Meeting for special joint session after the Review’s deadlines, the City Council convened the Community Development Agency — which the council itself governs — to establish a new public financing authority capable of issuing lease-based bonds.
After a series of prolonged legal battles, Half Moon Bay reached a settlement agreement in April committing the city to pay $18 million to Palo Alto developer Charles Keenan by the end of August. The payment would not be necessary if the city can secure development rights on the land for Keenan, but that appears less and less likely.
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As part of a complex system to issue the needed bonds, the council members were to decide whether to establish a joint powers authority to be leased control of vital city properties, including city hall, the police station, library, Surfer’s Beach, a large section of the Coastal Trail, among other properties. The city’s financial team identified 29 different sites that could possibly be used to help get a bond.
In turn, the public financing authority would issue bonds and give the city money to pay off its massive debt, and the city will gradually pay back the money from revenues in its general fund.
“This is standard lease structure done throughout the state of California,” said financial consultant Marc Curran. “People have been doing these for over two decades.”
Curran said none of the city’s properties have been appraised yet, though that would be a necessary step in the coming months. Once those properties are valued, the City Council would need to put forward assets equivalent to the bonds they want to issue.
There are possible dangers to this plan, however, if the city is unable to repay its debt to the bondholders.
Legal consultant John Knox says that if the city defaulted on its debt, it likely would be sued by its lenders for the money. Knox says the legal framework for the bond doesn’t allow bondholders to foreclose the city’s property or call in the entire debt immediately.
“The bondholder could sue for the rent that’s due,” Knox said. “But another option that’s available is to step in and take possession of the property and find a new tenant that would pay rent that would be used to pay off the bonds.”
Knox said that bondholders probably wouldn’t want to rent out city property because most of it had little purpose except for public services.
According to city Finance Director Hector Lwin, the City Council needs to approve the legal framework for issuing bonds so that the process can move along. That would allow the city’s financial team to begin working on a credit analysis and bond rating.
The language in the resolution the council was to consider would allow the city to issue bonds worth as much as $23 million to pay off the settlement and also “fund a debt service reserve account, and pay the cost of issuance.”
The resolutions also stipulate that the city cannot approve bonds with an interest rate higher than 8 percent.
If the lengthy process is successful, the city would begin issuing bonds in May or June.
But if the city is unable to pay Keenan, the Half Moon Bay will face an immediate penalty of $1.85 million, along with heavy interest that will accrue as long as the debt remains.
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