The city of San Diego is running out of assets to put up as collateral for loans. As a result, it's taking out loans against some of its most essential properties. Some say that's a sign of desperation. But city officials say there's no need to worry. KPBS Reporter Amita Sharma has more.
It's been done for decades in San Diego. The city has pledged its most precious jewels as collateral to borrow money in the form of revenue bonds to pay for everything from expanding the trolley to renovating Qualcomm Stadium.
Portions of Torrey Pines - sight of this year's U.S. Open - have been used as collateral. So have parts of Balboa Park, Qualcomm Stadium and 11 fire stations. This spring, the city added another key asset as potential collateral to borrow money -- the police headquarters building downtown.
Sainz: We are running out of properties that can be used for these purposes.
Fred Sainz is Mayor Jerry Sanders' spokesman.
Sainz: We have a limited number of properties that we still have available to be used as collateral and the police department simply fit the amount of money we profiled that needed to be pledged as collateral.
Mind you, the $65 million police building hasn't been obligated yet. It would be used as collateral only if the city were to borrow $108 million to fix dilapidated streets. The bond is in limbo because of a disagreement between the mayor's office and City Attorney Mike Aguirre. He believes the loan needs a public vote. The mayor disagrees. Despite the stalemate, some say the fact that the police building is even being proposed as collateral is troubling.
Shea: The police property has got to be perceived as the last or one of the last properties that anyone would expect to use as collateral for a loan.
That's San Diego attorney Pat Shea. He worked on the Orange County bankruptcy case in the 1990s.
Shea: If you are running out of capital assets in a city of this size, and you find yourself in the position where you can no longer borrow without going into assets that the public simply could not lose, that's not a good sign.
Sainz says there's no chance the city could lose any of the property it has pledged as collateral because San Diego has never once missed a bond payment.
But Shea says the big question is what will the city do next if it has no viable assets left to pledge. The options, according to Steve Frates of the government think tank The Rose Institute, remain cutting expenses and raising taxes.
Frates: But that is not apparently politically viable in San Diego.
Frates says it is uncommon for cities to use their police department headquarters as collateral for loans.
Frates: A well-run city in good financial shape would not need to do that. They would have a sufficient balance sheet in terms of their assets. A sufficient cash flow to finance their bonds out of their revenues. Apparently in San Diego's case the financial market is telling us that San Diego's financial posture isn't particularly robust.
But Sainz of the mayor's office maintains the pending bond encumbering the police department headquarters is perhaps the most common loan structure for cities in the state.
Sainz: The police dept. is a city asset no different than a library, a park, a fire station or city hall. In that sense it is a building that sits on property that has value and that's why it was pledged.
And he says what the city is doing is no different than when an individual takes out a personal line of credit from the bank and puts up a piece of jewelry as collateral.
Amita Sharma, KPBS News.
