Alderman wants second opinion on tax issues relating to COPs
A newly elected alderman wants a second opinion about tax issues related to Crestwood's issuance of bond-like certificates to fund the construction of a new police building.
Crestwood's bond counsel, Mark Boatman of Armstrong Teasdale, told aldermen April 13 that not proceeding with construction of a new police building could have grave consequences for the city. In November 2002, the city issued $9.83 million in certificates of participation — or COPs — to fund the construction of the new police building and the repairs to City Hall.
In particular, Boatman stated in an April 5 memorandum that if the board decided not to construct the police building and retire the certificates with the unused proceeds when the certificates become callable in 2007, the certificates of participation "could become taxable under the Internal Revenue Code.''
Under the terms of the trust indenture that secures the COPs, the city is obligated to use the certificate proceeds to construct a police building by Nov. 1, 2005.
"If the city violates the spend-down regulations — even if it does not earn positive arbitrage in the process — the Internal Revenue Service could declare the COPs taxable retroactive to their date of issuance,'' Boatman wrote. "In that case, COPs holders would be looking to the city to be made whole on their sudden debt to the IRS as well as their future tax liabilities on the interest income from the COPs. Having the COPs become taxable would also seriously damage the city's credit rating.''
Crestwood voters in August 2002 approved Proposition S, the extension of a half-cent sales tax to fund construction of the new police building, provide revenue for repairs at City Hall 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 April 27 Board of Aldermen meeting, newly elected Ward 3 Alderman Jerry Miguel, who was sworn in that night, suggested that in light of comments made by some residents whether it would be "prudent for this board to consider getting a second opinion on the, on this tax, IRS tax issue with the COPs certificates?''
After some discussion, City Attorney Rob Golterman said, "Point of clarification, Alderman Miguel, what issue exactly with respect to the tax and the COPs?''
Miguel said, "Whether it's a positive arbitrage and what the risk is to the city, the risk of the IRS making those bonds or COPs taxable.''
Golterman said, "Ultimately I think to the extent that the board is looking for an opinion, a tax opinion, that would have to — I think you would want to get that from an attorney ...''
Miguel said, "Agreed. Agreed.''
Acting Mayor Richard Breeding later said, "I wish I had an idea of what that would cost to get that second opinion. The only thing I throw out is Armstrong and Teasdale is a highly respected organization and if we spent money on their opinion, I just worry about that. That's — I don't want to throw good money after bad, but I understand where you're coming from.''
Miguel compared his suggestion to seeking a second opinion from a doctor and wanted to hear comments from other aldermen.
Ward 4 Alderman Tom Fagan said, "Well I guess my comment is that presupposes that people don't want to go forward with the police station. If that's the case, maybe the opinion would be necessary. But if that's not the case or that's not the intent of the board, then I don't think the board needs to delve and spend any more money on legal fees for an opinion that really is going to be an academic exercise.''
Breeding said, "So really the question really is then, do we debate the whole police building and then we open a new debate? And do I have this right or wrong? I mean if I have it wrong, tell me.''
Fagan said, "I guess you'd have to — no disrespect to Alderman Miguel — you'd have to ask him because he's the one bringing up what's the purpose of that because it seems to me that, you know, if you don't want the police station and if you don't trust the bond counsel, then you go out and get the second opinion.
"And if you do want the police station, I don't think the investigation needs to go any farther,'' Fagan added.
Miguel said, "Well, I think that's a fair issue and perhaps the starting point should be to take another look at the police building.''
Noting that he has reviewed a needs assessment for the new police building and minutes of past Board of Aldermen meetings, Miguel said, "But that occurred a year and a half to two years ago, perhaps it would be a good idea to take another look or do a review — perhaps review the needs assessment report as a board. Perhaps a work session. So maybe that would be a better starting point to take.''
Fagan said, "I guess we could just ask the chief. It seems to me the needs — unless the chief is not disclosing something — the needs aren't going to be any different, are they? The same needs, I mean, we're still in the same cramped space ...''
City Administrator Don Greer, who also serves as the police chief, said, "The situation has not changed.''
Fagan continued, "Yeah, it's unchanged. If somebody on the board doesn't want the police station, then I guess that needs to be made known or maybe we can just take an informal voice vote, but I don't know that we need to spend any more time, especially considering bond counsel told us we need to build this thing, you know, not tomorrow, but as soon as practicable and practical. It's not something that we can just keep continuing to delay and delay and delay ...
"If you don't agree with what the attorney's saying, that's one thing. But if you take what the attorney is saying and you believe it and it's accurate, then we need to move forward with this and it seems to me that it would be injurious to the city not only on this occasion, but on future occasions if we didn't move forward,'' Fagan added.
Ward 1 Alderman Richard LaBore later suggested, "... Without meaning to delay anything and with full respect of Mr. Golterman's abilities, if he is willing, I would ask whether he would do a little homework for us, whether his firm has an expert we could use for a second opinion and what the charges would be, so at least we have that information without moving in that direction, necessarily. That would answer everybody's question.''
Golterman said, "We do have that expertise and I could give you some idea of what that might cost.''
No objections were voiced to LaBore's suggestion and Golterman's response.