City could save on Treasure Island

Barbara Diamond

Low interest rates have triggered a national refinancing frenzy and

some city officials would like to take advantage of it.

“The city can save $400,000 by refinancing the debt for Treasure

Island Park using tax-exempt rates,” Mayor Toni Iseman said.

City Manager Ken Frank was instructed to provide options for

paying about $8.5 million that’s still owed by the city for Treasure

Island Park. The current rate is 8.5%.

“No question we could save money,” Frank said. “Somewhere in the

neighborhood of $400,000 to $500,000, over four years, but only if

the council is willing to take a risk.”

The council would need to pledge general fund revenue sources to

repay public financing if the hotel’s bed tax didn’t cover the loan

payment. Under the development agreement with Athens Group, the

balance owed by the city is reduced by the amount of bed taxes

reported by Montage Resort and Spa, and no cash is paid out of city

funds.

“Five out of the seven bed-tax reports made by the resort to the

city since it opened would not have covered the proposed loan

payment,” said Councilwoman Cheryl Kinsman, a certified public

accountant. “Using the bed tax to pay off the loan is the most

financially conservative course the city could pursue and that is

what the city should do.”

All hostelries charge a 10% bed tax, which is paid to the city.

The Montage bed tax is applied to the money spent on Treasure Island

Park that was fronted by the Athens Group. The additional 2% bed tax

earmarked by the hotels for the Business Improvement District is paid

to the city and distributed according to the district agreement to

support visitor-serving arts groups.

Frank investigated refinancing the park balance a year ago,

seeking the advice of Larry Rolapp, managing principal of Fieldman,

Rolapp and Associates, financial advisor for all of the city’s debt

financing for the last two decades.

Based on Rolapp’s report, Frank decided he could not recommend

refinancing.

He has not changed that position.

“My fear is that something unusual would happen -- a fire, a

strike -- and the general fund would be on the hook,” Frank said.

Kinsman suggested the city could loan itself the money.

“I think it could be a good idea, but the timing may not be

right,” City Treasurer Laura Parisi said. “If we use the money for

financing the Treasure Island loan, it would not be available for

other uses.

“It requires more study. There are other options that might be

more lucrative for the city.”

One option Parisi would like explored is a discount on the total

loan in exchange for a quicker payoff.

“A time might come when that would be attractive to the

developer,” Parisi said.

Parisi was influenced by the opinion of the city auditor, Kinsman

said.

“He was hesitant because of the way information looks on a

financial statement,” Kinsman said. “The city looks better with cash

reserves rather than using the cash to pay off a loan that doesn’t

require cash payments.

“I would favor an internal loan over a bond measure, if the loan

is feasible under governmental accounting standards.”

Kinsman supplied the council with two pages covered with numbers

that showed how much would be paid toward principal and interest, the

monthly debt service, estimated bed-tax revenue and savings. One of

the documents was based on an external loan, the other on an internal

loan from city funds now invested at a low interest rate and minus

the cost of issuing bonds, an estimated $300,000.

Councilman Steve Dicterow requested a legal opinion from the firm

of the city attorney on an internal loan. He favors seeking a

interest-rate reduction.

Frank is set to present refinancing options to the council on Jan.

20.