Five years ago, the city of Warrenton received a $15.4 million loan to build a new interchange and bridge over Interstate 70. The loan was set to be repaid over 20 years and accrue millions of dollars in interest fees along the way.

By the end of this year, the city will have shortened that loan by eight years and reduced future interest fees by $2.1 million, according to Warrenton Finance Officer Dana Belaska. The cause for the positive development: $5.5 million in extra payments that the city government has put toward reducing its debt.

Financing for the new interchange construction came as a loan from the Missouri Transportation Finance Corporation, and is being paid back using two half-percent sales taxes that Warrenton residents approved in 2016. 

The loan has an interest rate of 2.6%, and was originally scheduled to be paid off in 2037. But with additional payments the city has been able to make on three occasions, the payoff date for the loan has now been shortened to 2029, Belaska said — and that’s if Warrenton doesn’t make any more extra payments for the next seven years.

If positive economic conditions hold steady, and Warrenton continues making additional payments toward its debt, Belaska estimated that the city could cut the life of the loan completely in half.

“I would think that 2027 is very much a possibility for us,” Belaska commented. 

She explained that all of the money for extra payments comes from the same sales taxes that were dedicated to the interchange project, not from any of Warrenton’s general operating funds. The amount of revenue brought in by sales taxes has exceeded initial forecasts thanks to growing retail activity in the area of the interchange and elsewhere, Belaska said.

“We’ve had additional growth, we’ve had additional retail come in and generate more sales tax than was even dreamed about in 2016,” she continued. “(Financial planners) were very conservative with their numbers. No one wants to issue debt and find out that they’re not making enough revenue to cover it.”

Of the three extra payments toward the debt, Belaska said the first was $1.5 million from the loan itself that the city didn’t need because the project costs came in under budget. The next payment of $2 million was in 2020, and another $2 million payment is scheduled for December of this year.

All of those payments were in addition to regular payments of about $496,000 that Warrenton makes twice per year, Belaska added.  Those payments include interest on the loan, which by itselfs costs the city $190,000 or more each year.

Because the loan is accumulating interest over time, getting it paid off early will mean the city ends up owing less money in the long term — $2.1 million less, as things currently stand. More additional early payments will mean more savings on long-term interest.

At the end of this year, Warrenton will still owe about $8.1 million in principal on the loan, Belaska said.

Getting the loan paid off years ahead of schedule will also put the city on track to retire the extra 1 percent in sales taxes that are being used to pay for the loan, Belaska added. She said that’s one of the main reasons the city is choosing to shorten the loan period.

“The residents agreed to the sales tax for this purpose, and we’re making sure that ... the debt is reducing,” she commented. “It’s a consideration for the residents to meet our obligation of sunsetting that sales tax as soon as possible.”