The San Diego City Council on Tuesday approved a long-term borrowing plan proposed by Mayor Todd Gloria, adding up to $175 million to the city’s credit card and bringing public debt closer to its limit.
The decision, which would replenish funds diverted when the city bought out the leases for the uninhabitable office tower at 101 Ash St. and nearby Civic Center Plaza, came despite calls from many speakers to reject the new bonds.
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“An ordinary person’s goal in life is to get out of debt, but what does the city do?” asked John Stump, a City Heights attorney and frequent critic of City Hall. “You incur a debt, a mortgage, on a property that is already financed.
“I urge you not to endorse this,” he said. “Happy Thanksgiving. It’s a turkey.
Former city attorney Michael Aguirre warned council members they could violate public finance rules by refinancing existing bonds secured by police and fire stations, libraries and other owned properties. to the city with new bonds that would increase the cost of the disputed Ash Street lease.
“You cannot use rental income obligations to pay non-rental income debt,” Aguirre said. “That’s what’s on offer.”
The city attorney’s office, now headed by Mara Elliott, approved the bond proposal.
Council members brushed aside criticism and endorsed the Gloria administration’s plan to issue 30-year bonds that are expected to cost up to $11.6 million a year to repay, or $348 million in total .
They approved the plan with limited discussion on a 7-to-1 vote, with council member Marni von Wilpert opposed and council member Vivian Moreno absent.
Three council members spoke about the loan before the vote.
Councilman Chris Cate asked staff to clarify whether any of the bond proceeds would be used to pay for the Ash Street purchase or whether other projects had been delayed by redirecting some $70 million to redeem the two leases.
As soon as city officials said no, Cate decided to approve the recommendation.
Councilman Joe LaCava said the loan was the result of council’s decision in July to approve a $132 million settlement Gloria had reached with the owner of Ash Street and Civic Center Plaza Cisterra Development and Wilmington Trust lender.
“The prior decision of the board led us to this decision today, and you’re really following the direction of the board,” LaCava told staff before seconding Cate’s motion.
Von Wilpert said she was concerned about the city’s growing debt and urged officials to keep the council informed of future pension obligations and other costs, which affect city spending.
“We’re all worried about the stock market and the economy going forward, but if we need to take on more debt, let us know about that,” she said. But, she added, “since I was against the settlement, I will vote no.”
Board members Monica Montgomery, Raul Campillo, Jennifer Campbell and Stephen Whitburn and board chairman Sean Elo-Rivera did not explain their vote in favor of the loan.
The bonds were approved without the benefit of a report from the city’s independent budget analyst, an office created about 15 years ago after the city narrowly avoided bankruptcy for approving spending without sufficient revenue.
The loan also commits an increasing share of the city’s general fund revenue to repay bonds, pay pension and retiree health care costs, and other fixed expenses.
An initial staff report to council said 24% of general fund revenue would have to be set aside for these costs if borrowing was allowed – just short of the 25% limit.
A revised report indicated that the percentage of the general fund that would be committed by the new loan was 21.8%. The report provided no explanation for the change in calculation.
Every dollar diverted from the general fund reduces the amount of money available for police, parks, libraries and other services.
Long-term borrowing was also passed as the city faces years of budget deficits, according to a report from finance officials last week.
That study said that with federal COVID-19 relief funds depleted and retirement costs escalating, the city could face more than $350 million in shortfalls over the next five years.
Structural budget deficits could worsen in the event of a recession or rising inflation, the city acknowledged.
A majority of council members agreed in July to buy out the Ash Street and Civic Center Plaza leases for $86 million and $46 million, respectively.
The council approved the settlement in August against legal advice from city attorney Mara Elliott.
The buyouts settled claims in a pair of lawsuits brought by Elliott against owner Cisterra and Wilmington Trust. The settlement excluded real estate broker and frequent volunteer city councilor Jason Hughes, who had entered into an agreement to share profits with Cisterra.
These cases are due to be tried against the other defendants early next year.
Elliott said the leases were illegal under a provision of state law that prohibits anyone with a financial interest in a public transaction from participating in decisions related to the transactions.
The transactions are also the subject of a criminal investigation by District Attorney Summer Stephan, whose agents last year executed multiple search warrants at Cisterra headquarters, Hughes’ home and his downtown office. .
Last year, Hughes admitted raising $9.4million from the two leases, but said he had done nothing improper as he told six city officials he expected get paid for their work.
The city was a longtime tenant of the Civic Center Plaza in 2015, when the owners indicated they wanted to sell.
With Hughes’ help, the city entered into a 20-year lease-purchase agreement for the $44 million property. He paid more than $20 million in rent before agreeing to buy out the lease in July for some $46 million.
The following year, Hughes helped the city negotiate a similar deal for the former Sempra Energy building at 101 Ash St.
Even though the 19-story building had been valued at $67 million, the city agreed to pay $6.4 million a year for 20 years — $128 million in total — without the benefit of an independent inspection.
The original 20-year lease-to-own agreement was recommended by former Mayor Kevin Faulconer. Gloria, who was a board member in 2016, moved approval of the contract.
But the Ash Street property was unsafe to occupy due to asbestos and other issues including substandard heating and air, electrical and fire suppression systems.
The building at 101 Ash St. still needs at least $115 million in renovations before it can be safely occupied — nearly double its former appraised value, a 2020 consultant report concluded.
When Gloria offered to buy out the lease, her staff acknowledged that the building was valued at “virtually zero” due to the cost of reoccupying the property.
