Armed with a crucial court victory on its downtown arena deal with the Sacramento Kings, the City Council will conduct a hearing Tuesday on the bonds it plans to issue to finance its share of the project.
The hearing is a requirement of the bond process. It’s also something of a formality. The council will hear a summary of the financing but won’t vote; it already approved the bond sale when it made a definitive development agreement with the Kings in May 2014.
Nonetheless, scheduling the hearing right away shows the city is intent on moving ahead swiftly. City staffers put the hearing on the council’s meeting agenda late Friday, just hours after a judge rejected a citizens’ lawsuit challenging the city’s $255 million arena subsidy. Although Superior Court Judge Timothy Frawley’s ruling is still a “proposed” decision, city officials believe it will soon be made final.
The Kings broke ground last fall on the arena at Downtown Plaza, and the city has been eager to get the bonds sold before interest rates go up.
“Because of the pending litigation, the issuance of the bonds has been delayed about a year,” the staff report said. “The city is now in a position to proceed.”
It’s still not clear when the bonds will be sold. The city expects first to execute a short-term loan with Goldman Sachs & Co. Then at some point it will convert that loan into long-term bonds totaling $282 million, mainly backed by future city parking revenue.
The city’s subsidy includes $223 million in cash and $32 million in land. Of the cash contribution, $212 million will come from the bond sale.
So why borrow $282 million? City officials say the additional dollars will be plowed into reserves, including a fund to pay the final year’s debt service. They say this is typical in a long-term bond.
The city expects to pay $19.3 million in annual debt service, or about $2.6 million less than when the deal was struck in May 2014.
The citizens’ lawsuit claimed the city added millions of dollars’ worth of secret sweeteners to the arena subsidy, including the Downtown Plaza parking garages and the rights to build digital billboards. Frawley said those additional assets were of questionable value and were fully disclosed to the public.