San Diego city officials are considering an alternate finance plan for the Downtown ballpark involving a private bond placement that would circumvent the project’s litigation problems.
The plan, in the early discussion phase, entails issuing bonds to a limited number of investors, primarily large institutions, for a two- to three-year term. It gives the city the money to resume construction while it resolves 11 pending lawsuits that prevent issuing lease revenue bonds.
Tom Carter, a San Diego residential developer who helped arrange an initial meeting between city finance staffers and representatives from Los Angeles-based Wedbush Morgan Securities, said the city could issue between $175 million to $200 million in private, tax-exempt bonds to a limited number of securities firms.
The bonds would carry a higher interest rate and cost the city more in the short term, but could be refinanced at a lower rate once the litigation is settled.
“These would be a smaller number of sophisticated investors who would assume the risk, but they would be getting a higher interest rate , maybe 7.5 percent to 8 percent,” said Carter, principal of Carter, Reese & Associates, and a former banker.
The alternate plan, called a gap loan or private placement, is common in the real estate industry. It would enable the city to get ballpark construction, which was halted in October, moving again, he said.
“We’re just talking at this point,” he said. “We’re going to put something together and take it to the city manager, the city finance people and attorneys, then to the council to see if it makes sense or not.”
Last week, the council took what Mayor Dick Murphy called the first tiny steps toward getting ballpark construction back on track when it unanimously approved an ordinance ratifying past actions and contracts involving the project.
Backup Plan
City Attorney Casey Gwinn recommended the action as a “precautionary measure” in the wake of the resignation of former councilwoman Valerie Stallings on Jan. 29.
While Gwinn said the action wasn’t necessary and the council’s previous votes were all valid, a re-vote was the best way “to clean the slate legally concerning the actions that were taken.”
The council expects to give a second approval to the previously adopted actions and ratify another set of previous resolutions at its March 6 meeting.
Gwinn stressed the council was not adopting the ballpark financing plan last week, and would not address that for at least six months.
The ballpark’s financing will be discussed at the March 6 meeting, but an actual plan will probably not be ready by then, said City Manager Michael Uberuaga.
Hotels In Limbo
City staffers have been scrambling for weeks to come up with alternate financing packages that would use revenues other than transient occupancy taxes, or hotel room taxes, to repay an estimated annual debt service of at least $21 million over 30 years.
The city’s agreement with the Padres calls for the city to contribute $225 million toward the ballpark construction, now estimated to cost $452.6 million. The funds would come from lease revenue bonds and would be repaid from hotel taxes collected from both existing and planned hotels.
Yet with several hotel projects, including a 1,200-room hotel at the Campbell Shipyard site, delayed and other hotels still seeking financing, officials are looking for other revenue sources to supplement the hotel taxes.
Last week, at least three new council members expressed reservations about the financing plan approved by the previous council, and a reluctance to back such a plan if it involves cutting into revenues that pay for basic city services and other programs.
About half the transient occupancy taxes is used to support the general fund and basic services, with the remainder going toward arts and cultural groups, and visitor promotion. Last fiscal year, the city collected $96.6 million in the taxes, about 5 percent more than the previous fiscal year.
Councilwoman Toni Atkins, a self-professed skeptic of the ballpark when it was first proposed, said she has come to see the benefits of the largest redevelopment project in the city’s history.
But if the financing for the city’s share doesn’t add up, she warned, the council should be prepared to walk away from it.
Councilman Jim Madaffer also said he wanted to see the ballpark finished, but without sufficient hotel rooms, the project isn’t feasible.
The council has two vacancies (because of Stallings’ departure in the 6th District and Juan Vargas, who won an Assembly seat, in the 8th District), a fact not lost on the remaining members , five of whom were elected last November.
Since any financing plan requires approval of two-thirds of the council, or at least six votes, a rejection by two members would kill any proposal.
The $1 billion ballpark project, including a redevelopment of a 26-block district in the East Village section of Downtown, was approved by nearly 60 percent of city voters in November 1998.
In addition to the Padres providing about a fourth the funding for the ballpark, the club is responsible for the private development of hotels, offices and retail space surrounding the 46,000-seat stadium.