'It won't be easy': Independence has options with Bass Pro Shop debt
The Falls at Crackerneck Creek development has been a financial albatross for the city of Independence for a dozen years. City officials are mulling how best to keep the tax-assisted project from being worse.
Financial advisers for the city have proposed taking advantage of historically cheap bond interest rates through refinancing and continuing to use funds from other more-lucrative development areas to support what’s commonly known as the Bass Pro TIF (tax increment financing).
Bryan Kidney, director of finance and administration, and bond advisers say the refinancing deal should go before the City Council in the next month or two. If the deal goes through, It would be the third time the bonds have been refinanced for the development that started shortly before the Great Recession of 2008-09 includes and surrounds Bass Pro Shops near Interstate 70 and Missouri 291.
The city’s goal is to avoid having to dip into its general fund – which pays for police, fire and other non-utility services – to cover bond payments.
Independence had to do that for a few years, as development around Bass Pro was slow to begin and tax revenues from the project failed to cover the payments. But after the second refinancing in 2015, better revenues from the development, and revenues from other economic development areas to help cover payments, the city has not had to make a bond payment from the general fund for five years. Balloon payments on the horizon would likely change that, barring more refinancing.
From 2024 through 2029, the scheduled payments exceed project revenues – by about $2 million at least. In 2029 the projected difference is about $7 million. Starting in 2030, the scheduled payments dip below projected revenues
“We’re contemplating doing this bond refinancing at an extremely good time,” Tom Kaleko of Baker Tilly told the City Council this week, as not only are rates low but demand for municipal bonds exceeds supply. “We’ve got some years where we’ve got an imbalance, and that’s the condition we’re seeking to cure. It truly is a plan, and the future is uncertain, so we want it to be a plan that’s revised as needed.”
Besides Bass Pro Shops, the development includes Mardel, Hobby Lobby and Duluth Trading Co. stores, and Slim Chickens, Old Chicago Pizza, Cheddar’s, Pizza Ranch and Los Cabos restaurants, Main Event Entertainment, and Stoney Creek Hotel & Conference Center that have been added over the years.
But tax revenues automatically captured from the Crackerneck Creek area toward bond payments will end after 2027, and bond payments continue until 2045.
According to city documents, Bass Pro’s initial lease on its city-owned building runs through 2026, with nine successive one-year renewal options and then three five-year options. If all options get exercised, the lease would run through 2050.
The entire city manager's office and City Council have changed over since the city put together the tax financing deal in 2004. City Manager Zach Walker has said Independence's deal has led other metro area cities to shy away from similar development deals involving municipal-backed bonds.
“We overextended what we thought would be the financial performance of this TIF,” Walker said.
What was the original Bass Pro plan?
The original Bass Pro TIF plan included about $72 million in bonds. Currently, the outstanding balance, with interest, for those bonds is $88 million, according to city documents. The plan put together by staff and advisers calls for Independence to refinance three bond series with $38.8 million currently outstanding.
The city should pay off the $820,000 remaining balance on the Drumm Farm TIF, which is scheduled to end in December 2022, advisers say. The city would then continue to draw its particular portion of tax revenues from that TIF and other expiring economic development plans in southeast Independence in the successive years, and put them into a “sinking fund” to continue helping with bond payments.
Payments for all the Bass Pro bonds would then last a few more years, until about 2050, but would stay at or below projected revenues, even as the projection dips in the 2030s. Ideally, it avoids hurting other city departments in the general fund.
Kidney said the sinking fund essentially would continue what the city has been doing for several years.
“It’s really not any major change in how we’ve done things,” he said. “It does formalize it little more, and the bondholders can be more assured there’s funds available. The whole purpose is to assure our current investors and future investors.”
City Council Member Mike Huff said, and Council Member Mike Steinmeyer agreed, that the plan comes across as “robbing Peter to pay Paul” and wondered if they could substitute the term “sinking fund.”
Kaleko and David Martin, from the city’s bond counsel Gilmore Bell, said perhaps a different term could be used, though Kidney explained “sinking fund” is the technical term in the financial industry for such an arrangement.
Are there any alternative options?
If the city doesn’t refinance, Kidney said, it will undoubtedly have to make up the difference from the general fund.
“This was on my radar the day I got here,” Kidney, who has been with the city less than five years, said of the refinancing plan. “I want this council to be the one that does something and doesn’t kick the can down the road, and they don’t make a future finance director or council have to decide this.”
Kaleko said that if the city defaults, its bond rating would likely fall into the “junk” category, “making it very expensive for the city to borrow funds in the future.” He pointed to the city of Moberly being on the hook for millions in for a failed artificial sweetener plant more than a decade ago.
“It took them many years to recover their rating,” Kaleko said.
Independence’s rating on the Crackerneck Creek bonds is BBB-plus, or investor-grade, Kidney said. Most other economic development bonds for Independence are A-minus.
Steinmeyer, after hearing the advisers’ report, wondered if a more robust plan wasn’t possible.
“We know the progress has not been sufficient,” he said. "We have to come up with some big plan or be prepared to walk away and take our lumps. I think we’ve got to have a better plan than having a sinking fund.”
“That’s what this is,” Martin said of a robust plan, as it’s meant to extinguish the debt using lower interest rates and minimize the effect on the general fund.
“It is possible to move forward with something that doesn’t include a sinking fund, but I don’t think it’s marketable,” he said.
“We talked about the fact that any solution was going to require real fiscal diligence and restraint,” Kaleko said. “It will be difficult to sit down each year and decide what the appropriations will be. This is a viable solution, but it won’t be easy.”