If you go
What: Meeting of the Steamboat Springs City Council, acting as the Steamboat Springs Redevelopment Authority
When: 4 p.m. today
Where: Centennial Hall, 124 10th St.
Contact: Call city offices at 970-879-2060 for more information.
Steamboat Springs A default notice from U.S. Bank is forcing city officials to either change the scope of this summer’s base area redevelopment work or provide $3.75 million in city funds to secure the bank’s loan.
City Manager Jon Roberts confirmed Monday that April 19, U.S. Bank issued Steamboat Springs a notice of default on its $17.5 million loan for redevelopment at the base of Steamboat Ski Area. The default notice is raising significant questions with some city officials about whether this summer’s work should continue as planned — or at all. Scheduled work includes partial construction of a public promenade and the daylighting of a section of Burgess Creek. Roberts has not yet signed the $4.5 million contract for the work, which was awarded to Duckels Construction on April 20 after a controversial bid process. The city has not released any of that $4.5 million, Roberts said.
The Steamboat Springs City Council is scheduled to decide today how to proceed with the increasingly messy, multi-year base area project. Today’s meeting begins at 4 p.m. in Centennial Hall on 10th Street.
“We did receive a notice,” Roberts said Monday. “U.S. Bank “gave us 30 days to provide additional security” for the loan.
The $17.5 million loan is in the form of bonds backed by the bank.
City Finance Director Debra Hinsvark said no payment on the loan has been missed. The bank’s notice makes no reference to a missed payment. Although Hinsvark said a default has not occurred, U.S. Bank used strong language that indicates the contrary.
“The (Steamboat Springs Redevelopment) Authority is in default under the reimbursement agreement and, unless certain corrective action is taken within 30 days of this letter, will be in further default,” the notice states.
The bank initially requested $5.1 million to secure the loan, but Hinsvark said Monday the final, negotiated figure is $3.75 million.
Roberts and Hinsvark said the City Council, acting as the Steamboat Springs Redevelopment Authority could allocate those funds from the city’s reserves. According to unaudited 2009 figures, Hinsvark said, the city has about $5 million in completely unallocated reserves, plus about $4.5 million in its “fiscal policy reserve,” which is unallocated but preserved by the city on financial principle.
Hinsvark said the base area bonds are “trading very well,” and the status of the loan is not yet affected.
“This is all between the bank and the SSRA at this point in time, and the market doesn’t know about it,” she said. “It hasn’t harmed anybody’s credit rating.”
Tax change fallout
U.S. Bank sent the notice and asked for additional security primarily because of a decrease in Steamboat Springs School District property tax assessments announced in December, about a week before the city’s loan was approved.
The school district, along with at least six other entities, assesses a property tax within the base area Urban Renewal Authority. Increments of those tax revenues fund the URA and support the $17.5 million loan for base area redevelopment.
Thus, the school district’s collection of less property taxes than planned in the loan means there could be less revenue available to pay off that loan.
On Dec. 14, the school district approved a reduction in property tax assessments, or mill levies, because the district had over-collected about $4.2 million worth of property taxes between 2007 and 2009. The over-collection occurred because of an incorrect interpretation of legislation involving the state’s Taxpayers Bill of Rights.
The city’s loan, approved Dec. 22, did not account for the school district’s decreased revenue stream. Dale Mellor, finance director for the school district, said Monday that the district’s property tax collections will be lower than planned until 2013.
“The failure to disclose the change in the mill levy prior to issuance of the letter of credit is in direct violation of … the reimbursement agreement, and an event of default,” the U.S. Bank notice states.
Roberts said throughout the loan negotiations, U.S. Bank has required assurance that the URA will generate revenues significantly greater than the loan’s annual debt service of about $1.5 million. The default notice, he said, is a demand for a guarantee of those revenues.
“Now, they’re just saying, ‘Show us where the money will come from,’” Roberts said.
The total change in URA mill levies is primarily the result of the school district decrease but also is affected by property valuations. In December, when the city’s loan was approved, nearly 44.7 mills — or property tax increments — were projected to generate nearly $1.9 million annually within the URA.
According to Mellor and U.S. Bank, the school district decreased its assessment by about 11 mills this year. The URA levies decreased to 31.6 mills total, generating about $1.3 million annually, according to April projections provided by Hinsvark.
“The mill levy changed enough that the lender has legitimate concerns,” City Council President Cari Hermacinski said Monday. “This is a sea change, to have the mill levy drop this much.”
Roberts said the decrease in school district taxes removes the loan’s safety net that allowed for fluctuations in base area revenue.
“Based on the current assessed valuation (of base area properties), and with the reduced mill levy, the URA (funds) are adequate,” he said. “With the reduction in mill levy, there is no cushion.”
Roberts has presented City Council with four options to consider tonight: delaying the project for a year; allocating the $3.75 million from the city’s reserves and continuing work as planned; reducing the work’s scope; or canceling the work entirely.
Hermacinski said the URA’s mill levies, the default notice and likely future decreases in property values should give City Council “tremendous pause … to step back and reconsider” work this summer.