Two local banks will help finance Fulton's $8.89 million new recreation center.
Fulton funded just under $4 million of the total cost in its 2020 budget but sought a $5 million, 15-year loan to fund the rest. During the May 12 Fulton City Council meeting, Fulton Chief Financial Officer Kathy Holschlag presented three loan options; city council members voted to select an option during the May 26 meeting.
The option selected by council members is a lease-purchase agreement with The Callaway Bank and Central Bank, with the interest rate locked at 3.1 percent for the first 10 years. After that, the interest is capped at 5 percent for the rest of the loan's term.
This won't be Fulton's first time working with the two banks on a major project - the three also teamed up when building Fulton City Hall and the city's new warehouse.
"We are pleased that the (Fulton) City Council made the decision to keep it local," said Marcia Lamons, president of Central Bank's Fulton branch in a Monday email. "We see this project as a benefit to our community and, therefore, we offered a very competitive option."
Kim Barnes, president and CEO at The Callaway Bank, concurred.
"Our two institutions have a great history of partnering on larger projects for the city in the past when financing was needed, and we're glad to do so again in support of our community," she said Monday. "It might seem unusual for institutions who are friendly competitors to work together; but we have respect for each other and understand the importance of coming together for the greater good."
The other options included:
A bank loan arranged through Stifel at 3.03 percent for 15 years, plus an up-front cost of $46,500 for brokerage, band and trustee fees.
A bank loan arranged through Stifel at 2.75 percent for 15 years, plus an up-front cost of $46,500 for brokerage, band and trustee fees. This arrangement would require the city to pledge Fulton City Hall as collateral while the rec center is under construction; once completed, the rec center would serve as collateral.
"I move we proceed with the local option," said Jeff Stone, Ward 2 city council member.
Ward 1's Ballard Simmons was initially reluctant, given the higher interest rate.
"Right off the top you're talking about over $10,000 a year in extra cost," Simmons said. "If going local is worth the extra $10,000 a year, that's the penalty we have to pay."
"It is to me," Stone said.
According to Holschlag, under the local option, at the 3.1 percent , the city will pay at least $1.26 million in interest over the 15-year loan term, compared to $1.11 million for the loan at 2.75 percent. But factoring in the up-front cost associated with the non-local options, the differences between the local option and the 2.75 percent option is only around $103,000 spread out across 15 years - though that number doesn't factor in a potential increase in interest rate over the local option's last five years.
Simmons quickly talked himself around.
"$46,500 up front is a lot of cost," he said, later adding, "If it was my money and I was in a cash crunch I wouldn't want to fork over $46,500 (right now). I would bite the bullet and extend the debt service out. I'm paying more in the long run but right now's when I've got the problem."
The city is, indeed, facing a cash crunch, according to Holschlag, who said that while April's sales tax revenue numbers aren't available yet, March's showed a drop of 5.5 percent.
"I have serious concerns about how adversely our revenue will be affected this year," she said.
Ultimately, city council members voted 6-1 in favor of going with the local option. Ward 4's Steve Moore voted against, and Ward 1's Valerie Sebacher was absent.
As Ward 4's Rick Shiverdecker pointed out, the city could look at refinancing the loan in the future.
"I believe we need to continue to look for a cheaper interest rate," he said. "We don't need to lock in with anything for the next 15 years."
Though the city has committed to financing through Callaway and Central banks, the loan won't be finalized until after the city's public finance lawyers present an ordinance to the council, Holschlag said Monday. The process will take about 60 days.