Monson property purchase good example of why citizens should be engaged in city government
December 26, 2012
I have been following the city budget discussions in the Daily Sun News and thought that this information on the purchase of the Monson property may interest some folks. It is important to remember that the purchase occurred in 2004 and the city council members were Jim Restucci, Don Vlieger, Mike Farmer, Bruce Ricks, Benji Aguilar, Paul Garcia and Ed Prilucik.
While most people who live in Sunnyside were glad to see the city of Sunnyside purchase the 150+ acres of property commonly referred to as the Monson property, I'm not sure everyone followed the details of the actual deal. Most people viewed the opportunity to make the west entrance of Sunnyside more attractive as a real plus for the community, and I must say I agree.
The story at the time, presented by the city manager and 2004-05 Council, was that the city would purchase it with a variety of interfund loans from various accounts within the city to cover the $2.5 million purchase price and no debt would be incurred. To quote from the minutes of the Oct. 6, 2004 Council meeting, "Bob Stockwell emphasized under the funding program it will not be necessary to raise taxes or fees of any type to make this purchase and move forward with the clean-up of property."
Once the property was cleaned up, by the seller, the city would sell it for development and make a profit or at least break even and pay back the interfund loans plus accrued interest.
How this worked in reality is a little different. The agreement for purchase was approved by Resolution #2004-51 in October 2004 and the plan to self-fund this purchase with interfund loans and not debt was provided at the same council meeting as the resolution. At the November 2004 City Council meeting, the Council approved Resolution #2004-53, preserving the city's right to reimburse those interfund loan funds with the sale of bonds at some future time.
The interfund loans were then made in 2005 by Ordinance #2094, also approved at a public meeting, in the total amount of $1,750,000. These dollars came from four different funds to allow the city to make the first two installments on the purchase, the balance of $750,000 was not due until August of 2006. In September 2006 the purchase agreement was amended (City Council Resolution #2006-43) to allow more time for the clean-up and thus moving the final payment to April 2007.
This purchase spanned 2.5 years before completion, from October 2004 to final payment to the sellers in April 2007. During that time the City Council make-up underwent some change as did the city staff. Also during that same time the state auditor, whose job it is to assure municipalities are following the rules for use and management of public funds, had time to review how this purchase was being financed. The auditor found that the city could not within the public accounting rules make this type of interfund loan and self-fund (no debt) this purchase as initially proposed.
Fortunately for the city, back in November 2004, the Council had also approved a resolution preserving their right to reimburse those interfund loans by issuing a bond. In August 2007 the City Council approved Ordinance 2167 to issue $2,760,000 in general obligation bonds. The proceeds from the bond issue were to repay the interfund loans plus accrued interest. During this same meeting the Council also approved Ordinance 2168 to issue $2,285,000 in water and sewer bonds to extend water and sewer to this same property.
As a point of clarification, general obligation bonds are paid from the general fund with tax dollars, and water and sewer bonds are paid through consumer rates on utility services. No mention of debt for water and sewer was made at any meeting leading up to the purchase of this property.
Yet we now have a new bond debt issued to provide water and sewer to this property in addition to the debt of the purchase price.
Repayment of the bonds described above was deferred with interest only payments until 2012 for the general obligation bonds and 2018 for the water and sewer bonds.
Having said that, it is important to point out that the interest was still fully accruing from the day of issuance (2007) on the full amount of the debt at a rate of approximately 4.5 percent. The general obligation bonds accrued interest from their issue date in 2007 on the full amount of $2.76 million until the principal was reduced in December 2012. The interest on those bonds on an annual basis averaged about $137,000 each year until the initial principal payment in 2012. In 2013 the interest should drop to about $122,000 according to the Bond Preliminary Issue Statement payment schedule.
With continued principal payments each year the annual interest will continue to drop. The same is true for the water and sewer bonds, except that the deferral is much longer with the first principal payment, being deferred for 10 years.
You may wonder how much additional money this deferral is costing the taxpayers and rate payers in Sunnyside. Some might say it is worth the additional cost in the future so as not to raise the property taxes or water and sewer rates.
When the general obligation bonds issue was presented to the Council the Preliminary Issue Statement showed the total interest for the life of the bonds as $1.8 million. This is several hundred thousand more than it would have been had the principal payments been started at the beginning of the 20-year term for the bonds.
Others may have thought way back in 2004 that the property would have been sold way before the payments started and all would be good. I think if selling that property for development was so easy the Monson family would have done it and made the profit. But as we all know today, that property is no closer to being developed than it was in 2004, except that it now has water and sewer to it.
The purpose of this column is to hopefully make people aware of how these things work and strongly suggest that all community members pay close attention to government operations. The taxpayers or rate payers are the folks that pay the municipality's bills and therefore should be aware of and participate in the process.
Sunnyside is a great place to live, work and raise a family and it needs your help to stay that way.
- Amber Hansen is executive director of the Sunnyside Port District.