The Morning Report
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The city of San Diego has agreed to borrow $103 million from Bank of America for repairs to streets, sidewalks, storm drains and public buildings, Mayor Jerry Sanders announced today.
Sanders said that by borrowing privately, the city will be able to start projects immediately and create jobs in the region. The city will receive the money on Friday.
The city will pay interest only on the loans for the first two years at a rate of 3.9 percent. After that, a new interest rate would be set on the loans, which would be due in 10 years. Sanders said city staffers will be working to refinance the loans within the next two years, probably through a long-term public offering if the terms are good.
Last year, then-City Attorney Mike Aguirre refused to sign off on the bonds, saying it was illegal to issue them without a public vote. New City Attorney Jan Goldsmith has approved the borrowing, said the city’s chief operating officer, Jay Goldstone.
The city attorney did not issue a formal opinion, but told Goldstone that he had assurances from the city’s outside bond counsel that the arrangement was legal. Known as a lease-leaseback, it involves leasing city-owned properties to a city-controlled financing authority for a nominal sum.
Using those assets as collateral, the financing authority will issue the bonds, the proceeds of which will finance the repairs. The city will use money from its general fund to pay rent on the buildings, with those payments going to pay the bonds.
Sanders said he wasn’t worried about the possibility of a lawsuit stemming from the arrangement. He noted that the bond counsel has said lease-leasebacks are common throughout the state and “there’s never been any validity to any lawsuit on that.”
The mayor said there had been some requests to use a different lender, notably from council members who wanted to use more local firms. He said that Bank of America was selected through a competitive bidding process and said local banks might not have the capacity to handle such a large bond issue. He added that he doesn’t expect future private borrowing now that the city’s credit rating has been restored.
“This would probably be the last one of these you’ll see,” Sanders said.
For background on the bond issue, read my earlier story.