The Chillicothe R-2 Board of Education voted on Tuesday night (Sept. 18) to enter into a 10-year lease purchase agreement for $550,000 toward the district's $795,900 asphalting and reconstruction of the Chillicothe High School north parking lot this past summer.
"It's the best way to cash flow [the completed project]," said R-2 Superintendent Roger Barnes on Tuesday.
A lease purchase agreement is the shortened name for a "lease with option to purchase agreement" — a form of real estate purchase which combines elements of a traditional rental agreement with an exclusive option of right of first refusal. This option gives the holder of the property the opportunity to enter into a business transaction with the owner, per specified terms, before the owner is entitled to enter into a transaction with a third party.
Under normal terms, the tenant/buyer chooses the property and seeks a landlord/seller to serve as an investor in it.
In this instance, the R-2 district serves as the tenant/buyer for the parking lot (property), with a financial institution, then, becoming the landlord/seller.
The tenant/buyer agrees to a lease period, during or after which they have the exclusive right to purchase the property at a previously agreed-upon price. The tenant/buyer pays to the landlord/seller a sum on a set-upon incremental basis, until such is paid in full (plus interest).
If the tenant/buyer is unable to eventually purchase the property (or no longer wants to), the tenant and landlord can agree to either extend the option period, convert the lease purchase contract into a traditional rental agreement, or end the contract with the tenant, allowing the landlord to seek other renters or buyers.
George K. Baum & Company, of Kansas City, Mo., is the underwriter for the parking lot agreement — the same company that Barnes and the board most recently used in the refinancing of the district's bond payment plan on the high school in February.
"[The lease purchase agreement] is not a bond issue," Barnes clarified. "They sell certificates of participation, which any financial institution can buy. It works very similar to a bond issue, except you don't have to have voter approval, as long as there is no taxy levy tied to it."
To this project agreement, there is not.
Barnes also noted that he had been notified of a probable buyer for the parking lot's participation certificates.
"I've been told Commerce Bank will be the buyers of our certificates," he said. "They've indicated that they'll purchase [them]."
The R-2 district is no stranger to such agreements with Commerce Bank. They are currently entered into a lease purchase agreement from 2006 with institution, on a general performance contract issue.
"This, basically, becomes an extension of that," Barnes said. "The lease purchase is made in 10 annual payments."
Page 2 of 2 - The true interest rate associated with the agreement on top of the payments averages out to be 3.19 percent for the district. The first lease payment is expected to be in March 2013.
The lease purchase agreement accounts for $550,000 out of the $795,900 spent on the parking lot construction project, which took place at the end of this summer, beginning just prior to the 2012 school year, and coming to fruition with an opening to student drivers on Sept. 5.
Simple subtraction leaves a disparity of $245,900, here, though, which Barnes explained was covered largely by generous donations from three local foundation.
"One-hundred and ninety-five thousand dollars were donated towards the project," he said. The remaining $55,900 is "cash, out of the district, instead of financing the project 100 percent." The aforementioned donations allowed the district to lay an asphalt pave down over the entirety of the north parking lot, a longer-lasting solution compared to the chip-seal method the board approved prior to the availability of the extra funding, in order to save on project costs.
One-hundred thousand dollars of that total was donated by the Hal and Joyce Juckett Family Trust. The Lambert Foundation donated $55,000, and the Jenkins Foundation donated $40,000. It was announced at Tuesday night's board meeting that $10,000 each from the moneys donated by the Lambert and Jenkins foundations went towards an additional paved driveway on the east side of the parking lot, leading through to the locker rooms of the Jerry Litton Sports Complex — an overall $26,900 project in and of itself. The remainder ($6,900) was paid for by the R-2 district.
"We're very lucky," said board member Brent Turner. "We've got some very generous foundations." The remaining board members agreed.
Barnes recommended that the board approve entrance into the lease purchase agreement for the project, and when board president David Meneely put the measure to a vote, it passed unanimously.