Steamboat Springs While sitting in the building's contoured seats for the first time, the members of City Council took the first step this week toward authorizing a $1.8 million lease-purchase agreement with Wells Fargo Bank to fund the construction of Centennial Hall.
In a lease-purchase agreement, the city is technically not in debt to the bank, said John Self of Wells Fargo. That means the financing tool does not need to be presented to the voters for approval.
"It's not a way to circumvent taxpayers. It's a way to fund a transaction that saves time and money," Self said. Although the TABOR amendment dealt a challenge to the practice of lease-purchasing, it was declared legal by a court of appeals in 1994, Self said.
"It's been upheld a number of times," added City Attorney Tony Lettunich.
Self said lease-purchase financing has been used by many other municipalities in Colorado.
City Council voted Tuesday night to approve a resolution to reimburse itself for debt already incurred in the construction of Centennial Hall. Council will have to vote twice more to finalize the full lease-purchase agreement once it is in ordinance form.
Lettunich and City Finance Director Don Taylor are still working out the details of the lease-purchase agreement, which will likely make them offer a city building as collateral for the loan. That building may end up being Centennial Hall itself or City Hall, Lettunich said.
The agreement is a complex one but contains many of the basic premises of debt financing. The city, after getting financing from the bank, owns Centennial Hall.
Through the lease-purchase, however, the city offers a long-term lease on the building to the bank, which subsequently leases it back to the city in the short-term. So, technically, the lease-purchase deal involves leasing the building to the bank, which leases it back to the city but, basically, the agreement works much like a lease-purchase deal on a car, Lettunich said.
The city will lease the building from the bank, paying the loan off in short-term lease payments. If the city stops payment, the bank will be able to lease out the building to whomever it wants during the remainder of the leasing period.
Once that period is up, however, the city will automatically own Centennial Hall, which is where the agreement differs from the car lease analogy. The bank, then, is taking a relatively big risk that the city will not pay back the loan, since once the bank's long-term lease is up the city will still own the property.
Self, however, believes the risk is not that great, calling the agreement a "good investment" for the bank.
"You live in a very strong city and they know what they're doing with their money," Self said.
Taylor, in fact, helped work out a lease-purchase agreement using Breckenridge's city hall when he worked in that city.
The city also acquired the land for Centennial Hall using a lease-purchase agreement.