Democracy on the Front Lines
City Administrators Blog
Walter Denton
June 16, 2009
It is counterintuitive that in times of declining revenues and a poor economy bring opportunities for development and growth. However, it is because of the economy’s current malaise that the City is able to commission a $10 million expansion to the Family Sports Park.
While we were investigating financing options to expand the O’Fallon Public Library with the proceeds from Vernon Ohlendorf’s estate, our bond broker suggested we apply to increase our bond rating. Standard and Poor’s analyzed our finances and upgraded our rating from AA- to AA because of “strong income levels, sound financial operations with very strong reserves, and moderate debt burden.” (Click here to read the news release.)
Similar to many homeowners who are refinancing their mortgages, this is a good time for the City refinance our bond debt. In 2006, the City issued $21 million in bonds to extend the Prop S Bonds, build a Conference Center and build the First Phase of the Family Sports Park. Funding for this bond was Prop S ½-cent Sales Tax, the Hotel/Motel Tax and the Food and Beverage Tax.
With the increase of the City’s bond rating from AA- to AA, we were able to refinance these bonds from 20 years to 30 years, receive an additional $10 million to fund the Second Phase of the Family Sports Park and not increase our bond payment. The $10 million will build an additional four ball fields, two professional soccer fields and associated parking, playgrounds, trails, concessions and rest rooms. The addition will allow O’Fallon to be competitive for national tournaments and establish the City as a destination to benefit our hotel/restaurant industry.
The bonds will be modified to split out the last four years as a separate section and sell them as federally-backed Build America Bonds. Under this proposal, the first 26 years will be tax-free and have a reduced interest rate. The last four years (or approximately $7 millon) will be sold as taxable Build America Bonds and the U.S. Treasury Department will refund 35% of the interest back to the City. Build America Bonds (also called BABs) are a new financing tool from the American Recovery and Reinvestment Act (also known as the economic stimulus bill). Usage of the BABs will result in an overall savings to the City of at least $1.4 million.
In addition, the City Council made the existing Telecommunications Tax permanent, which will allow for those revenues to be included in paying back the bonds. This additional revenue source will allow for a reduction in the amount of bond payments coming from Prop S funds and will result in an additional $600,000 of Prop S funds annually to be allocated to Streets, Sidewalks and Storm Water. This calculates to a total of $1.2 million per year for infrastructure or $36 million over the life of the bonds.
All of this will require no additional cost to the taxpayers. Moreover, most of the cost is borne on non-residents: nearly all of the Hotel/Motel Taxes are paid by out-of-towners and we estimate 60-70% of sales taxes and Food and Beverage Taxes are paid by non-residents.
Some people have inquired why the City of O’Fallon should embark on such an ambitious project when the economic situation is so dire. I would counter it is exactly in these times that we should be aggressive to boost our local economy. Sales tax revenues are declining so we need to provide a local stimulus plan. Recreation and open space are critical quality of life features among corporations looking to relocate their businesses. The sports park will be a destination for sports teams who will stay in our hotels, eat in our restaurants, shop in our stores, and provide revenue to the City so we can provide essential services to our citizens.
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