|
816-221-1000 FAX: 816-221-1018 WWW.GILMOREBELL.COM |
GILMORE & BELL A PROFESSIONAL CORPORATION ATTORNEYS AT LAW 2405 gRAND BOULEVARD, SUITE 1100 KANSAS CITY, MISSOURI 64108-2521
|
sT. LOUIS, MISSOURI WICHITA, KANSAS LINCOLN, NEBRASKA |
February 25, 2004
Dave Corliss
City of Lawrence
Six E. Sixth Street
Lawrence, Kansas 66044
Re: Financing of Congressional Drive and Overland Drive improvements pending results of lawsuits filed with respect thereto
Dear Dave:
You recently informed us that two lawsuits (the "Lawsuits") have been filed in connection with certain road improvements to Congressional Drive and Overland Drive (the "Improvements") in the city of Lawrence, Kansas (the "City"). The Improvements were constructed by the City pursuant to the authority of K.S.A. 12-6a01 et seq., and temporary notes maturing on June 1, 2004 and October 1, 2004 (collectively, the "Notes")[1] were issued by the City to finance the same. This letter addresses the City's options for paying off the Notes at their respective maturities and otherwise financing the Improvements.
A. K.S.A. 10-108a Nonlitigation Certificate. K.S.A. 10-108a provides that the City must provide a nonlitigation certificate in connection with the issuance by the City of general obligation temporary notes and bonds. The certificate must contain the following: "It is hereby certified that...there is no controversy, suit or other proceeding of any kind pending or threatened wherein or whereby any question is raised or may be raised, questioning, disputing or affecting in any way the...legality of any official act shown to have been done in the transcript of the proceedings leading up to the issuance of the bonds...." We do not believe that the City will be able to give this certificate with respect to temporary notes or bonds issued to finance the Improvements (and to pay the Notes at their respective maturities), as the legality of the ordinances assessing the cost of the Improvements under K.S.A. 12-6a01 et seq. has been challenged in the two Lawsuits. As a result, the City may not issue temporary notes or bonds pursuant to K.S.A. 12-6a01 et seq. to pay off the Notes when they mature if the Lawsuits have not been resolved prior to such times.
B. Alternative Payment Options. When the Notes mature, the City must either use other available funds of the City to pay off the Notes or find alternate authority to refinance the Notes in order to avoid defaulting on the Notes for nonpayment.
1. Use of Other Funds of the City. The City may use other funds of the City, if available, to pay off the Notes at their respective maturities. If the City chooses to pay off the Notes in this way, the City will not be able to issue bonds in the future on a tax-exempt basis to finance the Improvements following the resolution of the Lawsuits. This is because of a provision in the federal tax code which does not permit a gap in tax-exempt financing. As a result, any financing completed after any such gap would have to be done on a taxable basis.
2. Alternate Authority - K.S.A. 12-685 et seq. Main trafficway. K.S.A. 12-685 et seq. provides that the City may finance improvements to streets that have been designated by the City as a "main trafficway" or "main trafficway connection." A "main trafficway" is defined as a street, "the primary function of which is, or shall be, the movement of through traffic between areas of concentrated activity within the city or between such areas within the city and traffic facilities outside the city performing the function of a major trafficway." A "main trafficway connection" is defined as a street providing "connections with or between any main trafficways of said city or for the purpose of relieving traffic congestion at certain points on said main trafficways." If the City designates Congressional Drive and Overland Drive as main trafficways or main trafficway connections, it may issue one or more series of temporary notes to provide funds to pay off the Notes at their respective maturities.
C. Recommendations. As K.S.A. 12-685 et seq. provides a method for refinancing the Notes that does not jeopardize the City's ability to issue tax-exempt bonds to permanently finance the Improvements in the future, we recommend that the City proceed under K.S.A. 12-685 et seq. as follows:
1. Pass an ordinance designating Congressional Drive and Overland Drive as main trafficways or main trafficway connections under K.S.A. 12-685 et seq., as appropriate.
2. Pass a resolution authorizing the Improvements and the financing of the Improvements pursuant to K.S.A. 12-685 et seq.
3. Issue one or more series of temporary notes pursuant to K.S.A. 12-685 et seq. to pay off the Notes at their respective maturities.
4. Upon the resolution of the Lawsuits, issue tax-exempt bonds to permanently finance the Improvements. Depending on the outcome of the Lawsuits, the City will be able to either a) issue bonds pursuant to K.S.A. 12-6a01 et seq. (improvement district) and assess the costs of the Improvements against all or a portion of the improvement districts liable therefore, or b) finance the Improvements on a City-at Large basis by issuing bonds pursuant to K.S.A. 12-685 et seq. (main trafficway).
I hope this letter is helpful to you and the City in assessing the City's options with respect to the maturing Notes and the permanent financing of the Improvements. Please do not hesitate to contact me if you have any questions with respect thereto.
Best regards.
Very truly yours,
B. Lynn Kremers