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Home » News » Lake Lotawana, MO » Creative Financing For Municipal Governments

Creative Financing For Municipal Governments

Creative Financing For Municipal Governments

February 15, 2014

By Stephen Wagner


Most people are under the impression that governments, when they need to borrow money of any consequence, must go for voter approval. Normally, this involves a sale of bonds to provide the necessary revenue.

In Missouri, there is a commonly used although little known way around that whole bond issue. Colloquially, it is referred to "lease-lease."

In Missouri, lease payments are subject to annual appropriation by the governmental entity; it must be renewed every year. The lease is automatically renewed as long as the governmental entity continues to make annual appropriations. Because the governmental entity is not obligated to make lease payments beyond any current fiscal year, the lease obligations are not considered debt for purposes of any constitutional or statutory debt limitation and do not require voter approval.

Here is how that works. A city enters into a lease agreement with a lender. Since the city is barred from having a lease that is longer than its own term (one year), each new government must vote to continue with the lease. But they don’t have to!

Of course stiffing a lender would most likely make borrowing money more difficult the next time.

And the result? A lease can be constructed so that is amortized over many years indebting the city without voter approval.

At Lake Lotawana, the City is currently dealing with a complicated civil suit recently recast and refiled by Village by the Lake, LLC. The Missouri Secretary of State’s website states that the corporation was formed in 2003 by Aaron Day, and there has been no change of ownership filed with the Secretary of State as of our press time.

The complaint is a contract dispute, a development agreement between the City and VBL, LLC. The eight page complaint (1316-CV29555) alleges breach of contract by the City. The complaint requests damages in the amount of $2,249,340.05, plus ongoing monthly damages of $5,000 per month since August 17th, 2011, including special damages, interest, legal costs, and attorney’s fees.

As previously reported, this case is not covered by our insurance carrier, MOPERM, because this is a contract dispute.

The City must pay its own legal fees. The last time this complaint was defended, legal fees alone approached $120,000 and diverted time from City employees and the Board of Aldermen.

The Board of Aldermen, in consultation with the attorney hired specifically for this case (the City Attorney has a conflict of interest), will determine the strategy of the City’s defense.

But how are these two different subjects connected?

Some of this property is near the intersection of Colbern Road and Highway 7. There is currently a loan on that property. One option would be to purchase the property from the lien holder for an agreed upon sum. There are other options that are in the purview of the Board of Aldermen.

But we would probably need to raise money to make that purchase, and possibly purchase other tracts of land. Although completely legal, the voters will most likely not participate in that decision.

The fiscal health of the City, at this point in time, is not in jeopardy. But the City has several expensive tasks in the relatively near future. Yet one more reason to consider when deciding if voting for your candidate Alderman is all that important.

It really is important.

[Reporters note: For more information, visit: http://www.munibondadvisor.com/MOLeaseFinancing.htm ]

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