Aldermen should consider 'defeasing' bond-like certificates, Greer suggests
January 05, 2005 - By MIKE ANTHONY
The Crestwood Board of Aldermen should consider "defeasing'' bond-like certificates issued to fund the construction of a new police facility, City Administrator Don Greer suggested during a work session last week.
In November 2002, the city issued $9.83 million in certificates of participation — or COPs — to fund the construction of a new police building and repairs to City Hall. Due to rising construction costs, al-dermen last summer scrapped the construction of the stand-alone police building and decided to "retrofit'' City Hall to in-clude a new police facility.
In suggesting that aldermen consider de-feasing the COPs, Greer said he believed it would help improve the chances of obtaining voter approval of a general obligation bond issue the Board of Aldermen is considering placing on the April 5 ballot.
However, defeasing the certificates would not improve the health of the city's general fund, he said.
As suggested by Greer, who also serves as police chief, an escrow account would be established to meet the obligations owed to certificate holders until the certificates can be retired.
The cost to defease the certificates, Greer said, would be roughly $9,335,000 with that revenue coming from $7,714,000 in un-spent COPS proceeds, $737,600 from the debt-service reserve and $732,000 from 2005's budgeted interest payment.
The city still would need to fund about $151,000 through the capital improvements fund, Greer said.
Defeasing the certificates would bring to a halt retrofitting City Hall to accommodate a new police facility, but Greer suggested that roughly $850,000 in defeasance costs be recaptured through the general obligation bond issue the board is considering placing before voters.
That money could be placed in a designated account to fund immediate Police Depart-ment needs that would have been funded by the certificates, such as replacing the existing radio system, reconstructing the communications room and installing an evidence storage area in the basement.
Funding such improvements would allow the city to remain true to the spirit of Proposition S, Greer said.
Voters in August 2002 approved Propo-sition 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.
Noting that the annual debt service for the COPs is $732,085, Greer said at the Dec. 29 work session, "I would point out that eliminating this debt payment will not — will not — have a direct effect on the general fund or the need for the passage of the GO (general obligation) bonds. It has no effect on that, regardless of what anybody says. It has no effect on that.
"What it does do, though, it eliminates the confusion and this illogical assumption that the city must have lots of money because why would we build a police station and then say out of the other side of our mouth that we don't have any money. And I think it improves the chances of passage of the GO bonds and then without the GO bonds, this city doesn't exist the way it is today. It just simply doesn't.
"It takes 57 percent (to pass the bond issue). That's significant — that's significant. That's a lot more than 51 percent and it's a lot more than one vote more than 50 percent — more than just six percentage points. It's a big swing,'' Greer continued, noting he has reviewed prior vote totals. "Believe me, it makes me sick to my stomach to tell you this, I just think it's the right thing to do and you ought to consider it. You ought to take that into consideration.''
He said he asked Laura Radcliff of A.G. Edwards & Sons to calculate the cost of defeasance, which she did at no charge.
"It would be my recommendation that if, in fact, you defease these certificates, the other thing that you do is establish a designated fund for the police facility — equipment and facility. I would recommend, again it's a recommendation, that you set aside a half a million dollars ...,'' he said, noting the designated fund would be subject to annual appropriation and could be used "to start taking care of the real problems that exist in the Police Department.''
Greer said, "I think this maintains the in-tegrity and consistency with what the voters approved, the terms of extending the capital-improvements sales tax through 2023.''
In response to a question from Ward 1 Alderman Richard Breeding about the impact of defeasance, Greer said, "The only effect I believe it has is that it improves the chances of the GO bonds passing.''
Breeding said, "... There's no real change in our financial stature?''
Greer said, "No ...''
Breeding said, "So we're really doing this for the people who are uneducated.''
Greer said, "There's too many people who don't understand that.''
Breeding said, "... So we're doing this not for the safety of citizens or making this a better place to live. We're doing this so that the uneducated get what they want ... Those are my words. I'll take the hit.''
Greer later said, "From a practical standpoint, it doesn't have an effect. From a political standpoint, I think it's worth considering. I think the board needs to consider what effect it has because if you do a bond issue ... you're going to need every vote you can get.
"Fifty-seven percent is going to have to vote yes ...,'' he continued. "There are a lot of people who are upset and don't understand and don't care to understand and who have an opinion that's not going to be changed by the facts. I talk to them every day ... Those people probably wouldn't go for it anyway, but maybe some of them they listen to will understand that the city is doing everything in its power to get where we need to be. I throw it out and I think you ought to consider it.''
During a period for public comment, resident David Brophy said he adamantly was opposed to defeasance.
"To capitulate on defeasance for votes for a limited segment of the public will show the stupidity and ignorance and incompetence of this board to be trusted to carry out a long-term project,'' he said. "I believe that a majority of voters will be turned off by the rejection of the promise of the capital improvements fund and the work that's been done so far and that defeasance will defeat the bond issue, the general obligation bond issue, and I will try and make that a point to the voters myself if such a thing is done. I believe it is wrong to defease for the reasons that have been given ...
"The fact of the matter is, is that when it is recognized and the city administrator made the point that it is a misunderstanding by some of the people of the city that this is an issue. It is a wrong understanding by some of the people and a refusal to accept the correct understanding. It is a political issue for some people to damage the city. I do not view it as a responsible act to capitulate on defeasance. The fact of the matter is, is that it is wrong ...,'' he added.
But resident John Foote said he favored defeasance.
"... If we can sort of satisfy some of the people who felt — I was one of them; still am one of them — felt that we moved in $9.8 million when our finances were wrecked,'' Foote said. "The board, when they made that decision, wasn't aware the finances were wrecked. So I guess if I bought a house and hadn't closed on it and found out my finances were wrecked, I'd back out of the deal simply to preserve my sanity. Most of us voters were a little bit worried about the sanity of the board. Now you guys have a hard job and I think you're working well at it and I don't criticize anybody. I respect all of you. So I would say defeasance would certainly give you more flexibility ...''
Aldermen took no action on Greer's suggestion to defease the COPs.