Friday, June 13, 2014
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City considers Alternative Revenue Bonds for TIF financing and EPA loan

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[June 13, 2014]  LINCOLN - When local businessman David Lanterman announced a few weeks ago his intention to build the Lincoln Grand 8 Theater, he said he was hopeful $2 million of the amount needed for the project would come from the city’s newly developed TIF District funding.

Tuesday evening, Mayor Keith Snyder disclosed that the application for the TIF funding has gone through the TIF committee and that committee is recommending the city enter into an agreement with Lanterman.

However, the city does not have $2 million available, so in order to work with Lanterman on the project the city will need to secure those funds from an outside source. The most viable way to do this would be to issue alternative revenue bonds.

TIF or tax increment funding is a program that allows the city to invest in improvement and development projects and reclaim their investment through increased property tax revenues.

Tuesday evening Snyder said Lanterman’s original estimate of $2 million had actually been raised to $2.3 million. The additional $300,000 he said would be used to do the sidewalk renovations that would allow that block of Kickapoo Street to matchup with the city’s street scape plan. Snyder said because it is a city sidewalk, the city will eventually reimburse Lanterman for that portion of his construction costs.

Mayor Snyder and city treasurer Chuck Conzo have been investigating what the city can do in issuing new bonds. The city officials told the council they are recommending the city go with the firm First Mid-State for this project. They are also recommending they issue what are called tax exempt bonds.

Snyder explained there are tax exempt and taxable bonds available. The taxable bonds are less complicated to maintain, but he feels the city should still pursue the tax exempt bonds.

He said in doing so, the city would have to document that they are not receiving any income from the business owner in exchange for the TIF money and the city would not be able to prevent Lanterman from contesting any future tax assessments.

Snyder said the tricky part of this situation is in that Lanterman needs the money now, but there will be no collection of increased property taxes for the city until 2016. That causes a problem in that the bonds would have annual payments due starting in the first 12 months, and the city would have no means of making the payment.

The solution to this, he said was to seek to have the bond payments re-amortized so that the first two years payments would be rolled back into the bond, and spread across the remaining 18 years.

Snyder noted the change in property tax on the physical location of the new business will be a very significant amount. The Logan County Assessor’s office has estimated the first year, the property tax on the new theater will be $152,597 but that is the amount the city will not receive until 2016.

Snyder said if the bond payments are rolled back, by year three the city will be able to break even on the revenue versus bond payment.

He went on to say that he had put together a spreadsheet with annual increases in property tax of two percent. With those annual increases, the city will start building reserve cash in the TIF program within six to seven years.

Snyder explained that with the approval of the council to issue the bonds, there will be a 30-day clock that will prevent the bonds from being issued for that period of time. This has to be done so the public can present petitions if they wish to contest the bond issuance, and even push that the bonds be approved by referendum vote. Because this bond issuance will not have any effect on taxpayers, it is not expected that there will be any concerns.

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Conzo recommends paying off EPA loan with bonds

In a related matter, Conzo talked with alderman about issuing alternative revenue bonds to pay off the city’s loan with the Environmental Protection Agency.

Conzo first brought this proposal to the council in January of 2013. On the day they discussed it, the difference in the interest rates between the EPA note and the bonds would have saved the city about $100,000. This week Conzo explained that before the council could make a decision, the rates changed on the bonds, and the savings were depleted.

In 2001 the city began working on a modification to the city waste treatment plant that would bring it up to EPA standards in the state of Illinois. The modification wasn't necessarily one the city did by choice, but rather something they were forced to do by the EPA.

At that time, the EPA was offering low-interest loans to all municipalities that completed their upgrades. The city applied for such a loan and received approval in 2002 for a $9.8 million loan at an interest rate of 2.557 percent. The annual payment to the EPA is $642,000.

This week, Conzo said interest rates have fallen again, and once again the city could save about $100,000 on the life of the note. He said if the city goes with a 10 year bond, they will pay that off just as quickly as the EPA note, but the interest rate would be only 2.13 percent.
Given that interest rate, the annual payments on the bond would be $630,000, about $12,000 less than what the city is paying the EPA.

Conzo said he would recommend the council move forward with this suggestion. He had in 2013 worked with Bernardi Securities of LaSalle on this, and recommended them again.

As with the TIF bonds, once the council approves going forward, the 30-day clock will start.

What happens to the interest rates in that period of time may affect how the city eventually does move forward on this. A decrease in rates obviously would be desirable. If however, the rates go up and the savings diminish once again, the city may not issue the bonds.

Tuesday night, the council by nod of head indicated they wanted to vote on this, and offer Conzo the opportunity to save them about $100,000.

During discussion Conzo was asked if Bernardi would charge a fee. Conzo said they would, but compared to what could be saved in the end it would be insignificant.

The discussion of bond issues came to an end with Tom O’Donohue saying that both requests should be placed on the Monday voting agenda.


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