Property owners won't be on the hook for money Superior, Wis., borrowed to help with the development of Kestrel Aircraft manufacturing facility if the Council agrees with its Finance Committee.
The Committee on Thursday night approved a measure to use the contingency built into its capital improvement program to repay the city-issued bonds on which Kestrel has defaulted. Despite Kestrel defaulting on the its loan payments, the city is responsible for paying the debt it incurred in the deal.
By paying off the debt using the city's capital improvement program, Senior Administrator and Finance Director Jean Vito said the city won't have to levy to repay the loans.
"The amount we still have to pay back is $1.7 million," Vito said. "There are two options. We could either levy for this debt payment every year and that's roughly $365,000 a year. That's a big chunk of money on the tax levy. Either do that or find a different source to pay off the loan."
However, the Committee approved a third option: paying off the loan on an annual basis through 2021, when the final payment is due.
After all, the loan, which has a 2.1 percent interest rate, is among the lowest interest rates the city is paying on its debt.
"From a corporate standpoint, why would we pay off our lowest interest rate ... when we have other debt where we're paying 3, 4 -- whatever the numbers are?" Committee Chairman Jack Sweeney asked. He said with interest rates going up, it doesn't make sense to pay it off now.
Vito agreed it was a good point, and with investments earning 3 percent, it didn't make sense to pay off the balance in one lump sum.
"What you don't want to do is lose the ability to have this money to pay it off in the future," Vito said. She suggested putting annual placeholders in the capital improvement program for the annual payments, which the panel approved.
"Jack, normally I would probably argue with you on that, but you've got a really good point," committee member and Council President Keith Kern said. He said he would never agree to levy for the payment from the taxpayers after the city "gambled with their money."
The capital improvement program has a $1.8 million contingency. If the city receives anything from Kestrel, that money would go back into the program.
Vito said whatever the finance committee decided to do is separate from the city's efforts to recoup its losses resulting from Kestrel defaulting on the loan after making the first two of eight anticipated payments.
The last annualized payment the city received was in October 2015. Payments due in October 2016 and 2017 are outstanding, and city officials are planning to pursue legal action in a joint effort with Douglas County and the Wisconsin Economic Development Corporation.
The plan still has to be approved by the full City Council, which will consider the proposal at its July 17 meeting.
