Reason for default
U.S. Bank sent the city a default notice April 19 asking for additional security on the city’s $17.5 million loan for base area redevelopment, primarily because of a decrease in Steamboat Springs School District property tax assessments announced in December, about a week before the 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 redevelopment loan.
Thus, the school district’s collection of less property taxes than documented 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. U.S. Bank called that a default on the loan conditions.
Dale Mellor, finance director for the school district, said Monday that the district’s property tax collections will be lower than planned until 2013.
Steamboat Springs City officials on Tuesday postponed action on base area redevelopment work until May 18 while they negotiate with U.S. Bank and explore other financial options in the wake of a default notice on the project’s $17.5 million loan.
The Steamboat Springs City Council’s unanimous decision also suspended signing an associated $4.5 million contract with Duckels Construction, or releasing any funds for this summer’s redevelopment work at the base of Steamboat Ski Area, until at least May 18.
The postponement followed Monday’s confirmation by City Manager Jon Roberts that the city received the default notice from U.S. Bank on April 19. The notice said the Steamboat Springs Redevelopment Authority was in default on the loan because of property tax rates that decreased without city documentation, and were not changed in the loan conditions, before the loan was approved. The bank is requiring the city to provide $3.75 million within 30 days as additional security for the loan.
The City Council acts as the city’s Redevelopment Authority. The group met in executive, or secret, session for about 30 minutes Tuesday to discuss how to proceed in negotiations with U.S. Bank.
Councilwoman Meg Bentley said the executive session included discussion of “other financial alternatives” to support the redevelopment work. Councilman Jon Quinn seconded that.
“U.S. Bank is not the only commercial lender,” Quinn said. “It may be that there are other financial options out there.”
City Council President Cari Hermacinski said the two-week postponement allows city staff, including Finance Director Debra Hinsvark, to present the council with a more clear recommendation than the four options presented Tuesday night in Centennial Hall. Those options included using $3.75 million of the city’s unallocated general fund to secure the loan, and proceed with work as planned; delay the work a year; cancel this summer’s work and essentially repay $5 million of the loan, which is in the form of bonds backed by U.S. Bank; or scale down this summer’s work and repay about $2.5 million of the loan.
Councilman Walter Magill said he would not support using $3.75 million from the city’s unallocated general fund to back base area redevelopment, even if that meant stopping this summer’s work. Quinn also expressed disapproval of that idea.
Meanwhile, Duckels Construction is in limbo as to whether to plan and prepare for a $4.5 million contract that could dramatically change in two weeks. Derick Duckels said Tuesday that he learned last week, on about April 28, that there could be problems with the base area redevelopment loan.
“They just said they were having issues with the bonds,” Duckels said about what he was told by city staff.
Duckels said he learned the extent of those issues Monday from City Manager Jon Roberts.
Duckels said including their crews, subcontractors and others, about 200 workers could be involved in the base area work this summer.
“It makes scheduling really hard,” Duckels said.
City officials said the time is necessary, however, to negotiate the best result for a default notice that caught them by surprise and was not initially understood.
Hermacinski said it seemed “unprecedented” that U.S. Bank would issue a default notice when no payments had been missed and, she said, the ability to continue payments was not in question. Hinsvark also said the delay in action on the notice was at least partly because its intent was unclear.
“We weren’t quite sure what the notice was telling us,” Hinsvark said.
She said the city’s bond counsel, Sherman & Howard’s Denver office, told city officials that U.S. Bank could not use the default notice to freeze funding from the loan. So the city proceeded last month with awarding the contract to Duckels, while beginning negotiations with U.S. Bank.
Hermacinski said she learned about the default notice April 20 and that information about it was made public “at the very next public meeting” of the City Council — Tuesday night’s gathering at Centennial Hall — after the notice’s intent was clarified for the city.
She said city attorney Tony Lettunich notified council members of the default notice April 23. Bentley called the notification procedure “very appropriate.”
“I don’t think there was ever an effort to keep anything from the public,” Quinn said.
Duckels declined to comment about whether he felt there were ethical concerns with the city’s awarding of a $4.5 million contract the day after receiving a default notice on the supporting funds. He said he’s simply dealing with information as it comes to light.
“I have to roll with the punches,” Duckels said. “I don’t have a choice right now.”