The new downtown Sacramento sports arena is under construction and city finance officials are confident they have a solid plan for the public’s contribution to the $477 million project. It’s the next few projects that could become a concern.
City Treasurer Russ Fehr told the City Council on Tuesday night that it should use caution in taking on more debt for a long list of civic projects that are being proposed. He said the financing for the arena is solid, but that the $280 million to $290 million in revenue bonds the city will issue to fund its share of the deal could limit the city’s ability to help finance other projects. The arena bonds will be supported by downtown parking revenue and lease payments by the Sacramento Kings.
Fehr’s report also touched on the more than $1.1 billion in unfunded liabilities the city is facing in its pension and retiree medical plans. The most troubling liability is the medical benefits promised to retired city workers; the city has set aside just $5.4 million in a trust and has an unfunded balance of more than $450 million, according to Fehr.
The city also has nearly $1 billion in outstanding debt for civic projects, including $246 million in bonds issued in 2013 for water infrastructure projects that will be paid back from utility bill revenues. The total debt number went down by $38 million last year as the city made payments on its loans.
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“We’re right on the cusp of these liabilities being a problem,” Fehr said in an interview last week. “We still have the ability to borrow for high-priority projects, but we can’t do everything that’s being proposed.”
Fehr mentioned plans to build a new Community Center Theater and a new Convention Center among the projects that will compete for public financing. He said his office is “approached frequently” by groups advocating for city dollars to help build new projects.
In addition to the large civic projects, Fehr said other needs will compete for funding in future years, including fire stations, parks and libraries.
Mayor Kevin Johnson, who will chair a newly formed City Council budget committee, said Tuesday night that the city has “to be fiscally disciplined.”
“The future of Sacramento is really going to be determined about how smart we are today about tomorrow,” he said.
The treasurer said taking on more debt could lead to a credit rating downgrade, resulting in higher payments when new bonds are issued. The city’s overall credit rating is considered solid at AA- and its rating for revenue bonds is either A+ or A, depending on the rating agency, Fehr said.
“There isn’t this line or number where you can borrow up to that and then you have to stop borrowing,” he said. “But the council is going to have to set priorities on which projects it wants to do in terms of using the city’s debt capacity.”