Transparent Payson has been actively involved in a lawsuit against the Town of Payson.  The matter is on appeal.  As to status, an opening brief is due August 27^th for the Arizona Court of Appeals.

Elections are over.  The current Council, who repealed 401 and 402 on the advice of bond counsel, has a few more months to cause some damage.  The make up of the Council has shifted dramatically.  As a potential last act of defiance, this Council has scheduled an emergency meeting on August 21^st to issue a bond.  As always, all of the attachments are below.  The total bond value has been increased to $70,000,000.00 (seventy million).  The CIPCAC suggested a lower value.  “The committee recommends a 1% increase in the TPT sales tax to fund all the above-stated projects (with bonding capacity for $50 – $60 million) and necessary Operating and Maintenance Expenses of these projects.”   The extra $10M to $20M must be inflation. We note an asterisk next to the $70M; it could be more.  The range listed by Stifel is as high as $75M.  There is no information on how much of the bond will have to be used for things like bond issuance, underwriting, rating improvement, insurance, or others.  Estimates could be between $1M to $5M.

This action is not just a financial decision but a potential disaster.  This $70 million bond, the most significant financial decision in the Town’s history, is taking place a few weeks before it could have been on a Ballot for everyone to consider.  This vote is, by all appearances, blatant government overreach.  The potential consequences of this decision are dire, and we all must understand the gravity of the situation.

The current Council is hell-bent on spending money.  The meeting on August 21^st is an emergency meeting.  The purpose is to lock in contracts and authorize issuing a bond for $70,000,000.00.  The result is a foregone conclusion.  As is routine, it is on an emergency basis. You know the drill: An emergency precludes a referendum.  Surprise, surprise, surprise!   The Town of Payson has another emergency.

This Town has more emergencies than most.   They want your money but not your vote.

This emergency?  Falling interest rates.  What was the reason for repealing 401 and 402?  Rising interest rates.

Transparent Payson is blessed with access to many bright and helpful people in the background.  One such friend is good with bonds.  A review suggests they must disclose the issue costs, bond rating, or other critical information.  We have yet to learn how the Town Council can approve it on our behalf without disclosing that type of information.  A little deeper into the information is a genuine concern.

This post is the most technically detailed in a while.  We recognize that people are busy.  So, here are some bullet points:

• The use of an emergency ordinance.
• The funds are not allocated and can be used for any purpose.
• The total debt burden to Payson is $112,429,225.00 ($112m) to obtain about $65 million in the bank.  About $9M is placed in a dead pool to meet bond requirements. They can also allocate the money for prior land purchases to “reimburse” the general fund.  We suspect about $53M for actual projects.
• The total issuance is greater than the CIPCAC recommends.
• The bond has access to state-shared revenue and the recent increase in sales tax (TPT.)
• The bond automatically increases excise tax if funds fall below a threshold.
• The acquisition costs have not been made public.
• The bond was not sent out for bid, which could have potentially saved Payson hundreds of thousands of dollars.
• The details were hashed out in the cover of “executive sessions.”
• The proposed prospectus indicates there is no pending legal action.
• The total authority of the Council is delegated for all decisions.

The vote is expected to be 6 to 1, perhaps 5 to 2. Please contact the Council if you have concerns.

• Mayor Chris Higgins – chiggins@paysonaz.gov
• Vice-Mayor Barbara Underwood – bunderwood@paysonaz.gov
• Council Member Brett Flaherty – bflaherty@paysonaz.gov
• Council Member Joel Mona – jmona@paysonaz.gov
• Council Member Scott Nossek – snossek@paysonaz.gov
• Council Member Jolynn Schinstock – jschinstock@paysonaz.gov
• Council Member Suzy Tubbs-Avakian – stubbs-avakian@paysonaz.gov

Please help support our fight for voter rights.

Time for some detailed discussion:

THE AGENDA:

1. Discussion/possible action regarding Resolution No. 3409 captioned as follows: A RESOLUTION OF THE MAYOR AND COUNCIL OF THE TOWN OF PAYSON, GILA COUNTY, ARIZONA, (1) APPROVING THE FORM AND AUTHORIZING THE EXECUTION AND DELIVERY OF A FIRST PURCHASE AGREEMENT, A FIRST TRUST AGREEMENT, A CONTINUING DISCLOSURE UNDERTAKING, AN OBLIGATION PURCHASE AGREEMENT AND OTHER NECESSARY AGREEMENTS, INSTRUMENTS AND DOCUMENTS; (2) APPROVING THE SALE AND EXECUTION AND DELIVERY OF PLEDGED REVENUE OBLIGATIONS, SERIES 2024, EVIDENCING A PROPORTIONATE INTEREST OF THE OWNERS THEREOF IN THE PURCHASE AGREEMENT; (3) DELEGATING AUTHORITY TO THE MAYOR, THE TOWN MANAGER AND THE DEPUTY TOWN MANAGER OF THE TOWN TO DETERMINE CERTAIN MATTERS AND TERMS WITH RESPECT TO THE FOREGOING; (4) ADOPTING WRITTEN POLICIES AND PROCEDURES FOR TAX-ADVANTAGED OBLIGATIONS AND PROCEDURES FOR COMPLIANCE WITH CONTINUING DISCLOSURE UNDERTAKINGS; (5) AUTHORIZING THE TAKING OF ALL OTHER ACTIONS NECESSARY TO THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS RESOLUTION; AND (6) DECLARING AN EMERGENCY.

WHAT IS THE PROCESS:

The bond issuance process includes many moving parts, all generating revenue for their respective companies.  Many are involved and must be paid: attorneys, underwriters, more attorneys, bond sellers, investment banks, brokerage firms, and others depending on structure and selling agreements), more attorneys, and the Trust Company that receives the proceeds from the sales.  If sales are successful, in theory, there could be $65M+- in the US Bank Trust account by sometime in Q4.

The exact amount the Resolution designates to be paid out cannot be clearly defined until all the components are included and the bonds are issued.

WHERE DOES IT GO?

Their published intent is to have $1.5M in TPT receipts above that from the additional 1% sales tax increase to utilize for maintenance of the funded projects.  We see nothing that stipulates how that money HAS to be used.  At this point, it could go to anything.  Could it be for more non-maintained facilities?

This is not the first time monies have not been allocated.  The money was never allocated when the tax was approved to pay down/off the retirement shortfall.  The Town Manager, LaRon Garrett, stated, “It is in the budget.”  Assume the American Gulch project starts and has overruns of $10 million.  That is $10m less for the aquatic center.

EMERGENCY!

This Town has more emergencies than most.  We discussed the fake emergencies before.  They are used to preclude citizen override via referendum.  They want your money but not your vote.  This emergency?

Passage of this Resolution as an emergency measure will allow the Town to take advantage of favorable interest rates or rallies in the market and to get ahead of the expected influx of competing issuances in late September/October as other issuers look to lock in rates before the uncertainty related to the November Election. *Staff report 08/21/24.

INTEREST RATES.

When 401 and 402 were repealed in 2023, the emergency at the time was:

Therefore, in order to put the Town in a position to obtain the best financing terms for the Town and its residents, it is warranted to include an emergency clause in the Town Council ordinance repealing Town Code §§ 157.01 and 35.04.

According to Bloomberg, Municipal Bond rates are lower today across all maturities than one year ago.

That means the emergencies they warned about before were miscalculated.  We wonder if this one is as well.   To see current rates via Bloomberg, click here.

The projected rates—well, they are expected to fall. Yes, they are expected to fall in September. We suspect the current administration is making that move to get more votes. The motivation does not change the outcome.

Short term: Federal Reserve Chair Jerome Powell for the first time indicated a possible starting point for cuts in short-term interest rates, saying at a news conference on July 31 that: “A reduction in the policy rate could be on the table as soon as the next meeting in September.  […] We’re getting closer to the point at which it’ll be appropriate to reduce our policy rate, but we’re not quite at that point.” https://www.kiplinger.com/economic-forecasts/interest-rates

Where from there?

Once the Fed does start cutting interest rates, it will likely continue doing so into 2026, but will not return short-term rates to zero.  Figure on the one-month Treasury bill’s yield falling to about 3.5%, and the bank prime rate ending up around 6.5%, down from the current 8.5%, after the Fed is finished reducing its benchmark rate. – Kiplingers. https://www.kiplinger.com/economic-forecasts/interest-rates

If the real goal is a better rate, they are expected to fall even more in 2026.  The goal is not a better rate; the goal is a commitment before the current Council leaves. Interest rates are like the weather: Get it right—bully for you. Get it wrong—oh well.

Stifle Public Fiance advises the Town they will have an A or AA-rated issuance, yet they show us AAA information. There is a difference. The Town is paying hundreds of thousands of dollars; at least they could make the presentation representative of our situation.

The Stifel argument on page four of the support is that they have no idea what the bond market will do.  Stiffel annotates that rates could decrease more since the Fed appears to be cutting rates.  People will still buy Muni’s as long as the rates are market competitive, but our financing cost goes down when the rates go down.  How does that create an emergency?

Discussions on election-year deviations mean little.  Economic conditions, tax rates, stock market performance, etc., differed in those times.  The support includes words like “generally,” “modest,” “tends to,” and “may benefit.” That does not sound like an emergency.

While the October increase in Muni issuance has some historical credence, this has already been a good year.

Revenue Munis have been relatively attractive for the last 20 years, regardless of rates.

COVER OF DARKNESS / LACK OF BID.

Part of the continuing problem is that TOP is insistent on doing things behind closed doors.  We see no good reason why the ongoing process to get to this point needed to take place in an Executive Session.  It did involve legal advice on how Stifel would suggest structuring the Bond issue to accomplish the Council’s goals.  Still, it’s unclear whether all of those conversations would fit in the Open Meeting definitions of Executive Session.

Under the catch-all category of “professional services,” the Town is not required to go to bid.  We understand another bond underwriter has been aware of this potential bond issue for over a year and has tried multiple times to get the opportunity to bid, to no avail.  We can’t determine if the Town is being overcharged since there is no public information on its cost.

BUILT-IN TAX RATE INCREASE.

The prospectus states that if the reserve requirement, two times the annual debt obligation or approximately $9M, is not met, excise taxes must be increased to cover the shortage.  MORE SALES TAX!

LEGAL ISSUES CONCERNING 401 AND 402.

The apparent prospectus dated September __, 2024, on Page 16, paragraph 3, makes the following statement:

LITIGATION

To the knowledge of the Town, no litigation or administrative action or proceeding is pending, restraining or enjoining, or seeking to restrain or enjoin, the execution and delivery of the Obligations or the pledge of Excise Tax Revenues and State Shared Revenues to the payment of the Payments, contesting or questioning the proceedings and authority under which the Obligations have been authorized and are to be sold, executed or delivered, or the validity of the Obligations.  An authorized Town representative will deliver a certificate to the same effect at the time of the original delivery of the Obligations.

On the issue of a “Shotgun” or “Double Barrel Feature,” the documents clearly state multiple times in all caps that there is no “shotgun” obligation.

FURTHER INTO THE WEEDS:

We have reviewed all documents.  There are additional detailed concerns.

THERE ARE APPARENT PITFALLS IN THE PRELIMINARY OFFICIAL STATEMENT.

Page one—This page has some vital information.  Next to the last paragraph is the definition of “State Shared Revenue.” The bond is not just an obligation of the 1% TPT they imposed.  It also calculates and includes, if needed, other income sources from the State currently used to pay for other things and the amount of TPT already being collected before the increase and the debt obligation.

If the wheels fall off the Towns revenue for any reason, the Bonds will still get paid.  Bond investors want one thing, their payments back on the schedule they were promised.  If you can’t make those payments from the 1% TPT Revenue that the Town anticipates being able to pay from, they will have to dig into the remaining 2.8% being collected and allowable State funding sources.  If that doesn’t suffice, the TPT rate increases even more to cover the shortfall.  Also, the Town can raise TPT rates to cover Bond payments and reserve shortages, but it cannot raise the TPT rate to cover other expenditures if they are behind in the Bond calculations.

One of the most significant risks we see to this entire setup is the potential for the State Legislature to ban the collection of TPT on food for home consumption.  Troy Smith has said in public meetings before that his estimate of the percentage of revenue generated from the Grocery Tax because of non-Payson resident purchases is around 60-70%.  There would still be the ability to raise revenue via a GO Bond on properties to cover Budget shortfalls.  More property tax!

We do not know what unforeseen circumstances can/will affect tax collection over the next twenty-five years.

Page four – Coverage Requirements – fifth line – “(O)r if at any time it appears that the Excise Tax Revenue and state Shared Revenues will not be sufficient” to meet the reserve requirements of two times the current service debt obligation (approx. $9M), the Town will be required to “impose new exactions of the type of excise tax … or increase the rates for the excise tax …” If the Town doesn’t hold $9M in reserve for the next 25 years, they have to raise taxes, again, to cover the shortfall.

For reference, $9M would be approximately 30% of our current General Fund budget, which would be “dead money” that could not be used for any purpose.  It cannot even “appear” that this money isn’t available.  It is not available for projects.  THIS IS HOW YOU GET A $70M BOND THAT HAS LESS THAN $60M AVAILABLE TO FUND PROJECTS.

Page eight – “Legislation Regarding Withholding of State Shared Revenue.” This statement is a warning/risk consideration for investors purchasing the Bonds.  It is meant to point out that the State can change the income available to the Town to pay back Bondholders.  However, it does point out that IT ONLY TAKES ONE STATE LEGISLATOR TO ALLEGE A VIOLATION OF STATE LAW OR STATE CONSTITUTION for the flow of money from the State to the Town to be interrupted.  If an allegation is made, the Attorney General is required to investigate.  This process takes time.

Page eleven – The Project – The project list appears deceptive.  To our knowledge, there has never been any conversation regarding the construction of public safety facilities.  The public safety line items were to rectify “deferred maintenance” on existing structures.  As the bond funds are not allocated, it appears to open the door to reallocating project funds to include the ability to build almost anything as it lists “construction.”

Page seventeen – Underwriting – Authorized Representatives, delegated by the Council, have an apparent blank check for Stifel fees.  The argument will be that part of their compensation is percentage-based, and they can’t determine it until the deal is done.  An explanation of that calculation would at least be in order.

 Page A-two – Economy – Payson does not have a “growing emphasis on manufacturing and service firms,” nor does Payson “encourage light industry and high-tech businesses.”

REVIEW OF RESOLUTION 3409.

The Resolution provides tremendous discretion.  The expected interest rate range, underwriting costs, issuance costs, or the project’s anticipated allocation of funds are not estimated.

Resolution three gives the Mayor, Town Manager, and Deputy Town Manager extended authority.  There’s no definition of “certain matters” or “terms” they are limited to or expected to address.  “All other transactions necessary” is too broad and applies to the emergency declaration.

The fourth “Whereas” indicates that the Council still does not have a final proposal from Stifel.  Since there is no competitive bid, that’s a blank fee check.

On the Resolution, starting on page three, Section 1(b) states that the Authorized Representatives can allow ANYONE to make the most important financial decisions if designated. Those decisions are the purview of the Town Council, which is the elected representative of YOUR MONEY.

Page four, Section seven – Nothing must be returned to the Council.  If they decide the bid for Bond Insurance is too high, if they get the final bid from Stifel, and if the interest rate climate looks like rates might go down if postponed a few weeks, there is no requirement to tell the Council.

Page four, Section eight –  We are uncertain who the discretion in this section is being “reserved” for.  The procedures outlined in the resolutions include decisions on millions of dollars of fees and expenses.  The Town Manager’s discretionary expenditure limit is $50,000.

This bond debt Resolution is a lousy deal for Payson.  Please get in touch with the Council to express your concerns:

• Mayor Chris Higgins – chiggins@paysonaz.gov
• Vice-Mayor Barbara Underwood – bunderwood@paysonaz.gov
• Council Member Brett Flaherty – bflaherty@paysonaz.gov
• Council Member Joel Mona – jmona@paysonaz.gov
• Council Member Scott Nossek – snossek@paysonaz.gov
• Council Member Jolynn Schinstock – jschinstock@paysonaz.gov
• Council Member Suzy Tubbs-Avakian – stubbs-avakian@paysonaz.gov

The sitting Council’s “Last Great Act of Defiance.”

The agenda and support documents:

The August 21st Agenda:

Resolution 3409.

Staff Report for Resolution 3049.

Powerpoint presentation.

Staff Report Ordinance 964.

Preliminary Official Statement – (Prospectus)

First Purchase Agreement.

First Trust Agreement.

Tax Compliance Information.

Pledged Revenue Disclosure.

Obligation Purchase Agreement.