plan,'' he said. "The repayment requires $400,000 more than the capital improvement fund has on hand ... To put that in perspective, the capital improvement fund could borrow $400,000 from the general fund this year and repay it next year out of the $733,000 that we will not be obligated to pay any longer. So by this time next year, the monies borrowed from the capital improvements fund would be repaid.''
He continued, "We need to get our house in order. We are in the midst of a restructuring. I don't feel we can afford the luxury of splitting something here bog us down ... I don't think we can afford to back to the drawing board to see what we need to do and to set up different building funds and to make different commitments or reservations. If we go through the defeasance, we will essentially have $733,000 minus $400,000 available in the capital im-provements fund next year. That's $333,000 ... Thereafter we will have $733,000.
"We could prioritize our capital expenditure needs and we could do that now. Once we have our financial situation straightened out, we could prioritize our capital requirements, we could go forward with it ... If two years down the line we need to borrow, with our financial house in order, we would be able to borrow. But let's get our plans down first. Let's get our design in hand before we make any further commitments,'' Miguel said.
Breeding later said, "Alderman Miguel is on a track to where we don't want to be a big house with no furniture and no employees. We want to be, wherever we are, staffed with employees to take care of our citizens. And we've all said this all along, having known everything we know today, we probably wouldn't have done this. Here's an opportunity to say: Let's take an opportunity to turn this ship around, take care of our financial (situation), then go from there ...''
Breeding later requested the issue of full defeasance of the certificates placed on the agenda for July 12.