The city of San Diego jumped back into the municipal bond markets this week after being locked out for about five years because the city omitted significant financial data about its employee pension fund deficit in bond disclosure documents, the city announced Jan. 13.
The latest bond offering of $157 million has two components: a refinancing of $62.7 million in short-term debt, and $94.5 million for refunding a portion of water bonds issued in 1998. The refunding of the 1998 bonds will generate savings of more than $8.7 million over the next 12 years and free up money that would have been used to pay interest, the city said.
Money to pay the 30-year bonds, which were priced at an average coupon rate of 4.98 percent, comes from revenue in the city’s water utility fund.
Mayor Jerry Sanders touted the bond sale as proof that he made good on his pledge to restore San Diego’s credibility on Wall Street.
In 2004, following revelations in the prior year that city financial disclosure documents didn’t contain data relating to a $1.4 billion deficit in the employee pension plan, two bond rating agencies downgraded the city’s credit rating and a third refused to provide any ratings.
The revelations also spurred several criminal and civil investigations into the city’s financial condition, and caused the city to be effectively locked out of borrowing money in the public markets. The city continued to borrow funds at higher costs from the private sector, including the Bank of America.
To counter the crisis, the city spent millions of dollars on consultants, restructured its operations and reissued financial reports for three fiscal years.
The payoff was reached recently when the city’s debt was upgraded to the point where the city could attract investors.
, Mike Allen
