Crestwood’s $2.87 million loan from Royal Banks of Missouri is paid off, and the Board of Aldermen was scheduled this week to discuss the fate of the tax-rate increase that made those debt payments.

With a final principal and interest payment of $311,259.73 made to Royal Banks during the last week of February, the city’s 2006 “annual appropriation note” of $2.87 million is retired as of March 1, according to officials.

Aldermen were scheduled to discuss the future assessment of the Proposition S tax at their regular meeting on Tuesday — after the Call went to press.

Prop 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. 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, obtaining a $2.87 million, tax-exempt “annual-appropriation note” that it would pay back in seven years with Prop S revenue.

But that time frame changed 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 required 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 those additional payments, the $2.87 million note was retired ahead of schedule.

While a draft of the city’s 2010 budget stated Crestwood would make a $303,000 final principal payment this month and an $8,300 final interest payment on the note in September, the board-approved budget stated both payments would be made by March.

The Prop S tax had generated $2,052,587 in revenue as of Feb. 28, but the city had paid more than $3.1 million — a gap of $1,109,802 offset by general-fund reserves.

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

Aldermen must decide whether to collect the Prop S tax until 2012 as allowed by its voter-approved ballot language or follow through on the March 2006 board-approved resolution to retire Prop S once the debt is paid.

The language on the April 2006 Prop S ballot measure stated the tax would be assessed for seven years.

But on March 28, 2006 — one week before the election — aldermen approved a resolution stating: “… This mayor and Board of Aldermen attest that our intention of offering Proposition S to the voters of the city is solely to retire our current debt to Southwest Bank and to eliminate the need for our current line of credit from that same bank, including any accumulated interest debt which may occur until those two purposes are accomplished …”

That evening, Mayor Roy Robinson vowed to ask aldermen to retire the Prop S tax if the city’s debts were paid off before the tax’s seven-year sunset expired in 2012.

Robinson made that statement in response to a public comment from resident John Foote, who is now a Ward 4 alderman.

Last May, however, Robinson said he would veto any decision by the Board of Aldermen to sunset the tax before its revenue replenished the general fund.

No one could have known in 2006 what the state of the economy would be today, the mayor said at the time.

“With the economy the way it is, I don’t know what your motives are,” Robinson said during the May 26 board meeting 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.”

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 told aldermen that evening.

“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.”

If the Board of Aldermen decided not to collect the Prop S tax after 2010, the city could not recoup the roughly $1.1 million spent above Prop S revenues collected since 2006.

To recover those funds lost by the general fund, officials believe Prop S would have to be collected until 2012.