Borrowing up to $3.5 million weighed by Crestwood board
November 02, 2005 - An ordinance to borrow up to $3.5 million from Southwest Bank was scheduled to be considered at a special meeting earlier this week by the Crestwood Board of Aldermen.
The Board of Aldermen was scheduled to meet Tuesday night — after the Call went to press.
The first reading of the ordinance was conducted Oct. 25, but Board of Aldermen President Tim Trueblood of Ward 2 cast a "no'' vote for a second reading that evening. Under the City Charter, to adopt an ordinance, at least five of eight aldermen must vote in favor of it and at least one week must elapse between introduction and final passage unless an immediate second reading is approved by unanimous vote of the Board of Aldermen.
The $3.5 million the city seeks to borrow includes a $1.5 million line of credit and a $2 million promissory note.
In an Oct. 25 memorandum to Mayor Roy Robinson and the Board of Aldermen, City Administrator Don Greer wrote, "As discussed, this note is considered two fa-cilities: the first being the operating funds necessary for cash flow and is in the amount of $1.5 million; the second is an annually renewable promissory note in the amount of $2 million plus interest.
"The latter requires principal reductions of two payments each of $142,857.15 or an annual total of $285,714.30, is not callable and can be prepaid without penalty. The former is consistent with prior lines of credit notes, but is callable,'' Greer wrote.
In his memorandum, the city administrator stated that as collateral for the $3.5 million from Southwest Bank, the titles to City Hall and the city garage on Pardee Road are being pledged. While the interest on previous lines of credit has been based on 65.5 percent of the bank's prime rate, both the $1.5 million line of credit and the $2 million promissory note will have an interest rate of equal to 60.00 percent of the prime rate, plus 100 basis points.
On Oct. 4, aldermen voted 5-1, with Trueblood opposed, to adopt an ordinance authorizing a $3 million line of credit with Southwest Bank, pledging City Hall and the property on which it sits as collateral. The city's previous $2 million line of credit with Southwest Bank expired Sept. 28 and the Board of Aldermen voted Sept. 27, with Trueblood opposed, to approve a "bridge loan" not to exceed $2 million to repay the line of credit. City officials said that the line of credit had to be increased to $3 million — through Oct. 31 — to keep the city operational and in return, the bank asked the city to pledge City Hall as collateral.
At the Oct. 4 meeting, Trueblood questioned whether approval of the $3 million line of credit would violate the provision of the state Constitution that limits how much debt governmental entities can incur without voter approval. The constitutionality of the $3 million line of credit also was questioned by two residents — David Brophy and Karen Trueblood, Tim Trueblood's wife.
Tim Trueblood told the Call he planned to vote against the ordinance on Tuesday.
"At this time I don't believe it's the proper thing for the city to do,'' he said. "I think it potentially if not in full, at least in part violates the state statutes about long-term debt for a city. I don't that there's a solution other than to balance the books. We can either increase income or decrease costs and I don't think this does either one. I don't think it increases revenue nor does it decrease costs ... I don't want to go on record as having had voted for something that potentially could turn out to be unconstitutional. I just won't do it.''
In response to residents' concerns about the constitutionality of the line of credit, City Attorney Rob Golterman said at the Oct. 11 Board of Aldermen meeting, "... I just want to make sure that there's no misapprehension out there, either in the public or on the board as to what my position is with respect to the line of credit. I advised our current mayor and the previous two mayors who both served at a time when the city had a line of credit that the city needs to take steps to eliminate the line of credit. There's no question about that. The GO bonds that were put to a vote six, eight months ago would have eliminated the (line of credit).
"So there have been steps or at least efforts made by the city, by this board, to eliminate the line of credit, which has been what I have advised. Going forward, my position remains that the city needs to eliminate the line of credit. Whether it's done with the GO bond or whether it's done with a tax increase coupled with budgets where all funds are operating in the black from year to year, I think in either case the city would be operating consistently with the Constitution. So I just wanted to make that clear that it is not my position that the city can borrow on the line of credit ad infinitum, but the city's got to eliminate the line of credit ...,'' he said.
At the Oct. 25 meeting, Brophy asked Golterman, "Can you assure us that the way the loan agreement is structured now, which I believe may be somewhat changed over the last two weeks, has changed from an unconstitutional state of Missouri position to a constitutional position in that it has moved from being amortized over a seven-year period to being paid every year renewable for seven years?''
Golterman replied, "I will answer that by telling you that I have shared my thoughts with the board and I will leave it at that.''
Ward 4 Alderman Joe O'Keefe asked Golterman Oct. 25, "... I'm looking at the $2 million note and as I understand from the summary that (City) Administrator Greer provided, it's due and payable in a year, but payments are made twice a year over a period of seven years?''
"The way that the bank has determined the amount of principal and interest that they want the city to pay over the next year is based on a seven-year amortization schedule ...,'' Golterman said, adding that the note matures Oct. 31, 2006.
O'Keefe said, "OK, so it matures on 10/31/06, but it's not callable''
Golterman said, "Correct.''
O'Keefe said, "Is it — and this is just my understanding and I think it was completely wrong and correct me if I'm wrong. But isn't it the callable factor of the line of credit that legally makes it work from a long-term debt perspective ...''
Golterman said, "No.''
Tim Trueblood said, "Mr. Golterman, Dr. Brophy asked you a question about the legality about this or parts of this loan and was the answer that you gave us in executive session (on Oct. 17) what you were referring to and is it therefore still privileged and cannot be shared with the public?''
Golterman replied, "Well, obviously the discussion in executive session between the lawyer and the board is privileged ... I can tell you that with respect to this transaction, there will be a legal opinion from bond counsel that this loan complies with state law and that is needed in order to get a tax-exempt rate. I cannot say anything — let me put it this way: Whether we can get that legal opinion for a similar loan in 12 months, I have my doubts.''