Proposition S funds may be used to build cash reserves in Crestwood

Mayor Robinson says Prop S funds now needed ‘to run the city’

By BURKE WASSON

A tax-rate increase approved by Crestwood voters to retire city debt now may be used to build cash reserves for the city.

In April 2006, voters approved a seven-year, 20-cent tax-rate increase sold by city officials as a way to retire $2 million in debt and a $1.5 million line of credit. With aldermen now considering retiring that debt early, that tax revenue instead may be used until 2013 to build cash reserves.

Despite city officials’ claims before the April 2006 election that the Proposition S tax-rate increase would be eliminated upon payment of the city’s debt, Mayor Roy Robinson said because the measure’s ballot language allows for building cash reserves, city officials now propose to do just that.

“I know we’re going to hear from some people that we promised to close off the Prop S …,” Robinson said during a Board of Aldermen work session last week. “And I agree. We did. We made a statement like that.

“But the thing about it is we can no longer do that because we need those funds to run the city. And the thing about it is part of it as it was put on the ballot, it stated to rebuild our cash reserves. Pay off the debt and rebuild our cash reserves. That’s exactly what we would be doing. So, we’re going to hear from those who want to raise heck that we are reneging on our statement. But what we’re actually doing is saving the taxpayers $260,000 (in interest payments on the remaining $1.57 million debt) … So I think it’s a good suggestion that the city administrator and his staff have come up with.”

On March 28, 2006, Robinson signed a resolution approved by the Board of Aldermen. The resolution stated that Prop S “…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…”

In full, the ballot language for Prop S states: “Shall the city of Crestwood, St. Louis County, Mo., impose a general property tax in the amount of $.20 additional on each $100 of assessed valuation of all taxable residential, commercial and personal property for the purposes of paying off any loans or indebtedness, eliminating any encumbrances on city-owned property, providing sufficient funds for cash flow to remove the need for a line of credit, and thereafter, providing city services to the residents of Crestwood, said tax to be imposed for a period of seven years commencing in the year of passage?”

With that ballot language in mind along with a proposed 2009 budget that would be balanced with the use of cash reserves, City Administrator Jim Eckrich proposed in October that aldermen retire the debt be-fore its 2013 deadline and use Prop S funds to build cash reserves.

In October 2006, aldermen approved an annual-appropriation note with Royal Banks of Missouri to receive a loan to help pay off that debt through Prop S funds.

However, officials learned in 2008 that the tax-exempt status of that note hampered the ability to build cash reserves. In March, aldermen approved prepaying $525,000 in excess of a federal 5-percent balance limit tacked onto the city’s refinanced debt.

The city’s original $2.87 million annual-appropriation note 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.

With that 5-percent limit still in place on the tax-exempt note, Eckrich estimates the city will have to pay between $900,000 and $1.13 million in excess cash reserves next year on top of the scheduled 2009 payment of $478,000.

Between those payments, the city would pay off the rest of the $1.57 million owed on the note. At that point, city officials could use the roughly $550,000 in taxes collected each year from Prop S to build reserves in the city’s general fund.

While Prop S originally was approved as a tax of 20 cents per $100 of assessed value, its real and personal property rate has been rolled back to 16.9 cents while the commercial tax rate remains at 20 cents.

By retiring the city’s $1.57 million in remaining debt on the note, Eckrich estimates general-fund reserves would grow as the city no longer would be penalized for keeping a balance above the federal 5-percent limit on the city’s tax-exempt note.

“Say we make the decision to pay off Prop S at the end of 2008,” he said. “Then you look at the 2009 budget and instead of showing $50,000 revenues over expenditures (in the general fund), you show $526,000 revenues over expenditures …

“Then, you no longer have the Prop S cash limit to deal with. So if everything goes as planned within the budget and the Proposition S payment were made in late 2008, the city would have an available cash balance in the general fund of approximately $480,000. And then, because of this surplus, at the end of 2009 would have a cash reserve of approximately $1.01 million. So we get our cash back up.

” … Then instead of looking at deficits in 2010 and 2011 …you’re looking at surpluses. This doesn’t do anything to correct our problems in the capital-improvements fund. It doesn’t directly do anything to correct our problems in the park and stormwater fund. But it does give the board the option of moving some of these expenditures that … were never intended to be in the park and stormwater fund back to the general fund in those years. And we can get our cash balance up without paying taxes and without being in violation of the IRS.”

With Prop S revenues now being proposed to build cash reserves instead of city officials’ stated 2006 intent of paying off debt, Ward 4 Alderman Steve Nieder cautioned that city leaders should state their “true intentions” the next time they ask for a tax-rate increase.

“The reason we got that loan from Proposition S is because we said to the lending industry we want to pay it off as soon as we could,” he said. “And that’s why we got the terms and the conditions that we did as they were forced upon us … And you did promise that to the taxpayers. And when you go back and ask them for another tax increase, we’d better make sure we put on the ballot what our true intentions are.”

Nieder then proposed that Eckrich make further cuts to the proposed 2009 budget to shrink the projected deficit.

But Ward 4 Alderman John Foote disagreed, insisting that an uncertain economy makes the 2009 budget nothing more than a “guesstimate.” He instead proposed making residents more aware of the financial challenges facing the city.

“We’re not even sure the dollars and cents established on this budget are going to be realized,” Foote said. “I would say that the budget as it sits right now is a guesstimate … So going back into this again is another operation in guesstimating. And it isn’t going to get us anywhere until we can start involving the people in this city in some of the decisions. We’ve got to get this out to the public.”