When Mexico Board of Education awarded ATG Sports the contract to construct turf fields at the high school, there was one question looming over the project — how will the district pay for the roughly $1.6 million project?

That question was answered Tuesday when the board approved a lease-financing proposal from L.J. Hart and Co. of St. Louis. The board had two payment options — it could seek a new bond issue or pay for the upgrades through lease-financing.

L.J. Hart Vice President Courtney Wegman presented both options to the board in October.

Seeking a new bond issue would require a ballot question in April, August or November. Since the board decided to go with lease-financing instead, it does not require voter approval.

The difference between seeking bonds and doing lease-financing is how they are insured and paid.

"With the general obligation bond, it's the full faith and credit of the district," Wegman said. "You levy enough money to make your principal and interest payments, money is intercepted on your behalf and then the payments are made in September and March of each year."

Lease-financing is a less formal obligation and payments are made twice-yearly -- April and October -- through an invoice of district funds.

The sale of lease certificates totaling $1.35 million was approved by the board 6-0. Board member Brian Rowe was absent.

First State Community Bank and Central Bank of Audrain County purchased lease certificates of $210,000 and $735,000 respectively. This means local investors secured 70% of the total financing amount, according to a news release from Wegman.

The financing includes documents to ensure the district will repay its debts by April 2027. UMB Bank is the trustee for the financing, so they hold the mortgage on the turf fields. The bank would take control of the fields if there is nonpayment by the district. L.J. Hart is the district's municipal bond underwriter. Payments for the financing will have to be part of the district budget.

A rating had to be sought for the lease certificates to determine the repayment interest rate. They were rated at A, while the district's rating from Standard and Poors was upgraded to A+.

The lease-certificates have a call, or redeem feature in April 2023, which opens an additional $38,605.95 for projects. The board, when exploring repayment options, have the opportunity to roll repayment of the lease-financing into future bond projects, which means it could complete its repayment obligations ahead of 2027. The certificates have a 3% interest rate.

Since the board approved the lease financing, $1.338 million of the funds will be deposited at UMB Bank on Jan. 7 in a construction account. When the district receives an invoice, Superintendent Zach Templeton and Board Secretary Bethany Collins will send a requisition form to authorize a payment and the bank will make a payment on the district's behalf. This process takes 24 to 48 hours. The board and the district does not have control of the account to write checks directly. UMB Bank is the check writer.

L.J. Hart Financial Analyst Erin McManus reviewed some final documents with the board, including the official statement sent to investors, which has district financial and demographic data, the resolution approving the lease-financing and a draft news release provided to The Mexico Ledger and KXEO.

"These certificates are callable in 2023, so it provides more flexibility for the district and we pointed out the [rating] upgrade," she said, referencing the news release.

cdunlap@gatehousemedia.com