Crestwood to pay about $535,820 in interest for $2.87 million annual-appropriation note

‘… We didn’t make this debt … We’re trying to clean it up,’ Robinson states

By BURKE WASSON

After city leaders contacted 10 banks to seek proposals to refinance Crestwood’s debt, aldermen agreed last week to accept the only bid they received.

The Board of Aldermen voted 7-0 last week to enter into a seven-year, tax-exempt, $2.87 million annual-appropriation note with Royal Banks of Missouri. Ward 3 Alderman Gregg Roby was absent from the Oct. 24 meeting.

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 Tuesday. 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, according to Assistant City Administrator Justina Tate. 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.

The city’s debt-service payment on the note is slightly more than $486,000 per year.

That $3.64 million in expected funds comes from Proposition S — a tax-rate increase 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.

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 by Oct. 18 — the original deadline for bids to be submitted — City Administrator Frank Myers said the city changed the deadline to Oct. 24.

The city’s financial adviser on the annual-appropriation note — Carl Ramey of Stifel, Nicolaus & Co. — told aldermen last week that a number of factors led to one bank submitting a bid. Those reasons include 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.

“I can tell you because I’ve pounded the pavement on this, there were a variety of reasons that banks pulled away on this,” Ramey said. “Some of them had already made their commitments and their coverage for tax-exempt debt. And frankly, I’ll name one of them. Montgomery Bank was a local bank that was very interested. But when they looked at the tax-exempt debt and they looked at the portfolio, they didn’t have room for this. In fact, they said: ‘Please keep us in mind next year.’ Well, there isn’t going to be a next year on this. You had some banks that, unfortunately, looked at the prior financial history of the city and had maybe a little more difficulty getting their arms around the future. And even though I think your Proposition S was a good, sound approach to tackling this problem, sometimes a bank just simply has maybe more problems looking into the future when they look to the past. And you’ve got a new future, so that was, frankly, some of the other issues I think that we were having to deal with. And I had one bank, frankly, that said: ‘Gosh, I’ve got 15 deals I’m working on right now. This looks good, but I just don’t have the time.'”

Mayor Roy Robinson said questions and criticism about the city’s debt refinancing from local residents and media — including Call Executive Editor Mike Anthony — led some banks to shy away from submitting bids. Former Ward 2 Alderman Tim Trueblood and his wife, Karen, questioned the definition of the annual-appropriation note at the Board of Aldermen’s Oct. 10 meeting.

“Well, like he (Ramey) said, there’s a reason for it,” Robinson said. “And the reason is there’s people making statements in front of the board, and other banks get a hold of it and they hear that there’s dissension amongst residents and they don’t want to be a part of that. That’s the reason. When you read this stuff in the newspaper and they see us quibbling over things that really are meaningless to the populace, the banks and them take that stuff seriously. And I feel really sure that some of the statements made last (Oct. 10) meeting caused some of the banks to back away. And I know that for a fact. So, people think they’re doing good for the community. But sometimes when they make these statements out in the public and the news media writes on it, it doesn’t do us any good. It does get the information out to the people, which they should have. But sometimes it causes those who do business with us to take another look at us in a different light. So I’m trying to be, without going into details, as straightforward with you as I can without getting Mr. Anthony writing another article in his paper.”

Regardless of the reasons for the city fielding one bid for the annual-appropriation note, Ward 2 Alderman Chris Pickel said he had hoped aldermen would have more than one proposal from which to choose.

“I have to admit my concern is that only one bank out of 10 responded to us,” Pickel said. “To me, that seems like there was a big, red flag. My whole point is I understand the objectives and desires that we had sent out. And when we began this process, it really was my hope that we were going to have multiple, multiple options to look at and do some comparison. And I just don’t feel like we have an opportunity to compare against anything else. It does accomplish what we’re looking to accomplish. But we don’t have another option.”

The proposal from Royal Banks of Missouri originally offered a fixed interest rate of 5.44 percent across seven years or a variable rate of 66 percent of prime.

To ensure the city can consistently plan for the future, Ramey said he recommended the fixed interest rate.

“Prime is something that moves, and variable rates move,” Ramey said. “My recommendation to this board is frankly to accept a fixed rate for a variety of reasons, the least of which is I think that this is the type of situation where you do not want to take on interest-rate risk. If prime goes up, your interest rate itself will be up. You have a known quantity in terms of what your annual debt-service payment will be. And right now, based upon this proposal, it’s on the average of $486,000 a year. Your projection, the city’s projection, for Prop S money is — and it’s a conservative one with no growth — is $520,000 a year. So we do have a reasonable coverage that exists between what you anticipate collecting and the actual debt-service requirement.”

“Remember, of course, that what you will be doing is all Proposition S money will be used to pay down debt,” he said to aldermen. “So all of these bonds, these notes, rather, or payments to these notes, principal payments are currently followed so that if for example you have $25,000 extra that you have available from Prop S money, then those dollars will be used to pay down your principal. The goal in getting this financing structured was to try and provide a mechanism for you to get out of this note as quickly as possible. I will say this. I had an opportunity to review the city’s current status of the third quarter. And looking into the future, you’ve made some major strides. I would say that that’s a very important piece to this. And this, I think, is going to be just another piece in the steps you’ve already taken to move Crestwood into a stronger financial position.”

“Could you play devil’s advocate for one reason and tell us why we shouldn’t do this?” Ward 1 Alderman Richard Breeding said to Ramey.

“You’d have to burn me at the stake,” Ramey replied.

“That’s perfect,” Breeding said. “Because there will be people who question like they do. And that’s their right to question every decision this board makes. And I’m trying to see the bad news here.”

“Let me give you the bad news,” Robinson said to Breeding. “We have found what we were looking for. We put it out and let everyone participate that wanted to. We’ve got the kind of structure that we were looking for. We’ve got the encumbrances on city property released. We have utilized to the fullest extent of the tax proposition, which we promised the people that we would do and we are doing. And …”

“This is all good that you’re telling me,” Breeding interjected.

“And the people who are concerned about this evidently don’t understand,” Robinson said. “As I have completely restated over and over, we didn’t make this debt. Somebody else did. We’re trying to clean it up. And the thing about it is this is the way we can do that. And if we don’t do it, the city has a real problem at the end of this month. OK? The city has a real problem. I’m talking about $2.8 million worth of problems. So it’s as simple as that. We’ve done what we promised the people we would do. And if you’ve got one or two people who complain about this, they evidently don’t know what our problems are or the fact that they don’t know what goes into trying to get this thing set up. And we do. Mr. Ramey has done an excellent job with our staff, and I’m very much pleased.

“What I’d to re-emphasize once more is we have an obligation to this community to pay this debt off. They gave us the money to do it. We’re doing it at the best interest of the citizens. We’re doing at a rate less than what we’ve had in the past. And plus, we’ve got the city’s property back without encumbrances. I’m honest. I’m just saying you wanted to play devil’s advocate, and you brought the devil out of me.”