According to Philip Richter, senior vice president and manager for public finance with UMB Bank in Kansas City, state law authorizes IDAs to issue tax-free bonds to pay for the construction of hospitals, education and recreation facilities.
The party using the bonds must be a 501(c)3 not-for-profit corporation and not one using the money for religious purposes. A hospital, for example, can erect its building but must use private funds to include a chapel.
The Greater Ozarks YMCA has previously used an IDA to fund construction of its facility in Bolivar, said Brad Toft, YMCA chief executive officer.
Proposals for how to fund the Monett YMCA were sought, leaving details up to the banks.
"We knew we would have to finance the pledge period," Toft said. "We expected a bond issuance. We let the banks give us their most creative mechanism. It's important for the community to recognize this is their Y. The others didn't have the connection of working with the city and the local bank. That's one of the reasons we chose UMB."
The YMCA board chose to proceed with the UMB proposal in May for $8 million in bonds. Richter said UMB had hired Gilmore and Bell, the largest bond counsel in the state, and will purchase all of the bonds, selling them only as the money is needed.
In a public offering, all of the bonds would be at the outset, leaving the entire debt and interest on the debt to be repaid. UMB's approach will reduce the interest owed.
The tax break on tax-free bonds is approximately 1 percent. Actual cost for the bonds would be based on United States Treasury notes and at last check would probably run under 3 percent. The bonds could be used to pay for interim expenses, such as prepayment of construction materials and architectural fees, providing additional tax-free savings.
The bonds will have a five-year life, unlike a typical public issue that runs 10, 15 or 20 years. The IDA bonds can be renewed for an additional five years. Toft expected to have $1 million to repay after the first five-year period. Pledges that come in will be used to pre-pay the debt. Terms of the bonds will enable the Y to buy back bonds prior to their maturity, providing an option to further cut interest.
IDA board members wanted to know what kind of liability the IDA and the city would have for the bonds. Mark Nelson, IDA chairman, said the IDA exists as an entity unto itself. Unlike the Tax Increment Financing (TIF) Commission, which makes recommendations that the Monett City Council must adopt, the IDA has the unique ability to issue bonds on its own. The YMCA alone will be obligated to pay the debt. There would be no liability to the IDA or the city.
"The YMCA has engaged UMB," Nelson said. "We don't have to look for other proposals."
Richter said such an arrangement is fairly typical in Missouri. Under the property arrangement between the YMCA and the city for use of South Park land, the city will own the YMCA building and lease it to the Y for 99 years. The lease will be held as a mortgage by UMB as security on repayment of the bonds.
The initial five-year period will include construction, which Gordon Brown, executive director for the Monett Area YMCA, estimated would take 12 to 14 months. Opening is scheduled for fall of 2012. The payout on the bonds would follow over the next four years.
The ceremonial groundbreaking for the YMCA building will be held on Saturday, July 2, as part of the July 4 celebration, Brown added. Construction fencing will be put in place in the next few weeks to get the public used to the construction zone. Significant ground work will begin after July 4 to not interfere with parking during the holiday festivities.
To issue the bonds, the IDA will need a resolution from the Monett council indicating the bonds would be bank qualified. In addition, the IDA would have to hold a public hearing on the proposal.
City Administrator Dennis Pyle agreed to schedule the resolution on the July 20 council meeting. The IDA board planned to hold its public hearing at 5 p.m. on July 20 in council chambers at city hall, then hold a meeting immediately thereafter to approve the bond sale.
IDA board members agreed to ask UMB for $1,000 to cover the application and issuance fees for the bonds. Nelson said fees typically run between $500 and $2,500.
The last bonds issued by the IDA helped pay for the most recent expansion at EFCO Corporation. Nelson said those bonds had recently been paid off.
The new YMCA is expected to cost more than $10 million. Brown said local fundraising will likely continue to cover the purchase of equipment. Bids from contractors will be opened shortly.
While the cost of materials has risen, Brown said Y officials remained optimistic about the final price, based on preliminary indications. The low cost of money due to reduced interest rates will help the Y in the long run, Toft added.
Attending the meeting with the YMCA delegation was Kevin Naeger, chief financial officer for the Greater Ozarks YMCA. Mayor Jim Orr also attended for the city.
Orr said if the city's plans to sell revenue bonds for a new water treatment plant are approved by voters, the city cannot sell its new bond issue until January. The YMCA's plans would not interfere with the city's timetable.
Since the time the IDA last met, Ken Caviness had moved from the city, leaving a vacancy. Orr said the council would find a replacement. Eligible persons must live in the city limits. Also serving on the IDA are Nelson, Rod Anderson, Brian Hunter and Steve Stidham.
Anderson recalled at an earlier meeting the IDA had talked about putting up a speculation warehouse building, possibly at the airport. A recent conversation with a realtor suggested interest in such a project remains, especially in light of the loss of buildings in Joplin.
Board members agreed to explore the ideas in a future meeting with realtors to find out exactly what specifications would meet the needs of industrial customers.