Innovative financing paves the way for road improvements.

• Author: Nasi, Patrick A.
• Position: Spotlighting Small Governments

The path to congestion-free roads, as the City of O'Fallon sees it, is paved by innovative solutions to traffic concerns. In a landmark financing deal, the first of its kind in the State of Missouri, the City of O'Fallon, the Missouri Highway and Transportation Commission and the newly formed Highway K Transportation Corporation agreed to a cooperative agreement that will serve as a funding mechanism to speed up the reconstruction and expansion of a five-mile stretch of Highway K between Interstates 70 and 64. This improvement project involves the widening of the congested two-lane road to four and five lanes.

An innovative financing approach was conceived in the fall of 1992. City officials learned that, despite tremendous growth along the Highway K corridor and the inclusion of the Highway K improvements in the state's transportation plan, the highway department did not plan to start widening the five-mile stretch of road until 1996 at the earliest.

As the fastest growing city in the State of Missouri with concerns about providing quality service to its residents, the City of O'Fallon was unsettled by this announcement. City officials began examining alternative ways to speed up the project.

Options Reviewed

The city looked at a variety of financing structures by which bonds, notes or other obligations could be issued to pay the road improvement costs. Consideration was given to the issuance of general obligation bonds, which would have several advantages: 1) the city's full-faith-and-credit pledge for debt repayment, resulting in lower interest rates and 2) the low cost of issuance because the legal structure is less complex than other methods. The disadvantages of this structure were: 1) the city's general obligation debt capacity would be reduced by the principal amount of the bonds issued and 2) the bonds would require voter approval, which would have been highly unlikely to achieve.

The second option was to utilize a neighborhood improvement district (NID) whereby the road improvements would be paid through a special assessment levy on property within the district that would benefit from the improvements. The primary disadvantage to issuing bonds by utilizing an NID is the formation of the district would have to be approved by the affected property owners via a special election. City officials believed that the property owners in the district would be reluctant to bear all the costs of improvements for something that would benefit...