Stoddard County officials heard from Gilmore & Bell and Stifel, Nicholaus & Company of St. Louis, Mo., Monday morning regarding two financing options to move forward with the voter approved county jail expansion.
Mark Spykerman, a lawyer with Gilmore & Bell, told officials counties normally choose one of two lease options: a direct lease or certificates of participation.
In a direct lease, the county leases a facility to a bank and the bank then leases it back to the county through rent payments until the loan is paid, Spykerman said.
Certificates of participation are similar to a direct lease, but multiple investors, such as banks or individuals, purchase bonds for the facility.
"Generally counties use lease financing," Spykerman said. "My suggestion would be to get an underwriter or financial advisor on board to tell how much you are paying in rent each year during the lease financing."
An underwriter, such as Stifel, can ask banks on behalf of the county from their contacts and more if they are interested in a direct lease or look at prevailing market rates for municipal bonds and see if certificates of participation make more sense.
"It's really more of an economic decision," he said.
Gilmore & Bell's role, according to Spykerman, is to draft lease documents once the option is decided as well as provide legal opinions through the process.
The documents are drafted from the county's audits, current financial state and more to be used as an offering for potential investors, marketed by Stifel if hired.
"Once all (the documents) are out in the market, it's a supply and demand issue," Spykerman said. "The higher the demand, the lower the rate."
Once the transaction is closed, Spykerman said money comes into a project fund and the county will begin drawing on the proceeds to build the jail project.
Presiding Commissioner Greg Mathis asked Stifel Director of Public Finance Martin Ghafoori if he would recommend a project the size of Stoddard County's jail expansion to include one investor or multiple.
"Typically you have one direct loan, but if you have other local banks you want to open it up to, we can share that information with them and see if they would like to submit a bid," Ghafoori said. "Investors could be numerous if you do a public offering to essentially the world."
Spykerman added he had seen projects of this size go either way.
If local banks are interested in the lease process, Stifel would work with the county to get a list of banks to inform about the participation process.
"We could make local priority of those within the county to make sure bonds are available for local banks or residents," Ghafoori said.
With an annual projected revenue of $1.4 million over seven years with the approval of the sales tax, Commissioner Steve Jordan asked the financial advisors what interest rate they estimated for the project.
Ghafoori estimated interest rates in the low three to high two percent with a short transaction.
"One reason rates are so low is counties are able to issue tax exemption obligations and they don't have to pay federal taxes on interest earnings," Spykerman said.
Incoming Presiding Commissioner Danny Talkington, who will take office in January, inquired if prevailing wage would be paid for construction.
According to Spykerman, prevailing wage would be paid in either the lease or certificates of participation option.
Mathis also asked in a lease purchase agreement, who is in charge of the approval of the building designs and plans.
"The county has complete control over design and construction," Spykerman said.
A misunderstanding of terms arose a couple weeks ago when "lease purchase" was used regarding construction versus financing.
When the term "lease purchase" is used in the design, construction and development world, Dale Rogers of Robert Stearns and Associates, Inc., said it meant to him a developer would construct a building and lease it back.
This would have put the project out of Roger's control.
"But what you are talking about now is financing, not building the building," he said. "So it's two completely different animals."
For the county to participate in a lease purchase for financing, Rogers said he would still be able to be the "eyes and ears" for the county.
If the two groups were hired, Spykerman estimated a closing date in about a month in a direct lease situation and about eight to 10 weeks with certificates of participation, where Stifel is marketing to generate interest with investors.
Former Stoddard County Commissioner Frank Sifford also sat in during the financing presentations and believed lease purchase is the best choice for the county.
Sifford was a part of financing discussions for the current Stoddard County Justice Center.
"In the long run it's the cheapest way for the county because here we know $1.4 million is set aside and you know pretty well what is coming in," he said. "My opinion is lease purchase is the only way to go on this project."
Mathis said commissioners and county officials would discuss the information given and be in touch with the two groups.
"We will put some questions together and call you back to get some stuff clarified as to exactly where we are going to make sure everybody is on the same page prior to us moving forward," he said.
COUNTY MORGUE
Prior to the financing options presentation, Mathis asked Jordan and Commissioner Carol Jarrell if they had thought more about his proposal of including a county morgue within the jail expansion project.
Both commissioners agreed a morgue would need to established following Mathis leaving office at the end of the year and no longer donating his space at Rainey Mathis Funeral Home as well as liability.
When the question of whether or not the county coroner is a part of law enforcement came up, Mathis said the coroner is the first wave of law enforcement when there is an unattended death.
"(The coroner) makes determinations on autopsies and things of that nature and what direction to go," he said. "It's law enforcement people who make those determinations."
Rogers added space for a morgue could be included in the lower level at double the 20' by 20' space Mathis currently provides.
"It would certainly work there," Rogers said. "It would be a good opportunity to include it in the project and less expensive from a stand alone facility somewhere."