City council members agreed Tuesday to not accept further installment financing proposals for the purchase of the Roanoke Rapids Theatre after receiving information that these arrangements would alter the status of the tax-exempt bond the city is currently paying off.
After reaching a consensus on no longer allowing installment financing proposals, the options left by the council to sell the venue are lease arrangements or selling the property through public auction via a vehicle such as GovDeals, which the city has been using to sell property such as surplus vehicles.
During the council’s meeting Tuesday, City Manager Kelly Traynham presented an overview of where the city currently stands financially with the theater, including information on how installment financing could jeopardize the tax-exempt status of the remaining bond used to pay for the construction of the venue.
The city has retired the 2017B bond after paying that note off in March of 2022 through a grant which was appropriated by the state General Assembly.
Left for the city to retire is the series 2017A bond which, after a quarterly payment scheduled for next month, will leave a balance of $7,638,760. Payments on that bond are expected to be completed in May of 2032.
New information about the tax-exempt status of the series 2017A surfaced during consultations with the city’s bond counsel which includes the law firm of Womble Bond and Dickinson and Davenport Public Finance, which the city has used as its bond advisors.
The conclusion of the law firm and Davenport is that using installment financing would create a private activity bond which would result in a taxable interest rate that would be retroactive to issuance of the bonds in 2017 — the date that the city refinanced the bonds.
“The city would not only pay a higher interest rate but would have to pay the difference in the new rate and the current rate of 2.54 percent back to May of 2017,” the overview says.
At a minimum, this would increase the city’s payment to Bank of America by $110,857 annually. Currently the city pays approximately $952,736 annually.
Under the 2017A bond order, the rate would increase to 3.9116 percent if an installment financing arrangement was struck. “Additionally, the city would owe a penalty equal to the difference in the tax-exempt and taxable rate going back to the inception of the tax-exempt loan.”
Traynham said following the presentation that figure is estimated to be more than an additional $500,000 plus any other associated fees. “This would incur additional penalties … for Bank of America having to file amended returns for all these prior years.”
While the council did not take an official vote on the matter, they did agree to suspend installment financing. “We don’t have anyone on the council that wants to do owner financing,” Mayor Emery Doughtie said.
That leaves the possibility of public auction or a lease agreement as the remaining options. The city can do both, City Attorney Geoffrey Davis said.
The city can vote to accept or reject any bids received at the end of an auction and the upset bid period, he said.
Councilman Wayne Smith said, “A lease agreement doesn’t fall under the tax code. I’m open to a lease agreement if they have a down payment and pay the utilities and upkeep of the building.”
Traynham said at the start of the presentation private interest in theater remains steady with inquiries, property shows … and requests for information. The city has recently received differing proposals from parties (and) buyers with stipulations (and) conditions such as seller-financing, long-term lease with option to purchase and city-funded promotions.”
Should the council opt to pursue the sale of the theater via electronic public auction a resolution would have to be drafted for the panel to consider at its April 18 meeting.
