After voting in 2006 to raise their tax rate until 2013 to help retire more than $3.5 million in debt and a line of credit, Crestwood residents now will finish paying that tax-rate increase in 2012.

Crestwood aldermen agreed last week to prepay $525,000 of excess cash to the city’s refinanced debt with Royal Banks of Missouri and essentially retire Proposition S — a tax-rate increase of 20 cents per $100 of assessed valuation — a year early.

The Board of Aldermen voted 5-3 last week to pay off an excess of cash above a federal 5-percent balance limit tacked onto the city’s refinanced debt.

Board President Gregg Roby of Ward 3, Ward 1 Alderman Mac McGee, Ward 3 Alderman Jerry Miguel, Ward 4 Alderman Steve Nieder and Ward 4 Alderman John Foote voted “yes.” Ward 1 Alderman Richard Bland, Ward 2 Alderman Steve Knarr and Ward 2 Alderman Chris Pickel voted “no.”

The city has $2.08 million of debt remaining on a $2.87 million annual-appropriation note approved in October 2006 with Royal Banks of Missouri.

With the prepayment of $525,000, that remaining debt now will total roughly $1.48 million.

The move will reduce residents’ property taxes in 2012 as the city has prepaid $525,000 of excess cash above a federal balance limit tacked onto the city’s $2.87 million annual-appropriation note with Royal Banks of Missouri.

The city’s $2.87 million annual-appropriation note ap-proved in October 2006 with Royal Banks of Missouri contains an Internal Revenue Service provision that limits the city’s general-fund balance to no more than 5 percent of the highest expenditure month during the previous calendar year. Any amount in excess of that 5 percent must be prepaid to the note by April 10.

Aldermen had already transferred $532,696 out of the city’s general fund to bring the fund’s balance closer to that 5-percent cap, but were still left with $522,094 above that limit.

And because the annual-appropriation note was issued in denominations of $5,000, the amount to be refunded or prepaid must be rounded up to nearest $5,000, which now will total $525,000.

The city will use the entire excess to prepay principal on the note by April 10 and retain the note’s tax-exempt status.

Aldermen had the option of converting the remaining $2.08 million left on the original $2.87 million note to a taxable note. This option would have eliminated the 5-percent balance limit, but also required the city to pay an additional $17,500 in professional fees to convert the note from tax-exempt to taxable. A taxable note would have also meant that the interest rate on the note would rise from its current level of 5.44 percent to roughly 6.75 percent, which would mean paying an additional $204,544 in interest fees over the next five years until the note is paid off in March 2013 as the city would pay $419,175 in interest until March 2013 instead of $214,631 in interest under a taxable note until March 2012.

Financial adviser Carl Ramey of Stifel Nicolaus & Co. said with those extra interest fees to pay for keeping $525,000 that the city might not need, he suggests prepaying that excess and requesting conversion to a taxable note if needed in the future.

“The issue becomes if we don’t need the $525,000, why do we want to pursue a taxable note that has a higher interest rate?” Ramey said. “… Follow through with paying down the $525,000. It will … maintain your tax-exempt note. You will maintain your commitment to the public in terms of trying to prepay or pay off the money that’s on Proposition S as quickly as possible.

“But you also would be at the same time preserving a future option that if you do need additional funding, if in the future that $525,000 is necessary that you would still have, obviously within the terms of Proposition S … the ability to convert at that time, if you so desire, that tax-exempt note into a taxable note. You may never have to. And I think that’s been part of the struggle that I’ve been hearing from council … But maybe this is not the time for us to be doing that when … there isn’t really a consensus as to the need for that $525,000.”

Ramey continued that as long as the city meets the conditions of Prop S, aldermen can ask for a conversion or even recover the prepayment of $525,000 at any time.

“It’s no longer in my mind a financial back and forth,” Ramey said. “It really is what becomes your objective in the use of your money? And what’s your priority for that?

“You don’t lose any options if you pay this money down and hold out. You can decide at a future time to convert to a taxable note. In fact, you would be able if you needed to, to recover that $525,000 as long as it fits within the purposes of Proposition S.”

McGee reported that between all of the city’s bank accounts and its non-expendable trust, the city has more than $1.7 million in reserve.

Because of that, he believes that the city could not only afford the $525,000 prepayment to the annual-appropriation note, but also have monies on hand to operate in case revenues continue to fall.

“In our packet that we got Friday (March 7) from the administrator, it showed a bank statement for February 2008,” McGee said. “… The total cash and investments of all funds for the city of Crestwood is $5,746,996.35. Now of that, $1,371,888.24 is in savings. That’s the money that’s in savings and drawing interest. So all these other amounts is what we’re operating with in our different accounts and so forth … In my way of looking at it, that’s a million dollars in case we get in trouble next year …

“Also in the non-expendable trust fund, there’s $342,681.68. If you just add that to the $1.3 million I just said, that brings it back up to $1,714,569. To me, that’s simple math. Here it is. It’s there. So I guess in summary what I’m saying is what you’re recommending now the option to go ahead and pay the $525,000, which some of us felt like that’s what we should have done in the first place, then if we get in trouble next year, and we probably will run short … I can see where we won’t have to borrow any money. We’re sitting here with $1,700,000. And those accounts … are drawing interest every month, every day.”

“I don’t know where those figures came from,” Mayor Roy Robinson said. “I’m not aware of all those numbers.”

“I think the Finance Department attached a report,” City Administrator Frank Myers said.

“It was in our administrator’s report,” McGee said. “I’m just quoting what was in our packet … I think it’s foolish to pay interest on money that you don’t need.”