US Bank asking city to provide $3.75 million to secure redevelopment loan

US Bank asking city to provide $3.75 million to secure redevelopment loan

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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.

— 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.

Comments

Scott Wedel 4 years, 6 months ago

Date of default notice known by City staff: April 19th. Date made public: May 3rd.

Please explain. I'll give my explanation.

Looks like a conspiracy by City Hall keep vital public information that happens to be bad news secret: 1) A "detail" such as notice of default of $17.5M bond is NOT MENTIONED AT ALL in April 21 meeting that discussed Duckels contract and base area bidding process.
2) City Manager Jon Roberts apparently thought that notice of default for $17.5 was not relevant to the discussion. 3) City Manager Jon Roberts does not sign contract with Duckels. So he knew what at risk with the default notice. Apparently, still not worth publicly mentioning this detail. 4) Board member Cari Hermanski appears well informed on the issue when it is made public May 3rd. 5) The default notice is made public at the last possible moment: when they have an agreement that City will transfer $3.75M in reserves and 24 hours before public meeting when Agenda has to be released that mentions topics that can be discussed at the meeting. 6) Thus, made public only after IT CANNOT LEGALLY BE KEPT SECRET ANY LONGER!!! 7) Thus, removing any opportunity for citizens to inform themselves and understand the effects of committing 40% of the city's reserves. 8) And if they have "no cushion" at "current ass­essed valuation" of base area properties then WHAT HAPPENS WHEN THE VALUATION IS REASSESSED AT PRESENT VALUE? Highmark condos are selling at one third of (66% below) current assessed value. Presumably, next year it will be a few hundred thousand a year from general fund to pay for the existing bond.

The City Hall fix is in. They have already kept everything secret for two weeks, had secret discussions to come up with a settlement, and now announce it at the last second to ratify their secret activities of the past two weeks.

And their secret plans have GIVEN THE PUBLIC NO CHANCE TO CONSIDER ALL THIS AND THE ADDED IMPACT OF THIS YEAR'S $4.5M CONTRACT??? The City is consciously destroying the entire concept of local democracy and having informed citizens. They have decided that City Hall is all knowing and that the public should know nothing until City Hall has decided what to do. That is not democracy.

Every City Council member and city employee that knew of this secret have demonstrated that they fundamentally do not believe in having an informed public and thus have proven open contempt for the citizens of Steamboat Springs.

Every City Council member that knew of this prior to May 3rd should resign or be recalled. Every city employee that knew of this and did not see the absolute requirement for it to be made public should be fired.

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ybul 4 years, 6 months ago

It would be special to lend the 3.75 million to the bank at 1% interest rates so that we can be in compliance with bonds they have guaranteed, which the community is paying significantly more in interest.

If they are going to continue to require to have that and maybe ask for more in the future. Maybe the bonds can be purchased and held as security in a safety deposit box, as opposed to lending US Bank 3.75 million to shore up their bank statement. Maybe we if the assessed values decline in the future, then we can loan the bank the entire 17 million to cover the prospect of default on the bonds we have outstanding.

Wow, reminiscent of the 30's when banks called in loans because of declining values. If this is a national issue, as tax receipts decline nationally these types of problems could get very ugly. The crisis in Greece could look very mild, when compared to how city, state and other government agencies built all types of projects with debt in the past, if they have some sort of mechanism to require capital to guarantee the loan repayment.

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Chad Fleischer 4 years, 6 months ago

This is what is going on in the world of banking all over the country. I wouldn't look at it as a secret gathering or a conspiracy. This is a typical bank move to ensure profitability and compliance with the Fed regs. Like it or not credit is not easing and regulators are relentless in the pursuit of making sure we do not see the over leveraging we have in the past. What do the improvements mean for the ski base area and Steamboat as a whole? I think it would be nice for visitors but I am not sure there is the infrastructure in place to support building all this right now. It would be great for moms to walk with kids and strollers and for everyone to not have to go through the Sheraton to get to Torian but I do not see sales tax revenues at the ski base area accounting for any of this expenditure. I hate to say it but the timing is extremely bad and should be tabled. Reserves are not meant for these types of projects and doing so would be a very bad decision. There are a lot of people who have been dedicated to this project for a long time and I think they may be able to bring some good ideas to the meeting tonight to try and figure this out. Dialogue and dedication to resolving this matter is all it takes and with that the proper decision will be rendered. It is the new world of banking and we need to make sure we alter our spending habits accordingly.

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ybul 4 years, 6 months ago

Yes, it is what is going on all over the country, and if other government agencies are facing the need to deposit money at the bank that is guaranteeing the bonds, then the contraction in the government sector could be worse in the near future. Thus causing a further decline in tourism.

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Scott Wedel 4 years, 6 months ago

The bank appears to be within it's contractual legal rights to do this so I am not that upset at the bank.

I am extremely upset at the City for keeping this SECRET FOR TWO WEEKS WHILE DECIDING OTHER URA ISSUES. It is so wrong to make important issues secret until 24 hours before the public meeting when they decide their solution to the issue.

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pitpoodle 4 years, 6 months ago

We have every reason to be concerned about how this city council makes decisions. Can we all now see how quickly SB 700 costs could have become the responsibility of current residents? Just with affordable housing alone, the possibility of the proposed real estate transfer fee being struck down as unconstitutional would leave the city liable. We all would be paying millions to pay for the affordable housing city council told us would be completely paid for by SB 700. Council also made a decision to accept SB 700 annexation agreement before an important water study that outlined how residents would be affected by water availability, new filtration and sewer upgrade costs. Nearly all city officials denied current residents would be affected in any way. These two actions make us wonder who city council is representing, it does not appear to be the tax paying public. How can these people be trusted?

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Scott Wedel 4 years, 6 months ago

I am told that US Bank would have sent the default notice only after failing to work things out with the City. So it is extremely likely that the City department has known for a couple of months that US Bank had issues with the bond and wanted money to secure the loan.

Apparently, details that threaten to wipe out the city's reserves while sales tax is unexpectedly continuing to decline (“We didn’t anticipate going down 6 percent,”) is nothing that should be made public until the agenda is released for the council meeting to ratify the city's chosen solution.

Who knew this when? And why did they keep it secret so long?

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ybul 4 years, 6 months ago

The bank probably is within their legal rights. My only comment is in reference to how many other communities probably structured their bonds this way and what kind of effect it will have on the broader economy, which our tourism based economy relies heavily upon.

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Duke_bets 4 years, 6 months ago

ybul - It seems that city failed on the ageement with the bank. I don't believe the bank is asking to borrow money from the city. The city agreed to a contract with certain conditions. Those conditions were obviously met at origination and now are not. It appears that the bank is in compliance with the original agreement and the city is not.

Keep blaming the banks and you will never face reality.

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pitpoodle 4 years, 6 months ago

Hermancinski and Quinn are in charge. Would it be possible for Michael Lawrence to do any work by asking hard questions of them? Or is he still in the mode of believing all that he is told by city council and city officials?

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Scott Wedel 4 years, 6 months ago

Hopefully not many other communities so aggressively borrowed for their redevelopment agency.

Review the history of the school district collections and interpretation of the TABOR. It was no secret that the school district had legal doubts about what they were doing would withstand a challenge.

So was the URA completely inept and not recognize the consequences of the school district concession on the issue? Was the City completely inept and not realize it either?

Someone the City signed a bond agreement based upon the old assessments a week AFTER the school district finally changed the assessments. So the City knowingly signed a bond with "no cushion" and yet continued on talking about redevelopment work this summer. I can understand US Bank's notice of default. That is probably what they decided to do after seeing that SB had enough reserves to cover it. Their loan compliance dept probably earlier considered sending this to prosecutors as a case of loan fraud.

We have a local housing authority assisting with 100% financing of homes. We have a City and their URA intent on not informing the public of their actual financial condition and wiping out the City's financial reserves while the city's finance dept head is surprised that sales tax for March was down 6%.

The mismanagement of financial issues by the URA and City is thorough and persistent.

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housepoor 4 years, 6 months ago

I'm a little confused on why the School Dist lowered their mill? Increase in total valuation properties in the district?

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housepoor 4 years, 6 months ago

Nevermind, the reduction in the mill levy is to make of for the over collection in the past.

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Steve Lewis 4 years, 6 months ago

Re: the decision to proceed with the summer's work, it seems obvious we can not afford it. That would be a gamble that the TIF stream doesn't shrink even further.

With assessed property values poised to drop further still, as ybul infers, I would think the bank could be asking for more security down the road, even on the URA bonds already applied. When you borrow based on some security promise, and that security is diminished, you have to put more on the table.

Put the URA on hold. We will have other needs for those reserves.

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JLM 4 years, 6 months ago

Calm down, this is just garden variety municipal finance. One may engage in conjecture that there should have been a bit more timely disclosure --- fair criticism, if the facts support that. That however has absolutey nothing to do w/ the financing itself.

There is absolutely nothing nefarious about a bank which has underwritten bonds on a certain good faith basis --- in this instance a collateral issue apparently --- enforcing their underwriting. The bank has a fiduciary obligation to their ownership to do exactly that.

The bank is not going to receive and nobody is going to pay a penny more in interest.

The City can, in fact, afford it because they are going to pay for the construction with the proceeds of selling the bonds. Nothing about the amount of money to be received has changed in the least.

A calm financier could easily argue that the time to make public improvements is when the CONSTRUCTION costs are lowest --- hey, that would be right freakin' now!

Using your existing financial muscle to make things happen in bad times is exactly what an experienced and skillful financier would do. We are pledging additional collateral not paying anything.

It's all gonna be OK, folks.

If you really wanted to be smart, go get some Obama Rope a Dope money for this project. It could happen!

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ybul 4 years, 6 months ago

I am not blaming any banks.

I believe what I am trying to state are two things. First in this instance it seems as though the bank does not own the bonds and just is acting as their guarantor (I may be wrong). While this may or may not be the case, the fact that city reserves will now be required to be put on deposit at 1% while bonds are being repaid at 4% (numbers may be off but this is probably close to the percents), that it would be nice if the system allowed for the City of Steamboat Springs to buy the bonds and put them on deposit with US bank so that we do not need to pay the interest rate spread. I am blaming no one, it is what it is.

The second point was that if other government agencies put together bond issues like this one, then as the belt tightening continues, many agencies could be forced to use reserves to help to guarantee bonds constricting local governments budgets and adding more concerns about the future. Essentially what happened in the in the early thirties when banks could require that a borrower cover any shortfall in a loan if the value of an asset dropped below the loan amount. Creating downward pressure on asset values as those assets that fell in value to cause the default, faced more selling pressure further lowering the value of the assets causing more loans to be called as a result of deficiency (essentially what the credit crisis was 18 months ago when most assets crashed).

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JLM 4 years, 6 months ago

@ ybul ---

What you are describing is simple "Finance 101". That's the way borrowing money in a municipal finance environment works.

The bank is likely the "underwriter" and the seller of the bonds on behalf of the URA whose credit was enhanced by the City of SBS.

The underwriter is often the bond "manager" who administers the payments and ensures that the bond indenture (promises by all parties) is enforced.

It's all working exactly how folks agreed it would happen.

There is no doubt that there is downward pressure on all assets out there. This is a bit different than the Great Depression as you are not talking about the same types of assets and borrowers but yes somebody better damn sure be paying attention.

BTW, this is all going to stay the same or get more than a bit worse until the US of A starts creating jobs. And who is in charge of that? That Knucklehead in the White Ho House who is apparently spending all of his time diddling around w/ healthcare, nuclear disarmament, immigration, Iran, Israel, Iraq, Afghanistan, Wall Street and anything, anything, anything except for job creation.

It's all gonna be OK.

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JLM 4 years, 6 months ago

Georgie, boy, worst case scenario --- they apply the additional collateral to the outstanding indebtedness and the total amount owed --- and guaranteed by the City of SBS --- goes down.

The money does not get snatched, it gets applied against the debt --- worst freakin' case.

The City would then get paid the tax incremental finance (TIF) funds as they appear. Sooner or later they will materialize. This is not like the Iron Ho House deal in which the funds can, in fact, disappear forever.

It's nothing, babe. It's all gonna come out in the wash.

Trust me, I'm a financier.

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Scott Wedel 4 years, 6 months ago

"This is a sea change" that happened 5 months ago and apparently neither the URA or the city realized it until April 19th when they received a notice of default from US Bank.

The trouble going forward is that the URA's revenues are fully allocated to pay the current debt service. The current real estate valuations are based upon 2007/8 values. Valuations are going to go down. That is not a worst case scenario. That is a simple fact. Worst case scenarios would be that tax income approaches the URA baseline (as it already has done for sales tax) and URA revenues head towards zero and the city becomes liable for the $1.3M annual debt service payment.

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kathy foos 4 years, 6 months ago

I wish Ralph Nadar had a second home in Steamboat.I guess Im lucky ,my home values went up 20,000..So the bottom line is that the loss of valuation on the market caused the flucuation in property values ,affecting ability to get financing for new construction,or progress.Looks like another flat year for any expansion at all.That really sends a negative message............Dont forget to make the lawmakers enforce new safety regulations on the oil industry,and have the corp. of engineers oversee it?(like a dam,it involves public safety),they can make the oil industry not cheat to save money,avoiding more spills and deaths,They should redo some existing wells in the gulf with remote controlled safety shutoff switches,like Norway and Brazil do.Then this incident would be long over.They can drill want they want,just make them do it safely.It will be a national law ,I hope,It should regulate inland facitlitys also.Double the safety in the wilderness area.The oil industry will not want to cooperate,but the laws are our governments option in order to allow the industry to grow, only make sure they comply,they wont on their own.This Gulf thing could have been avoided if the shutoff valve was installed and they didnt do it,to save money.

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JLM 4 years, 6 months ago

@ George --

OK, you got me, I'm Bernie Madoff playing on the prison's library computer. Rats! LOL

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John Fielding 4 years, 6 months ago

Hey George

Just noticed when you changed from Che' to the feline it was back dated to all the recent posts.

I also noted a comment critical of your use of Che' due to the fact that he was a brutal killer. This is where historical facts interfere with mythology. The mythical Che' was a freedom fighter, champion of those enslaved by oppressive government. That image is one that does merit support, but it is important to know the whole story

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John Fielding 4 years, 6 months ago

I also note that the comment critical of your use of Che's image has been pulled. What is up with that? It was a legitimate point, and contributed to the overall quality of the blog.

Is someone objecting to criticism of the use of the image? Or is someone objecting to disclosure that the historical fact does not support the romantic image? In some peoples opinion everyone he killed was a simple war casualty, or deserved to die as a tool of the despotic government. Others maintain he was as brutal as Stalin or Hitler but just worked in a smaller venue.

The truth probably lies between, but wherever, it should not be banned from discussion.

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