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Poor management of city of San Diego properties sometimes has its benefits.
A $185 million bond deal City Council is scheduled to discuss Tuesday includes a refinancing of the debt on city-owned Qualcomm Stadium.
Through the deal, the city expects to save about $12 million over the life of the Qualcomm loan, which is 2027. This number is important, as we’ve catalogued extensively, because it’s involved in a key debate on a new football stadium for the San Diego Chargers. The annual bond payment is part of the city’s expenses at Qualcomm.
And the Chargers point out that the $12 million the city loses operating Qualcomm each year could be better spent toward a new stadium.
Based on the most recent city plans, we estimated taxpayers would spend $195.5 million between now and the end of the Chargers lease at Qualcomm. This bond refinancing would decrease that amount by lowering the amount the city has to pay each year toward Qualcomm’s mortgage.
So how is the city achieving that savings? In part because it loses money at Qualcomm.
In 1996, the city issued bonds to renovate Qualcomm. Those bonds were taxable, meaning the city had to pay higher interest rates to guarantee certain returns for investors. Unlike much municipal debt, the Qualcomm bonds did not qualify for tax-exempt status, city Director of Debt Management Lakshmi Kommi said, because private uses and revenues at the stadium exceeded IRS limits for that kind of financing.
But the city’s bond counsel has determined that these refinanced bonds could be tax-exempt, Kommi said. Private use of Qualcomm has decreased since 1996, most notably with the Padres moving to Petco Park downtown. Private revenues have gone down so much the city needs millions in hotel-room taxes to subsidize stadium operations annually.
In short: Because the city loses money operating Qualcomm, it can finance the stadium’s debt more cheaply now.
The Qualcomm refinancing is part of a larger bond deal that also includes refinancing of debt used for previous Balboa Park and Mission Bay Park improvements. Also, it replaces a private deal the city issued last year for capital improvements with a public offering.
The financing methodology, called lease-leaseback, is complex, as we’ve noted. It’s also controversial because the city uses its properties as collateral, instead of direct city funds. Former City Attorney Mike Aguirre refused to approve such a deal because he believed it was an attempt to skirt constitutional provisions that require voters to sign off on debt.
The Reader’s Don Bauder reported on this bond deal Sunday afternoon. Most interestingly, Bauder notes that the deal will release Qualcomm as collateral and replace it with other properties like the Northwestern Division Police Department Station in Carmel Valley. That move, Aguirre said in the story, removes a hurdle toward a new downtown stadium for the Chargers. Also, Councilwoman Donna Frye said in the story she wants more information on the stadium bonds’ qualification for tax exemption.
This deal is another example of the city’s aggressiveness following almost five years where financial scandals locked San Diego out of Wall Street’s public bond market.
The Office of the Independent Budget Analyst has estimated this bond would reduce projected debt service costs by more than $4 million next year.
— LIAM DILLON