Board learns decisions loom on Crestwood’s Proposition S

By EVAN YOUNG

Recently elected Crestwood aldermen got a preview last week of the difficult decisions they may have to make during their term regarding the future of a 2006 tax-rate increase.

Per a board request, City Administrator Jim Eckrich presented a review of Proposition S at the May 26 board meeting.

Prop S is a 20-cent tax-rate increase voters approved in April 2006. City officials launched the measure to eliminate $2 million in debt and eliminate a $1.5 million line of credit, both from Southwest Bank.

The language on the ballot stated the Prop S tax would be assessed until 2013. Shortly before voters approved Prop S, the board adopted a resolution to clarify the measure’s intent: pay off the debt and eliminate the line of credit at Southwest Bank. After Prop S was approved, the board reduced the residential and personal-property tax rate from 20 cents to 16.9 cents per $100 while keeping the commercial rate at 20 cents.

In October 2006, the city refinanced its debt through Royal Banks of Missouri, obtaining a $2.87 million “annual-appropriation note” that it would pay back in seven years with Prop S revenue.

However, officials now say the debt will be retired sooner than expected.

Because the note from Royal Banks is tax-exempt, the Internal Revenue Service included a provision stating the city could not have a cash balance in its general fund that was more than 5 percent of the highest expenditure month during the previous calendar year.

In 2007, the city was found in violation of that provision and was subsequently forced to incur unscheduled penalty payments on its debt. Because of these additional payments, officials say the $2.87 million note would be fully paid off by 2010, instead of 2013.

Now the future of the Prop S tax — namely its sunset date — is up for debate.

Eckrich told the board — which includes five new aldermen who were elected in April — last week that although aldermen didn’t need to take any action at that point, they would in August 2010 have to choose one of three options.

The board could let the tax retire in 2013, as stated in the ballot language. Or, since the last of the city’s debt payments next year also means the completion of the Prop S objectives that aldermen outlined in their 2006 resolution, Eckrich said the board would have the option of retiring the tax in 2010, ahead of schedule.

Because of the unscheduled penalty payments, Crestwood has had to pay over what the $545,000 a year Prop S has generated.

As a result, dollars were taken out of the general fund to complete those payments, Eckrich said. Therefore, as a third option, the city administrator said the Board of Aldermen could decide to assess the Prop S tax until 2012, which would allow the tax revenue to replenish the general fund.

Eckrich said the administration would have to make adjustments when the tax does retire, regardless of when the board decides that would happen.

The administration’s fiscal projections include assessing the tax until 2013. If it sunsets earlier than 2013, officials would have to figure out where to get the remaining years’ expected Prop S revenue. If it does end in 2013, taking into account the early debt retirement, the City would need to figure out what to do with leftover revenue.

Ward 3 Alderman Jerry Miguel brought up the March 2006 meeting during which the board clarified the intent of Prop S. He said at the time Mayor Roy Robinson was asked when the tax would retire, and “it was clearly stated that the tax would be terminated when the loan was paid off.”

“Well, technically that note will be paid off a year from today,” Miguel said. “One could take the position that this is the last year the (Prop S) tax should be assessed. One could also take the position that since general city operating funds were used to prepay the (annual-appropriation) note, the tax should be continued at least as long as necessary to return to the city the prepayment amount.”

Miguel cited the board’s 2006 resolution, which stated that Prop S “… is solely to retire our current debt to South-west Bank and to eliminate the need for our current line of credit from that same bank.”

Robinson said he remembered the discussion at the meeting, but believed the general fund should be replenished before the tax sunsets.

Back then, he said he promised residents that Prop S revenue would only be used to pay off the debt — and that’s what happened.

The mayor also noted that in 2006 no one could have known what the state of the economy would be today. The board could have chosen to make the Royal Banks note taxable, but instead chose to use general funds to pay off the debt quicker, which eventually left the city underfunded, Robinson said.

“With the economy the way it is, I don’t know what your motives are,” Robinson said of an early termination of Prop S. “We have a legal right to recoup our funds we spent when we shouldn’t have had to spend them.”

Robinson warned the board that he would veto any measure to retire the tax before it replenished the general monies spent on the debt.

“I’m not playing that game, to put this city in a volatile situation that it should not be in,” he said. “And we’ve done the cuts and the things to try to keep this city afloat … if you think I’m going to sit here and sign off on something that’s going to be detrimental to the city, I’m not going to do that.”

Shortly thereafter, Miguel told Robinson he was not taking a position on the issue when he initially spoke; he merely wanted to provide the board with additional information.

Later, Miguel said the board also had a fourth option with Prop S: It could remove the sunset date. Such a change would have to go up for a vote of the people, and the board would need to consider the measure “sooner rather than later,” he said.

Board of Aldermen President John Foote of Ward 4 echoed Robinson’s remarks. He noted that in 2006, economically, things were much different. For one, Crestwood’s mall was providing the city with strong sales tax revenue.

In addition, both City Hall and a maintenance shed were being used as collateral for the debt to Southwest Bank; the city didn’t even own its property, he said. Since then, Crestwood has retired that debt and has tightened its budget in light of sales tax revenue decreasing, Foote said.

“What we’re really talking about here is making the city as efficient as we can, but there are limits to that,” he said. “You’re going to have to look at the total cost to run the city and anticipate the cost of inflation and make decisions on what we’re going to have to run the city with. These decisions are not going to be easy, but we need to bring in the residents and we need to put everybody’s best thought into this.

“It’s not a question of anybody’s opinions; it’s doing the best thing and the right thing.”

When Robinson opened the floor to the audience, former Ward 4 Alderman Steve Nieder told the board the community’s trust was the bottom line in the issue.

By using Prop S revenue solely for paying off its debt up until now, the board has demonstrated to residents it was doing exactly what it said it was going to do with their money, Nieder said.

However, if the Board of Aldermen decided to continue levying the tax to replenish the general fund, residents no longer would know exactly how their money was being spent, he said.

On the other side of the debate, resident Charles Berry said the second purpose of Prop S as mentioned in the resolution — to eliminate the need for a line of credit — wouldn’t be fulfilled unless the city continued to use the tax to rebuild its general fund.

“There were two stated needs,” Berry said. “Retire the debt, (and) we don’t want another line of credit. You don’t put the money back in the bank, what are you going to get? You’re going to get a line of credit.”