With construction on Lewis Street set to begin early next month, the Pagosa Springs Town Council approved financing for the project last Thursday at the May mid-month meeting that will put the town on the hook for $1.8 million for 10 years.
Faced with several financing options, Pagosa Springs Town Manager David Mitchem recommended to council a financing package with a 3.34 percent interest rate and using the Ross Aragon Community Center as collateral.
“After staff review, we believe the Wells Fargo proposal is the most viable over the life of the loan,” Mitchem told the trustees.
Mitchem added that the package also offered an opportunity to refinance the debt owed on the community center (set to be paid off July 2014).
Last month, Mitchem asked council for direction regarding funding mechanisms for the Lewis Street project. At that time, Mitchem told council that he believed money allocated for the community center loan could be directed towards a loan for Lewis Street construction after 2014 in order to shorten the term of the obligation.
Trustee Shari Pierce asked Mitchem, “What would the annual payment be that we need to put into our budget?”
After doing some quick math, Mitchem responded, “$176,648 and 59 cents ... approximately,” eliciting laughter from the trustees.
“If I remember correctly, that’s what is in our Capital Improvement budget,” Pierce said.
In fact, council provided $227,500 for payments in its 2011 budget.
Pierce asked about a stipulation in the loan package that provided no penalty for paying off the loan early — provided no early payments were made within the first three years.
“I would recommend we not do that,” Mitchem said.
Pierce then asked if the town’s legal counsel had been given a chance to review the loan proposal.
“No, he has not,” Mitchem replied.
At that point, audience member Bill Hudson asked how the town could increase its debt load without voter approval. According to Hudson, Article X of the Colorado Constitution prohibits a municipality from increasing its debt load without voter approval.
Hudson was referring to Section 20 of Article X, the TABOR (Tax Payers Bill of Rights) amendment passed by Colorado voters in 1992.
Hudson then asked if the town was prepared to respond to a lawsuit challenging the town’s increase of debt.
Although Hudson appeared to have done his homework regarding TABOR, he failed to research the town’s Home Rule charter. In 2003, town voters approved that charter, part of which (Section 9.14 “Municipal Borrowing”) reads, “The Town may, subject to any applicable limitations in the Colorado Constitution, borrow money and issue securities or enter into other obligations to evidence such borrowing in any form and in any manner determined by the Council to be in the best interests of the Town.”
Essentially, town voters “debruced” in 2003, removing TABOR restrictions from the town’s ability to fund capital improvements.
Last fall, Amendment 61 (which would have limited the ability of municipalities to borrow money for large capital improvement projects) was soundly defeated by Colorado voters. That amendment would have reigned in municipalities that had adopted home rule charters and had “debruced” to avoid financing restrictions established with TABOR.
Mitchem replied to Hudson’s comment with a “bring it on” response, saying that the loan, “Is in compliance within Colorado statute and in compliance of the TABOR amendment and our legal counsel is one-hundred percent convinced that we would, as a town, prevail.”
Pierce made a motion to accept the finance package with the stipulation that the town’s attorney examine the proposal before signing off on the deal. The motion passed unanimously.
Construction will begin next month on the portion of Lewis Street adjacent to the middle school — between Third and Fourth Streets. According to town planner James Dickhoff, contractors should have an indication of how much of Lewis Street can be constructed this year and how much work will need to wait for the 2012 construction season.