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Two items on the April 10 City Council docket caused me to wonder — a bit. And that’s because it seemed like, perhaps, two different cities were involved in the same stuff.
In the first item, the city wanted to issue a new $159 million bond to pay off its existing 1998 Convention Center Expansion Phase II bonds, and commit to pay the interest and debt service on these new refunding bonds.
In the other item, the city wanted to approve a current version of something called the “Enforceable Obligation Payment Schedule” — you recall that after the demise of redevelopment agencies in Sacramento, the state allowed the local agencies to petition for continued redevelopment funding for already existing legitimate redevelopment obligations.
The “obligation schedule” the city was approving contained the debts our Redevelopment Agency wanted to continue to pay, and that schedule included $226 million for the 1998 Convention Center Phase II Expansion bonds, the same bonds that the City is in the process of refunding as mentioned above.
So, separate from the sense that the city was intending to pay off the existing 1998 Convention Center Expansion bonds and issue a new replacement bond, here’s what caused me to wonder — a bit.
And, you need to go back a year to start.
In March, 2011, the city entered into an agreement with our then-Redevelopment Agency that obligated the agency to make annual payments through 2043 for the purpose of “reimbursing” $226 million to the city for the 1998 Convention Center Phase II Expansion bonds.
Because the Convention Center was not a redevelopment project to begin with, and in order to allow the Redevelopment Agency to use Centre City Project Area tax increment money to pay the city $226 million, both the city and the agency had to make certain findings showing that this deal was permitted (e.g., blight, financial distress, etc.). They did that on March 29, 2011.
Those findings focused on admissions that, “There are no other reasonable means available to the community (i.e., the City) for financing costs associated with the Convention Center expansion for which the Agency proposes to pay.”
Specifically:
• “The City faces structural budget deficits in FY 2012 and beyond. Solutions to the budget deficit will result in a further reduction in City services. In addition, these deficit forecasts do not factor in a restoration of services to pre-recession levels nor account for normal wage adjustments. General Fund expenditures for City operations are projected to exceed projected General Fund revenues even after the significant reductions in personnel and core service reductions that have been taken.” (See City Item-S501)
• “…the City does not have the resources to support the payments for the financing of the Convention Center Expansion Phase II in the Project Area over the life of these bonds.” (See RDA Item-S41)
That is what the city said about its ability to pay off the existing 1998 Convention Center Phase II Expansion bonds last March. It could not do it. If it tried, it would result in terrible financial consequences.
Last week, on April 10, the city reaffirmed that very same gloomy economic condition as part of its effort to include the $226 million Convention Center agreement as part of the obligation schedule that was being sent to the San Diego County Auditor-Controller.
Here is where it gets puzzling — a bit.
The very next day, April 11, the mayor released the 2013 city budget and said, “I don’t think we’re in a financial crisis at all.” A later press release stated: “All told, we will leave the next mayor with a combined surplus of nearly $120 million over the next five years.”
So, I am wondering:
Which representation of the city’s finances is true?
Is the city too broke to pay the debt service on its existing 1998 Convention Center bonds, or have things changed so dramatically that those payments can now easily be made from the city’s general fund as they were from 1998 to 2010?
Are bondholders or rating agencies aware of the city’s statements about its inability to pay its existing Convention Center bonds?
How does the city “deem it necessary,” as it did on Jan. 24 of this year, to incur up to $575 million more in bond debt for a new Phase III Convention Center expansion, when it questions its own ability to afford its bond payments on Phase II? (The $575 million does not include the interest payments on the debt service, which pushes the real cost to well over $1 billion.) (See Item-332)
What happens if the Redevelopment Agency’s $226 million obligation to the city for the 1998 Convention Center bonds is denied?
I just wonder.
Donna Frye is a former San Diego City Councilwoman.
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