Facts and figures about civic center proposal

In a nutshell (an admittedly wordy nut given my attorney background),

this is an “abbreviated” summary version of what is being proposed by

city staff members for a City Council decision regarding a new city

hall facility. That decision is now targeted to be made before year’s

end.

1. Rebuild at the current location on the Balboa Peninsula. The

existing City Hall is roughly 44,000 square feet. Some of it was

built in the late 1940s; the rest is newer.

2. The proposed city hall would be more than 74,000 square feet,

with a four-story parking structure for 350 cars and a new

11,000-square-foot fire station.

3. The construction cost is estimated to be between $46 million

and $50 million, depending on construction details yet to be

finalized. Area-wide construction costs are projected to rise more

than 15% in 2005, and at that same rate next year.

4. The city will pay for the construction by what is called

certificates of participation. The city enters into a 30-year net

lease, at semi-annual “rental” payment (the first for half of the

annual certificate interest payment and the other for the other half

of such annual interest payment, plus the entire principal due that

year).

At the end of the 30-year lease, the facility is owned by the city

for no added cost. Those rental payments are then pledged in the form

of the certificates, which are sold in the municipal finance market.

The “rent” payment matches the final payments over the same

30-year term. There is an interest reserve, which is held back for

the life of the certificates and is used to pay the final year

payments, a construction contingency, which will be refunded if not

used, and costs of issuance, which add up to an additional

approximately 8.5%. The current 30-year borrowing rate is roughly

4.6%. For rough illustration, let’s use the highest above

construction cost estimate of $50 million, plus that added 8.5% for

issuance/ contingency, which totals $54.25 million. At 4.6% for 30

years, that equates to an annual payment (which is equal to the

semi-annual lease rent payments) of roughly $3.35 million per year,

and $101.5 million over the 30-year payment term ($237,450 per

month).

I agree with you in advance: That is a lot of money -- by month,

by year and over the 30-year term.

5. How can the city afford it? The current 2005-06 fiscal year

general fund city budget is roughly $125 million. The total current

city budget is roughly $190 million. Using the above estimated yearly

payments, those equate to roughly 2.7% of that total general fund

budget (since the certificates are an obligation of the general fund,

not the total city budget). Existing city debt totals less than $17

million, down from an original debt total of $30 million. Total

existing city general fund cash reserves exceed $53 million. Using

secured real property taxes as an example, the latest 2005-06 total

assessed value of all city taxable secured properties exceeds $28.7

billion. The city is paid roughly 17% (barring any state

interference, which has temporarily reduced that percentage to 15%)

of the basic 1% levy on that total secure property assessed value

amount.

At our next City Council meeting Sept. 27, there will be a full

presentation of why staffers believe the city can afford to take on

this sort of 30-year obligation. For instance, staff will provide and

explain a 10-year, year-by-year comparison, starting in 1995 after

the county bankruptcy. They also will offer other logical comparison

data that will more completely allow us to answer the question of

whether the city can logically pay for this project, both in the

short and also the balance of the 30-year term of the pending

obligation.

6. A local group has filed a debt initiative and will be seeking

signatures to put it on the ballot either in June or November of

2006. Filing of the initiative is not enough to require a vote on it;

signatures from roughly 10% of the current total of 60,185 city

registered voters are required before the initiative goes on the

ballot. The initiative filers have 180 days to get the required

minimum signatures.

The initiative basically provides that the residents shall approve

any new city bond-type debt, including the above proposed

certificates. The initiative also contains a retroactive feature that

would invalidate any new city bond-type debt from the date that the

initiative was filed with the city last month, such as the pending

certificate for the city hall project.

The backers of this initiative allege that the current city

charter requires two-thirds voter approval for any new bonded debt

and the proposed debt is the same as bonds and needs to have the same

resident approval. (In contrast, the initiative wins with a simple

majority vote, not two-thirds).

Bonded debt results in another tax line item on your property-tax

bill and increases the taxes you pay. Certificates of participation

debt does not change your property-tax bill or increase any taxes you

pay the city. Instead, the payments are paid from general existing

city revenue and reserves, just as city vehicle lease payments are

paid and how the city has paid the existing 25-year term lease debt

on the Central Library facility on Avocado Avenue (the library was

funded in 1994, with a starting balance of $7.5 million, which will

be paid down to $5.5 million at of the end of 2005).

Yes, it is complicated, and there are arguments on both sides

whether certificates of participation are or are not the same as a

bond, which would require the above two-thirds voter approval by the

terms of our city charter. But, I assert the more persuasive argument

is that the City Council, as the elected legislative body for the

city, has been properly empowered by the residents to make citywide

capital improvement decisions, including using, when fiscally

appropriate, the proposed financing mechanism.

Finally, certificates of participation have been used in similar

California city and agency borrowings totaling more than $2 billion

since the start of 2000.

7. Your resident input: We have now held three City Council

meetings, during which the new city hall has been the major agenda

item. Another will take place, as indicated above, on Sept. 27. To

date, we have had, frankly, limited resident response in those

meetings. The City Council has set up and requested resident input on

its e-mail address, [email protected], which has had limited

use.

Given that the above debt initiative has been filed -- squarely

targeting this pending city hall project, such limited resident

response to staff and to the City Council to date on this important

topic is surprising.

It’s prime time to give us your input, either by giving testimony

at a City Council meeting, mailing your comments to the city, writing

a newspaper letter or using either the above e-mail or by sending me

your ideas using my own City Council e-mail address,

[email protected].

* JOHN HEFFERNAN is the mayor of Newport Beach.