Independence considers major refinancing for Crackerneck bonds
The development of Crackerneck Creek Falls has been a financial albatross for the town of Independence for a dozen years. City officials are considering how best to keep the proposed tax relief from getting worse.
The city’s financial advisers have proposed taking advantage of historically low bond interest rates through refinancing and continuing to use funds from other more lucrative development areas to support what is commonly known as the Bass Pro TIF ( financing by tax increase).
Bryan Kidney, director of finance and administration, and bond advisers say the refinance deal should go to city council within a month or two. If the deal goes through, it would be the third time the bonds have been refinanced for the development that began shortly before the Great Recession of 2008-09 includes and surrounds Bass Pro Shops near Interstate 70 and Missouri 291 .
The city’s goal is to avoid having to dip into its general fund — which pays police, fire and other non-public services — to cover bond payments.
Independence had to do this for a few years, as development around Bass Pro was slow to get off the ground and tax revenue from the project failed to cover payments. But after the second refinancing in 2015, better revenue from the development and revenue from other economic development zones to help cover the payments, the city hasn’t had to make a bond payment from the general fund for five years. . The lump sum payments on the horizon would likely change that, barring further refinancing.
From 2024 to 2029, projected payments exceed project revenues – by about $2 million at least. In 2029, the projected difference is approximately $7 million. From 2030, projected payments fall below projected revenues
“We’re looking at doing this bond refinance at a very good time,” Baker Tilly’s Tom Kaleko told city council this week, because not only are rates low, but demand for municipal bonds is outstripping supply. “We have years where we have an imbalance, and that’s the condition we seek to heal. It really is a plan, and the future is uncertain, so we want it to be a plan that is revised as needed.
In addition to Bass Pro Shops, the development includes Mardel, Hobby Lobby and Duluth Trading Co. stores, as well as Slim Chickens, Old Chicago Pizza, Cheddar’s, Pizza Ranch and Los Cabos, Main Event Entertainment and Stoney Creek Hotel & Conference Center restaurants which have been added over the years.
But tax revenue automatically collected in the Crackerneck Creek area for bond payments will end after 2027, and bond payments will continue until 2045.
According to city documents, Bass Pro’s initial lease on its city-owned building runs through 2026, with nine successive one-year renewal options and then three five-year options. If all options were exercised, the lease would run until 2050.
The entire office of city manager and city council has changed since the city entered into the tax financing agreement in 2004. City manager Zach Walker said the Independence agreement has led other cities to the metropolitan region to avoid similar development agreements involving obligations guaranteed by the municipality.
“We exceeded what we thought was the financial performance of this TIF,” Walker said.
What was Bass Pro’s original plan?
The original Bass Pro TIF plan included approximately $72 million in bonds. Currently, the outstanding balance, with interest, of those bonds is $88 million, according to city documents. The plan developed by staff and advisors calls for Independence to refinance three sets of bonds with $38.8 million currently outstanding.
The city should repay the remaining balance of $820,000 on the Drumm Farm TIF, which is scheduled to end in December 2022, according to councilors. The city would then continue to take its particular share of tax revenue from this TIF and other expiring economic development plans in the Independence Southeast in successive years, and place them in a “sinking fund”. to continue to help pay the obligations.
Payments for all Bass Pro Bonds would then last a few more years, until around 2050, but would remain at or below projected earnings, even if the projection drops into the 2030s. Ideally, this avoids hurting others city services in the general fund.
Kidney said the sinking fund would essentially continue what the city has been doing for several years.
“It’s really not a major change in the way we’ve been doing things,” he said. “It doesn’t formalize it much more, and bondholders can be more assured that there are funds available. The goal is to reassure our current and future investors.”
City Council Member Mike Huff said, and Council Member Mike Steinmeyer agreed, the plan was like “robbing Peter to pay Paul” and wondered if they could replace the term “sinking fund” .
Kaleko and David Martin of city bond attorney Gilmore Bell said perhaps a different term could be used, although Kidney explained that “sinking fund” is the technical term used in the financial sector for such an arrangement.
Are there alternative options?
If the city doesn’t refinance, Kidney said, it will no doubt have to make up the difference with the general fund.
“It was on my radar the day I got here,” Kidney, who has worked in the city for less than five years, said of the refinance plan. “I want this board to be the ones that do something and not kick the streets, and they don’t make a future CFO or board have to decide that.”
Kaleko said that if the city defaulted, its bond rating would likely fall into the “junk” category, “making it very expensive for the city to borrow funds in the future.” He pointed out that the town of Moberly was saddled with millions of dollars for an artificial sweetener factory that broke down more than a decade ago.
“It took them many years to regain their rating,” Kaleko said.
Independence’s rating on Crackerneck Creek bonds is BBB-plus, or investor grade, Kidney said. Most other economic development bonds for independence are A-minus.
Steinmeyer, after hearing the advisers’ report, wondered if a more robust plan might not be possible.
“We know progress has not been enough,” he said. “We have to come up with a big plan or be ready to go and take our pieces. I think we have to have a better plan than having a sinking fund.”
“It is what it is,” Martin said of a robust plan, as it aims to extinguish debt using lower interest rates and minimize the effect on the general fund.
“It’s possible to move forward with something that doesn’t include a sinking fund, but I don’t think it’s marketable,” he said.
“We talked about the fact that any solution would require real budgetary diligence and restraint,” Kaleko said. “It will be difficult to sit down each year and decide what the credits will be. It’s a viable solution, but it won’t be easy.