San Diego City Council has approved a refinancing deal that saves the city money in the short run. But it will cost San Diegans more in the long run.
It’s a bit like taking out a second mortgage on your home to get some capital, except that in this case, the city is using public property as collateral to sell $185 million in bonds.
The new lease revenue bond package bundles several old loans into a new, bigger loan and frees up some money for the cash-strapped city.
At this week’s council meeting, Council President Ben Hueso asked Jeff Kawar of the Independent Budget Analyst’s office a key question: “How much will we be saving in revenue?”
“As a result of refinancing the 1996 Stadium bonds,” Kawar replied, “you’re going to save about a million dollars a year though the year 2027.”
“So,” calculated Huesao, “that’s a million dollars a year for 16 years.”
But as Councilman Carl DeMaio pointed out, the deal only creates more debt farther down the road.
“I don’t see how extending the life of a loan is saving money,” DeMaio said. “You’re pushing the payment schedule back, which, by definition, costs you money because you are financing it over a longer period of time.”
DeMaio has other concerns. For example, he says the public 30 years from now will still be paying for road repairs that were done decades earlier. Those repairs might not even last 30 years.
Councilwoman Marti Emerald put into words why a majority of the council support the plan, in spite of its drawbacks.
“I understand the concerns about how, if we stretch the debt out, we wind up paying more in interest,” she said. “But right now we are trying to find ways of getting through each year. If this helps lock in a lower payment each year, that’s money that would be available to take care of other services, like keep fire stations going, and hire more police, or maintenance and provide the services that the taxpayers want to see us do.”
However Emerald had a question about why the stadium is no longer in the list of properties being put up as collateral for the lease revenue bonds.
“There was some concern about why Qualcomm didn’t make the final list," she said, "and I think we all recognize that there are certain elements in the city that are looking at Qualcomm as a possible new development site.”
If the stadium were included as collateral for the lease revenue bonds, it would complicate any negotiations for a new stadium for the Chargers, or a redevelopment project should the Chargers decide to leave town.
But Councilwoman Donna Frye was worried about using other city property in Mission Bay as collateral for bonds to replay the Stadium loan.
“Is it your opinion that the action we are being asked to take is legal?” she asked. “Yes,” replied Tim Fitzpatrick of the city attorney’s office, “it is.”
Fitzpatrick and the city’s new bond counsel, Bob Olson, assured council members that the new lease revenue bond package is water tight.
“The structure of this financing is a lease financing,” Olsen told the council, “it’s a technique by which the city can borrow money that’s frequently used by governmental bodies throughout the country.”
The final vote on the refinancing deal was 7-to-1, with only Councilwoman Donna Frye dissenting. She thought the matter should go to a public vote.
“I suspect,” Frye said, “that we will continue to see already-paid-for public assets having the equity pulled from them, and pulled from them, and the debt being passed on to 2050, 2060, 2070, and the public will never know what happened.”
City staff said next year’s budget depends on the revenue from the new lease revenue bonds. The Council will give their final approval after the package has been reviewed one more time by the city’s audit committee.
Staff will be back before the council next week, this time with a shopping list of projects, now that the city has a new-found source of money to spend.
