With final payments on two major liabilities scheduled in the not-too-distant future, Crestwood officials anticipate operating a debt-free city in three years.

The city will make its last principal and interest payments in 2010 on a $2.87 million Proposition S note from Royal Banks of Missouri, and will retire certificates of participation, or COPs, on its aquatic center in 2012.

“Not only is the Prop S note payment close to being retired, but soon the aquatic center payment will be retired as well and the city will actually be out of debt, which is amazing considering where we were not very long ago,” City Administrator Jim Eckrich told the Ways and Means Committee last week.

Proposition S was 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.

In October 2006, the city refinanced its debt through Royal Banks of Missouri, obtaining a $2.87 million, tax-exempt “annual-appropriation note” that it would pay back by 2013 with Prop S revenue. But that time frame has diminished considerably due to unscheduled penalty payments the city has made on the note for violating an Internal Revenue Service provision.

To keep the note tax-exempt, the IRS re-quires the city to maintain a cash balance in its general fund of no 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 subsequently was forced to incur unscheduled penalty payments on its debt. Because of these additional payments, the $2.87 million note will be retired by 2010 instead of 2013.

Crestwood is scheduled to make a $303,000 final principal payment next March and an $8,300 final interest payment on the note next September.

At that time, the Prop S tax will have generated more than $2.4 million, but the city will have paid more than $3.1 million — a gap of $704,219 that will be filled with general-fund monies. The Board of Aldermen will have to decide next year whether to continue collecting the Prop S tax until 2013 and, by doing so, replenish the general fund.

In 2001, nearly $8.5 million in COPs were issued to construct the city’s aquatic center.

As that indebtedness winds down, Crestwood will pay $1,061,950 combined principal and interest in 2009; $1,062,325 in 2010; $1,060,632 in 2011; and $1,055,750 in 2012. The 2009 payment is projected to significantly drain the park and stormwater fund, which is projected to have a Jan. 1, 2010, cash balance of $17,611, according to the 2010 budget draft.

Therefore, Eckrich has recommended a $600,000 transfer from the capital improvement fund to the park and stormwater fund so the latter can make part of the 2010 aquatic center COPs payment.

Eckrich also anticipates transferring dollars from the general fund to the park and stormwater fund in 2011 to make that year’s COPs payment. While the 2012 payment is projected to be $1,055,750, Eckrich wrote in the 2010 budget draft that the city will pay only about $300,000 because it’s holding another $865,000 in a “trustee reserve account to be applied to the final payment.”

“The aquatic center debt will be retired in 2012, but a substantial part of the 2012 payment is held in escrow,” Eckrich noted. “That means, essentially, that once the city of Crestwood makes the 2011 aquatic center payment we will be free from this tremendous annual debt-service payment.”

Although officials are looking forward to the prospect of a debt-free Crestwood, they contend the city likely will face additional financial challenges after 2012.

A five-year plan approved by aldermen earlier this year shows a steady decline in the city’s total cash balance, driven by rising expenditures and falling sales-tax revenues. Though the figures are estimates, Crestwood is projected to have Dec. 31 cash balances of $2,095,066 in 2010; $1,978,519 in 2011; $2,211,043 in 2012; $1,622,239 in 2013; and $698,060 in 2014.

The sharp decline in cash from 2012 to 2014 is based upon the 2013 sunset of the Prop S tax — a date which aldermen could move up — and the corresponding loss of revenue. Besides an ongoing decline in revenue, officials say Crestwood eventually will need to address various maintenance and replacement projects on city buildings, equipment, vehicles and streets that have been deferred as a result of budget belt-tightening.

While the five-year capital improvement plan presented with the 2009 budget “presented a deficit of over $450,000 each year,” a revised version included with the 2010 budget draft shows revenues exceeding expenditures until 2014 — a “reasonable” plan that puts capital, park and stormwater projects on hold.

“Personally I feel our debt is going to be repairing all of our buildings and everything we’ve postponed maintenance on,” Director of Parks and Recreation Amy Meyer said during the Oct. 14 Ways and Means Committee meeting. “Once the aquatic center is paid off, our community center buildings, our park shops … they’re a mess.”

“We have deferred, deferred, deferred, deferred and taken things like … just trying to keep our buildings up — that’s been shoved aside,” said Ward 4 Alderman John Foote on Oct. 14. “We could not afford it, and to turn around and continue to shove that aside and take on new projects, it isn’t very fiscally responsible.

“So as much as everybody likes something new here or there, we need to keep what we have working.”

Still up in the air is a redevelopment at Crestwood Court. The mall’s owners, Centrum Properties and Angelo, Gordon and Co., have said they intend to redevelop the property into a “lifestyle center,” possibly combining retail, residential and entertainment space. When the redevelopment does happen, Mayor Roy Robinson says the city will see its sales-tax revenues begin to increase and will be able to pursue new and delayed projects.

“Once that redevelopment happens at the mall, and we get new blood into the city, these later desires of what we want to do with money will greatly improve because the tax money will be there to be able to do it,” he said last week. “It’s not going to be able to do it in the next year or two because the economy’s not going to turn around that fast, but I believe by 2014 or 2015 we’ll be able to do the projects we want to do. And of course we’ll be debt free.”

The Ways and Means Committee praised city staff last week for its work on the 2010 budget and did not recommend any changes.

The document next goes to the Board of Aldermen, which has scheduled a budget work session for 6 p.m. Tuesday, Nov. 10, at the Government Center, 1 Detjen Drive, before its regular meeting at 7 p.m.