Some of us thought the City planned to sign a deal with a developer before issuing any bonds for the construction of the new high school. We were wrong. This recent blog post from a councilperson alerted us:
“Note a key dependency: the majority of the school construction bonds would not be issued until there is a master developer agreement for the 10 acres of economic development (ie, school construction wouldn’t proceed) to minimize the risk that we would be footing the entire bill ourselves.”
What was that? Majority?
The City is going to issue $120 million in 30 year bonds in three phases for the construction of the new high school:
- FY 2018: $18M (15%) architecture/engineering bond
- FY 2019: $54M (45%) construction bond
- FY 2020: $48M (40%) construction bond
The City Manager has told us that no construction bonds will be issued until there is an agreement in place with a developer of the 10 acres. What some of us did not understand is that the City is only calling bonds issued in phase 2 and phase 3 “construction bonds”. However the city will issue a $18 million architecture/engineering bond in FY2018 if the referendum passes.
Why is this worrisome?
- The City plans to release $18 million of bonds before there is a deal with a developer. It will cost us about $1 million per year for 30 years even if a new high school is never built.
- Politically, once City Council has spent $ 18 million they are more likely to accept a marginal or poor deal from a developer than to tell the citizens their $18 million was wasted.
- The developers are not dumb and they will recognize that they are in a superior negotiating position once City Council issues bond debt for $ 18 million and they will drive a harder bargain.
It is possible that no deal can be made with a developer, but we will be obligated to repay a $18 million architectural and engineering bond for a $120 million new high school plan. What will be the next step for City Council at this point? Well, read the above blog post from the Councilperson again. It appears the plan is to go forward without the money from a developer, meaning we could be “footing the entire bill ourselves”. In such a case, our real estate taxes would need to be increased about 15.5 cents for 30 years* – and that is just for the bond – that does not include any increase for other services. Think about that…. This is risky business — an $18 million gamble.
*link to FCC Capital finance plan by CFO Bawa