Crestwood board to discuss general-fund reserves

Annual-appropriation note gift from ‘God,’ Robinson asserts

By BURKE WASSON

While Crestwood officials were successful last year in refinancing the city’s remaining debt into a $2.87 million annual-appropriation note, expected reserves in the general fund have created new questions.

Aldermen were scheduled to meet Tuesday — after the Call went to press — to discuss options in keeping a cash reserve in the general fund equal to no more than 5 percent of expenses in that fund.

City Administrator Frank Myers said federal law states that the seven-year, tax-exempt refinancing that the city has with Royal Banks of Missouri stipulates a cash balance in the general fund of no more than 5 percent.

City officials place 2007 general-fund expenses at just less than $9 million, which would put the maximum general-fund reserve that the city could maintain while part of a tax-exempt note at roughly $450,000. Myers also said if the city wishes to keep more than $450,000 in reserve in the general fund, the annual-appropriation note would have to be taxable.

Costs associated with keeping a general-fund reserve larger than $450,000 were expected to be outlined by bond counsel and financial consultants at Tuesday’s work session.

City officials reported that as of Sept. 30, the general fund had a cash balance of $250,032.91. As for financial activity this year in the general fund, the fund was in the red by $789,215 as of Sept. 30, having collected $5,367,128 in revenues and spending $6,156,343.

Despite that cash loss in the general fund by the end of September, officials estimate a total revenues-over-expenses 2007 gain of $282,338 in the general fund.

While the city had collected only 59 percent of this year’s expected revenues in the general fund by Sept. 30, city officials are expecting to receive $1,375,895 in property-tax payments from Sept. 30 to Dec. 31.

The city had collected $53,719 in property-tax revenue this year as of Sept. 30 and expects $1,429,614 for 2007.

And as the city reported a $2,968,098.39 cash balance in 15 separate accounts — including the general fund — as of Sept. 30, city officials have declined to say how much of that balance is encumbered for expenses.

After city leaders contacted 10 banks to seek proposals to refinance Crestwood’s debt, aldermen agreed in October 2006 to accept the only bid they received — the $2.87 million annual-appropriation note with Royal Banks of Missouri.

The note carries an interest rate of 5.44 percent, which is less than the 5.95-percent interest rate on the city’s one-year promissory note and line of credit with Southwest Bank that expired in 2006.

City officials initially had hoped for an interest rate ranging from 4 percent to 4.5 percent on the new agreement.

The city will pay roughly $535,820.36 in interest over seven years to Royal Banks of Missouri. That figure combined with the $2.87 million note results in the city spending slightly more than $3.4 million of the estimated $3.64 million earmarked for funding the note.

That $3.64 million in expected funds comes from Proposition S — a tax-rate in-crease of 20 cents per $100 of assessed valuation that was approved by voters in April to retire more than $3.5 million in debt and line-of-credit expenses accumulated at that time.

As of Sept. 30, the city reported that it had paid $553,275 of the $2.87 million note, leaving the city with an unfulfilled debt of $2,435,000 to Royal Banks of Missouri.

City officials also were able to obtain the debt refinancing without using any city property as collateral. The city’s previous agreement with Southwest Bank included pledging the titles to the Crestwood Government Center and the city garage on Pardee Lane to the bank.

Because the city had not received any bids on the debt refinancing last year by Oct. 18 — the original deadline for bids to be submitted — Myers changed the deadline to Oct. 24.

The city’s financial adviser for the annual-appropriation note — Carl Ramey of Stifel, Nicolaus & Co. — previously told aldermen that a number of factors led to one bank submitting a bid. Those reasons included some banks already meeting tax-exempt coverage for the year and others being wary of a deal based on the city’s past financial history.

“At the time we entered into a loan with Royal Banks, which you’ll recall was the only bank we were able to get a loan with, we felt very fortunate,” Myers said at the Nov. 27 Board of Aldermen meeting.

Before receiving that note, however, Myers was more confident when questioned in October 2006 by former Ward 2 Alderman Tim Trueblood on the prospects of attracting such a proposal.

“What if no bank buys the note?” True-blood said at the board’s Oct. 10, 2006, meeting. “What happens then?”

“We have been assured that’s not going to be the case,” Myers said.

More than a year later, Mayor Roy Robinson and Ward 4 Alderman Steve Nieder also commented at the board’s Nov. 27 meeting that they believe the note was a gift.

Nieder said, “I understand the loan was a gift from …”

“God,” Robinson interjected.

“Well, from the banking industry to say the least,” Nieder said.

And despite Robinson’s statement at the board’s Oct. 10, 2006, meeting that the an-nual-appropriation note was a note and “not a bond,” Myers last week referred to the refinancing as a bond.

“It’s a note,” Robinson said at the Oct. 10, 2006 meeting. “It’s not a bond. We’re not selling bonds.”

But Myers last week explained that for the city to perhaps maintain a general-fund reserve of more than $450,000, a “taxable bond” would work.

“We can convert this non-taxable note, or bond, to a taxable bond,” Myers said. “And there’s a process we can go through to do that to enable us to keep all our cash that we’ve worked so hard to build up in the event that certain things happen and our revenue fall off over the next year. And there’s been some concern about, you know, maybe some short-term revenue drops because so much of our revenue is tied to … sales tax that by us meeting that $450,000 threshold, we give up the flexibility in the event of a major drop in our revenues to be able to react to that. And we’re looking at the conversion … from a non-taxable to a taxable note as another option.”