Crestwood aldermen tentatively are set to decide by March 25 what to do with an excess cash reserve of $522,094 in the city’s general fund that is more than the city legally is allowed to carry as part of its refinanced debt.

The city’s $2.87 million annual-appropriation note approved in October 2006 with Royal Banks of Missouri to refinance and retire remaining debt through a tax-rate increase approved in April 2006 by voters contains an Internal Revenue Service provision that limits the general-fund balance to no more than 5 percent of the previous year’s expenses.

Aldermen already have transferred money from the general fund to keep the majority of that note tax exempt, but still must decide how to use the $522,094 over the limit.

Financial adviser Carl Ramey of Stifel, Nicolaus & Co. had told aldermen that they essentially have three options to use the excess cash, including:

• Prepaying existing debt that would otherwise be paid by residents through the 2006 Proposition S tax-rate increase. Prop S is a tax increase of 20 cents per $100 of assessed valuation and will end in 2013.

• Converting the excess cash above 5 percent into a separate taxable note, which would include fees that the city would have to pay to keep the excess cash.

• Converting the city’s entire annual-appropriation note with Royal Banks of Missouri into a taxable note.

In December, that excess cash in the general fund had totaled $1,054,790 over the 5-percent limit, according to auditor Mark Graves of Schmersahl Treloar & Co.

But on Dec. 11, aldermen approved disbursing $532,696 of that $1,054,790 excess into other funds. Aldermen transferred $331,228 to the capital-improvements fund, $148,186 to the park and stormwater fund and $53,282 to the sewer-lateral fund.

Graves also estimates that the city will end 2008 in the same predicament it is in now with the excess cash with roughly $540,000 in general-fund cash above that 5-percent limit.

“If the city stays within their approved budget, you guys can expect to have general-fund cash as of Dec. 31, 2008, of approximately a million dollars … $1,002,602,” Graves said. “Now this amount would be part of the calculation to assess the amount of the cash reserve that would be in excess of the legally allowed limit. Again, we’re looking at 12 months down the line here. But we’re saying is in essence we’re going to be in the same position we’re at at the end of December of ’07. At the end of December of ’07, we had cash reserves in excess of the legally approved limit. And we expect to be in that same place at the end of 2008. If we make the assumption that our cash reserves that are allowed are similar to 2007’s of $460,000, you back that off the million dollars of expected cash at the end of ’08, you still have $540,000 of excess cash over and above what’s legally allowed to be in the general fund.”

The city owes principal and interest on the note on March 1. April 1 is the latest date the city can determine to what extent the general-fund balance exceeds the federal 5-percent limit under a tax-exempt note. After April 1, the city would have 10 days to make a prepayment on the funds above the 5-percent limit.

Ramey told aldermen at the board’s Feb. 12 meeting that as they have a variety of options to use the cash, they should not feel pressured to rush to a decision.

“It’s best if we take a moment and have a chance for you to read, digest and then come back and sit down and talk these things through,” Ramey said. “… There is no right or wrong answer. There may be a best and better answer. I may have a recommendation in my mind, which I think satisfies what I know of your financial situation. You may, as a board, feel differently. I think part of the dialogue that you’ve heard will help you to select the best approach.”

While Ramey has whittled down the board’s choices to use the cash to essentially three options, he has given the board five different options of converting that excess cash into a separate note.

With that in mind, aldermen were scheduled to meet in a work session Tuesday night — after the Call went to press — to discuss these scenarios laid out by Ramey.

“He has laid out five options with interest rates that are subject to change so that you can begin looking at this,” City Administrator Frank Myers said. “… At our second meeting in March, we’ll actually have action on the part of the board to execute what you decide. So there’s a period here of basically 45 days for the board to work through these issues, digest these alternatives, consider other alternatives and ultimately make a decision at the second meeting in March.”

Ward 3 Alderman Jerry Miguel said he is concerned that none of Ramey’s options of converting the excess cash into a separate note reflect that the city will use that money to prepay the existing annual-appropriation note now funded by Prop S. The city originally estimated that it would gain roughly $520,000 per year from Prop S funds to be used to pay off the city’s debt, which was converted into the $2.87 note with Royal Banks of Missouri.

“The city is committed to paying all Prop S money to pay off this loan,” Miguel said. “And none of these options reflect that. As we heard earlier, the city is budgeted to receive $560,000 (in excess cash) this year. Is the city proposing to do anything other than applying that $560,000 to the Prop S? All of these schedules are based on recasting at a lesser principal payment — total principal and interest — at a lesser payment. And that, to me, is not in keeping with Prop S. At least not in keeping with the commitments of this board.”

Ramey said using that excess cash to prepay the annual-appropriation note is certainly an option that aldermen can decide in March.

“At this point, I have not been advised as to what level of other excess revenues you have other than the $522,000 (above the 5-percent limit) you will be dealing with,” Ramey said. “If you restructure the transaction so that you would use excess revenue over an excess of the 5 percent as well as any other excess revenue, we can look at how that may play out in future years. But right now, the way you have your transactions currently structured is that until such time as you have excess revenue from your Prop S property tax identified, it would be at that point that you could then apply it on a prepayment basis. That’s really why we wanted to segregate the Proposition S money, both in terms of revenue and expenditures so that you would have a handle on exactly what your excess revenue over the debt-service requirement is. But right now, the current annual Proposition S note has an annual principal and interest payment.”

“What is that?” Robinson asked.

“It varies,” Ramey said. “But it’s about $477,000 a year.”

“Our estimated revenues are shown above …,” Miguel said.

“Every penny that we bring in of that goes to Prop S,” Robinson said. “And we all agreed to that. I’m not aware that we weren’t.”

Aldermen also decided Feb. 19 to add an extra expense to the 2008 budget by voting 5-1 to spend $13,000 for additional security at public meetings in the wake of the Feb. 7 shootings at the Kirkwood City Hall.

“We’re not going to go into details,” Robinson said. “But we’ve determined that we’ll need additional monies for our security aspects for our Board of Aldermen meetings and the courts. Due to the things that have occurred, we think we need to be beefing up things a little bit.”

Aldermen voted 5-1 to approve that $13,000 expense, with Ward 4 Alderman Steve Nieder voting “no” and Ward 2 Alderman Steve Knarr and Ward 4 Alderman John Foote absent.

“It’s actually $12,100,” Robinson said. “But there may be some equipment that we determine we could buy as an additional thing that we need for security aspects. We just need this money. And I don’t want to go into details of what we’re using it for. But it’s based on the security of this operation.”