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Mayor responds to Oldham Reserve questions

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By The Staff

By John Black

Recently, comments circulated on Facebook have questioned how revenue generated by the La Grange Compensation Tax, is being applied to reduce debt incurred because of the development of Oldham Reserve. Since becoming mayor, I have committed to reporting to the public how the city arrived at its current status. The following is my summarization of the steps since 2005 associated withthe city’s financial history in connection with Oldham Reserve.

In 2005, the City of La Grange (the “City”) and Oldham County (the “County”) entered into an interlocal agreement for the purpose of acquiring and developing approximately 1,000 acres of farmland located just off Exit 22 in La Grange (the “Project” or “Oldham Reserve”). At the time, Elsie Carter was Mayor of La Grange and Mary Ellen Kinser, Oldham County Judge-Executive. The terms of the interlocal agreement established the newly formed entity, the Oldham La Grange Development Authority (“OLDA”), would split evenly expenses and revenues used to develop the Project.

To finance the acquisition and development of the Project, OLDA issued $20 million in a series of notes and bonds, with $10 million being secured by the City and $10 million being secured by the County. The goal of the project initially was that land sales from the project would generate the revenues necessary to pay the debt service and eventually to pay off all of the outstanding debt. As part of the initial financing, both the City and the County borrowed enough additional funds to pay the interest due on the debt for the first three years. They did this so that neither the City nor the County would owe any debt service during the initial development of the project.

The proceeds from the City’s original 2005 issues were distributed as follows:

Proceeds for Land Purchase and Development of Site: $8,763,913.13

Proceeds used to pay interest on debt for first three years:

$1,004,580.59

Bond Issue Expenses and Legal Costs: $198,506.28

Total Borrowing:

$10 million

In November 2005, the Rawlings group exercised an option to purchase additional acreage adjacent to their site in Oldham Reserve. Funds generated by the Rawlings purchase were applied to both City and County debt, reducing each partner’s total outstanding debt by $665,000. Thus, the balance outstanding on the City’s initial 2005 borrowing in November 2005 became $9,335,000.00. ($10,000,000 - $665,000).

In subsequent years, the city was unable to pay the interest on the initial amount borrowed and began refinancing the land purchase by borrowing additional funds, approximately $7.5 million. I will refer to these transactions as the “Notes”. Each time the Notes were refinanced, the City borrowed enough additional funds to pay the interest due on the Notes so they would not have an outlay of debt service due on that portion.

Beginning on Dec. 1, 2008, the City did begin paying the debt service on the initial long-term bonds (approximately $2.5 million - referred to as 2005 Bonds) which were used to fund the infrastructure improvements and the construction of Eden Parkway. Between Dec.1, 2008 and June 1, 2014, the City paid $1,143,663.81 toward the debt service on the 2005 Bonds.

By 2012, it became apparent the Bush-Obama recession was impacting land sales and projected income was not going to materialize as rapidly as had been anticipated. The City also realized it was not prudent to continue to refinance the Notes, thereby increasing the amount of outstanding debt with the additional funds required to pay the interest on the Notes. However, the challenge for the City was a lack of available revenues to retire the Oldham Reserve debt.

In 2014, after passing a compensation tax (1 percent tax on gross salaries and wages paid within the City of La Grange) to generate additional revenues, the City refinanced all of the outstanding Oldham Reserve debt (the Notes plus the 2005 Bonds) via a financing program overseen through the Kentucky League of Cities (the “KBC Loan”). The City makes monthly payments on the KBC Loan and the final payment is currently scheduled for Jan. 1, 2024. The principal balance outstanding on the KBC Loan as of April 2019 is $4,880,000.

The compensation tax, while understandably unpopular, has been necessary to reduce the City’s initial debt and subsequent refinancing, which occurred when the City did not have the ability to repay loans. Since 2013, a total of $11,508,786 has been collected in compensation tax. At the beginning of 2014, the City applied $650,039 to prior debt and then refinanced for a total of $10,295,000. Of this amount, $9,409,108 has been used to reduce bond debt, which includes $2,186,540, which has been paid to Fiscal Court under the terms of the original partnership agreement. An additional $24,283 was refunded to businesses and individuals who overpaid, and $12,450 was paid for tree work while La Grange Parkway was being constructed. The City currently has $2,104,085 on hand in the Compensation Tax account.

The original idea behind Oldham Reserve was to seek quality employers as an additional source of revenue to offset a need in the future for higher property taxes and to provide sustainable jobs for our residents. While there have been unexpected challenges, additional development has also been stymied by a lack of infrastructure, a significant recession and objections from potential new businesses about lack of access in and out of the park.

The Compensation Tax Ordinance and “Exhibit A”, referenced in the Ordinance, and as written in the Inter-local agreement between the City and County, details the normal costs associated with development. The ability to meet development costs is tied to funds available from the compensation tax. Working together will help achieve a stronger commercial presence, more job opportunities closer to home and wider diversification of our tax base.

John Black is the Mayor of La Grange.