Poplar Bluff may give city manager more power in debt talks

POPLAR BLUFF, Mo. -- The Poplar Bluff City Council is expected to take action today on a policy that will assign responsibilities to the city manager in future debt negotiations and outline how the city will fulfill remaining conditions of a contract with the Eight Points development group.

The matter was discussed March 18, when city manager Heath Kaplan raised questions about completion of the development along Oak Grove Road.

Council member Ed DeGaris expressed concern about the amount of control the policy would give Kaplan and whether the city was opening itself to a lawsuit by changes made to the Eight Points agreement.

The city's bond counsel, Gilmore and Bell, did not return calls seeking clarification of the points raised.

The city does not have a comprehensive debt policy and will need one before seeking future bonding, Kaplan said at the March 18 meeting.

The current proposal was compiled by him, the city's financial advisers and special counsel, he said.

The city already has missed a deadline to begin making payments to the Eight Points developer, Kaplan said. This will cause interest on the money owed to rise from 8 percent to 10 percent, he said.

During discussion, Kaplan and Mayor Pro Tem Jack Rushin indicated the city will pay the developer $14 million, with payments of $300,000 annually. Payments will be made from sales tax collected within the tax incremental financing district that includes Menards and Wal-Mart Neighborhood Market. The money would reimburse the developer for specific costs as agreed to in a contract finalized by the city in 2013.

Kaplan said the developers had been waiting for him to familiarize himself with the agreement.

He did not say how much the late penalty would cost or whether further delays would result in penalties.

Sections of the proposal, titled "local purchasing preference policy" and "contract administration," relate to the Eight Points project, Kaplan said.

"I'm just trying to progress the financing piece for the Eight Points development because I think they're getting a little antsy," Kaplan said. "They waited for me to get familiar with the bushels of documents that were thrown my way."

Financing for the payments likely will not occur until mid-May or June, he said.

Kaplan questioned whether businesses within the Eight Points development would generate sales needed to make payments to the developer. He did not provide information at the meeting or in council documents to support these claims.

He also accused the developer of bringing in businesses "cannibalizing" the city's existing tax base, saying Menards takes business from Home Depot, and Wal-Mart Neighborhood Market takes business from other grocers.

"The simple math is, right now you've got two buildings out there, maybe 10 percent of the development done, and you've got a developer saying, 'Hey, pay me $14 million. You're going to have to trust me that I'm going to develop it to where you can get enough sales tax to pay your debt,'" Kaplan said. "I'm sorry if that makes me a little nervous."

Kaplan did not say he was nervous in December when he asked the council to pass a 2015 budget balanced by relying heavily on large increases in sales tax. At the time, he said his sales-tax growth projections were based in part on predictions of the growth from sales taxes in the Eight Points development.

Rushin said he felt the developer had dictated too many of the conditions in the contract with the city.

According to Kaplan, the developer also was allowed to choose the underwriter for the bonds. The city has a letter from the underwriter, stating the company works for Eight Points and not for the city, he added. Selection of the underwriter normally is done through competitive bid, Kaplan said.

Yet in Kaplan's proposed debt policy, it states the selection process "may" include a request for proposals from qualified firms.

The policy grants authority to approve selection of the underwriter to the city manager. The policy also says the city manager will consider requests for a specific underwriter. The city council is given authority to determine the appropriate method to evaluate the underwriter.

Kaplan also asked the council to approve language that would increase the bond amounts issued to repay the Eight Points debt from increments of $5,000 to increments of $100,000.

The larger amount could be purchased only by institutional buyers who could absorb the risk if the development defaults, Kaplan said.

"I'm not casting a shadow over the development," he said. "I just feel that investments of this sort belongs with institutional investors."

DeGaris said he was worried the change would violate agreements with the developer, creating the opportunity for a lawsuit and making future businesses question whether the city would honor its contracts.

In other parts of the proposal, a section that would have read the "city will select a financial adviser" during the sale of bonds is changed to say the city manager "will determine whether to retain a financial adviser and will approve the selection of a financial adviser."

When DeGaris raised concern about the authority given to the city manager, Kaplan said only the city council can issue debt.

"A lot of people say we're trying to micromanage. I don't think that's it," DeGaris said. "I think the citizens elected us to be the governing body. You work for us, so we watch what you do."