Councilman Says City is Wasting More Than $60 Million

5 years 11 months 2 weeks ago Friday, December 30 2011 Dec 30, 2011 Friday, December 30, 2011 6:07:00 PM CST December 30, 2011 in News
By: Danielle McCarthy

COLUMBIA - Third Ward Columbia City Councilman Gary Kespohl said the city is wasting more than $60 million of taxpayer money paying interest on bond obligations. Kespohl's claim comes after he said he stumbled across the data in city's financial records about a year ago.

The city uses bonds to cover the cost of major projects like parking garages, government buildings and upgrades to the city's electric system. However, it delays the principal payments on most of those bonds, thereby incurring a significantly more in interest than had it began paying the principal payment from day one.

For example, in 2009 the city used a bond worth $13,030,000 to fund the construction of the new parking garage at Fifth and Walnut Street in downtown Columbia. However, it will not start paying down the principal on that bond until 2017. Because it is delaying principal, city documents show the city will end up paying $12,917,444 in interest. Had it started paying down the principal from day one, the documents say it would have spent $10,352,363 in interest. But when Kespohl had a banker estimate how much the city would pay in interest had it not delayed the principal, he said his numbers added up to $7,695,666.

The city finance director who decided to pay for the projects this way was Lori Flemming. She told Kespohl the process is called "blending" the bond payment. Current Finance Director John Blattel said it is common for cities to pay for projects in this way. If they did not, he said they would have to raise utility rates by about $1 per bill in order to begin paying down the principal from day one. Although Kespohl said he believes the city would have to raise rates by about $2 per bill in order to cover costs. Then after 20 years, he said, the rates would be reduced by about 6 percent.

"I've got a 14-year-old grandson," Kespohl said. "In 15 years he's 29 and he wouldn't be saddled with a $6.6 million principal payment on a bond that we didn't pay for."

"We try to keep the rates at a constant level so that the customers that happen to be here at that particular time, they pay for their share and the customers that come here five years from now pay their share," Blattel said. "It wouldn't be fair to the current customers to charge them more and future customers less."

Currently listed on the city's website under its debt service report for this past year are about 30 different bonds used to fund projects since 1998. Kespohl said he studied eight of those bonds in particular. The total amount of those bonds added up to $164,200,000. Because the city is delaying the principal payments on all these bonds, the interest it will pay according to city documents is $143,698,773 and the interest it would have paid had it started paying down the principal from day one is $107,359,875. But according to the banker whom Kespohl had make an estimate, had the city started paying down the principal from day one, it only would have had to pay $82,976,110 in interest - more than $60 million less than what the city will pay in interest based on its current plan.

Kespohl said he has called this issue to the attention of the city finance department, Mayor Bob McDavid and the other council members. Ultimately, he said he would like to raise utility rates now in order to start paying down some of the bonds' principal payments. No one has been especially open to that idea, Kespohl said. However, he and Blattel said they are planning on talking with the council and the mayor in February 2012 about re-issuing some of the bonds. Blattel said by doing this, the city could possibly pay lower interest rates and save more money.

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