Crestwood initiates process to defease police facility COPs
July 20, 2005 - A resolution authorizing Crestwood City Administrator Don Greer to initiate the process of defeasing bond-like certificates issued in late 2002 to fund the construction of a new police facility was adopted last week by the Crestwood Board of Al-dermen.
Aldermen voted 6-0 July 12 to approve the resolution, which states the Board of Aldermen intends to defease the bond-like certificates before Oct. 15 when a principal and interest payment totaling roughly $553,500 is due. Ward 1 Alderman Rich-ard LaBore and Ward 3 Alderman Don Maddox were absent.
Defeasing the balance of the $9.83 million in certificates of participation, or COPs, issued to fund the police facility would bring an end to the project, which has become a focal point of residents' dissatisfaction with the city's precarious financial condition.
The resolution states, "... The Board of Aldermen agree(s) and understand(s) that the non-budgeted costs of defeasance of the certificates of participation are currently estimated at $398,000 and that those actual costs can only be determined by initiating the defeasance process ...''
Besides the $398,000 needed to defease the certificates, professional fees associated with the process will total about another $20,000, Director of Finance Diana Madrid wrote in a July 8 memorandum to Greer.
The resolution approved by the board:
• Authorizes Greer to engage A.G. Edwards on behalf of the city of Crestwood in the amount not to exceed $5,000 for their services.
• Authorizes A.G. Edwards to engage a certified public accountant firm at an additional cost estimated at $3,000 to certify that the escrow is adequately funded to pay the certificates' principal and interest and that the transaction is in accordance with Internal Revenue Service code re-quirements.
• Authorizes Greer to select UMB Bank, the current trustee of the certificates, as escrow agent for the transaction.
• Directs Armstrong Teasdale, current bond counsel for the certificates, to draft an escrow trust agreement for approval by the Board of Aldermen.
"... Based upon completion of the aforementioned tasks, appropriate ordinances will be brought before the Board of Aldermen to authorize and approve the purchase and deposit of government securities to provide for the payment of the city's funding of the escrow and to execute the escrow trust agreement,'' the resolution states.
During a work session last month, 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, the city would have to come up with $398,335.18 to fully fund the escrow.
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.
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 the Government Center. The certificates, which carry an average interest rate of 4.21 percent, were to be retired over a 20-year period with revenue from the city's half-cent capital-improvement sales tax. The city's payments are roughly $730,000 per year. Interest over the 20-year period would have totaled roughly $4.8 million, bringing the total cost to $14.6 million.
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 in-clude a new police facility.
Aldermen authorized Greer to renegotiate an agreement with the project's architect, Horner & Shifrin Inc., 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 Horner & Shifrin.
Public sentiment against the project has been rising, culminating in a petition drive by a citizens' group, the Crestwood 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 Crest-wood 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.
During a work session before the regular board meeting last week, aldermen discussed the defeasance process.
At one point, Ward 2 Alderman Jim Kelleher asked Greer, who also serves as police chief, "Chief, how does, how would full defeasance affect our financial position today?''
Greer said, "Well, in addition to eliminating the debt, there are a number of items that — and it's up to the board as to what you want to do — but I've identified probably in the neighborhood of $200,000 to $250,000 worth of existing general fund expenses that could be paid by the capital improvements fund if the board so chose to do that. We still pay for I would say $85,000 to $100,000 worth of street maintenance work out of the general fund. Those costs could be borne by the capital improvements fund ...''
While the board historically has not purchased vehicles using revenues from the capital improvements fund, that would be a permitted use for such funds, Greer said.
"So there are some mechanisms available and there are some decisions the board could make that could make some needed or necessary expenses that the general fund historically has borne from the capital improvements fund. I don't think it's a significant amount ...,'' he said.
During the discussion, some aldermen, including Tim Trueblood of Ward 2 and Joe O'Keefe of Ward 4, advocated creating by ordinance a fund in which revenue from the capital-improvements sales would be placed to address needs at City Hall and for the Police Department.
But Ward 3 Alderman Jerry Miguel disagreed, saying, "The way I look at it is this: This year we need to borrow $398,000 in order to accomplish the defeasance process. That $398,000 can, in essence, be borrowed from next year's $733,000 amount that would otherwise go to (pay debt service on) the bonds. The difference there I believe is about $335,000. Thereafter, the funds available would be the full $733,000 beginning in the year 2007. It's already July and in September or October we'll already begin the budget process for next year. The board can look at the needs of this building ... whatever the needs of the city are and dedicate the funds necessary to the projects that are ...''
Mayor Roy Robinson interjected, "Needed.''
Miguel continued, "That are shouting out to be accomplished. I think a very good case can be made to upgrade the communications and the jail cells and all the other items that we've been talking about. I don't think that requires anything special on the part of this board. I think that would be a natural part of this board's doing business on a year-by-year basis. So I think that what you're looking for would be accomplished just in the normal mode of this board doing its business.''
At another point during the work session, Kelleher said he believed that Horner & Shifrin bear much of the re-sponsibility for the problems associated with the police fa-cility.
Kelleher said, "... In my opinion, Horner & Shifrin, who provided the plans and the estimates, the layout for the building that we're talking about, in my opinion, they are if not wholly responsible, at least partially responsible for leading us to defeasance and I want to know, I know there are other factors involved such as market changes, expenses, whatnot, but I want to know what position the board will take with Horner & Shifrin, and if we are in a position to insist that they provide us with something that can be built because they've given us two right now that cannot be built. Am I correct in saying that? The first building came in $2 million over budget ...''
He continued, "I understand that we don't have any legal position and nobody does in the estimating business it seems, but a $1.1 million mistake I think seems a little crazy. So in my opinion I think, and I know it won't go anywhere, but I think we need to demand from Horner & Shifrin a building that we can build.''
Robinson said, "They won't do it free.''
Kelleher said, "I know they won't, but I think they should because without Horner & Shifrin's help we may have gotten the building built. And I don't mean to bash Horner & Shifrin, but $1.1 million after cutting back significantly the first time is pretty severe and I don't see how we can put up with that. I mean that is, that just threw the whole thing out the window. I mean in my opinion we were talking about a smaller structure and we sent it out to bid and now we're not talking about anything else except defeasance because of their estimates and the bids that came in.''