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HMB looks to pay down debt

Staff suggests paying bonds over other expenses

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Posted: Wednesday, March 13, 2013 12:36 pm

Half Moon Bay leaders will vote on a multifaceted plan to pay down the city’s long-term bond debt tonight in a consequential decision that could save tens of millions of dollars.

Council members will review a recommended course of action at a special meeting tonight. Financial advisers believe their plan would ultimately save $12 million and pay off the debt entirely in 2019. The plan calls for immediately buying back as many of the city’s bonds on the open market as possible and making use of two windows to pay the bonds early before they accrue decades of interest.

But paying back the city’s debts is an extremely complicated proposition and could be impacted by changes in the bond market, U.S. federal budget negotiations or IRS regulations.

“This is very complex and it’s not as simple as a home mortgage,” said city financial director Jan Cooke. “They’re all projections. They’re our best estimates at this point related to the payment.”

The plan for reducing the city’s debt follows the announcement last week that Half Moon Bay will receive an additional $3.15 million as part of a final settlement with its former liability insurer. That money is being added to $10 million the city received last year from the same insurer in an arbitration case ruling.

The two insurance awards and the city’s bond debt are all rooted in the Beachwood case, a lawsuit the city lost in 2007. More than five years ago, a federal judge ordered Half Moon Bay to pay a developer $41 million as part of a longstanding land-use battle. The city ultimately agreed to pay $18 million through a settlement, and officials raised most of that money by issuing two sets of bonds: $5.7 million in “Series A” judgment obligation bonds and $10.9 in federally subsidized “Build America Bonds.”

Following the lawsuit, the city pressed its own case against the Insurance Company of the West, a firm that provided liability coverage for the city in the early 1990s. That case went to legal arbitration and resulted in the two settlements totaling $13.15 million.

The City Council directed staff to devise the best way to use that money with the help of Jones Hall law firm and William Euphrat Municipal Finance advisers.

The recommended plan released this week would first involve hiring a securities broker to buy back the city’s bonds at “advantageous” prices on the open market. The Euphrat consultants reported this could be most cost-effective way for the city to pay off its bonds, but it would depend on whether bondholders were willing to sell and at what price.

“We don’t know whether they’ll be available or for what price,” said City Attorney Tony Condotti. “The bonds (are owned by) mom and pop investors to mutual funds.”

Under the plan, Half Moon Bay would use any remaining money to set up two accounts to pay down its two separate bond programs. Each bond program has its unique payment structure, interest and payback windows. The city could pay off its $5.7 million “Series A” bonds starting in 2014; the $10.9 million “Series B” could be redeemed in 2019.

Some uncertainties could still change this picture. The federal government is currently defaulting on a wide array of obligations as part of the budget sequestration negotiations, including the city’s bond subsidy. Attorneys are still investigating whether this could merit an “extraordinary event,” a clause writing in bond issuance providing an opportunity to pay off the bond early.

Another uncertainty is whether the City Council will tweak the recommended strategy. City leaders have indicated previously they would use the insurance money to pay off the debt, but recently some elected leaders have questioned whether some should be set aside for other purposes.

Mayor Rick Kowalczyk suggested using some money now for a new local library might save the city money if the plan is to eventually take out another bond to finance it.

“I also have to step back to ask what’s the best thing for Half Moon Bay,” the mayor said. “Is the best thing to pay down the debt, or is there an alternative use that I should consider?”

Half Moon Bay leaders will hear staff and public suggestions tonight, at a meeting scheduled for 6 p.m. at the city’s Department Operations Center, 535 Kelly Ave.

Welcome to the discussion.

5 comments:

  • John Charles Ullom posted at 6:29 pm on Sat, Mar 16, 2013.

    John Charles Ullom Posts: 1059

    Mr. Durden, your comments don't merit a reply.

    I wonder if the guy who posted this reply gets the irony?

     
  • J C Cervantes posted at 4:29 pm on Sat, Mar 16, 2013.

    J C Cervantes Posts: 175

    It may be a blessing in disguise that the Council was not able to reach a decision. It will give the Bond Attorney time to determine the effect of the reduction in Federal interest rate support which was initiated by the recent "fiscal cliff" events in Washington. If that decision to maintain the reduction becomes permanent, we could pay off the Build America Bonds immediately and save even more money. If we should do that it will free up an additional nearly one million dollars which is being held in an escrow account.

    Perhaps there would be enough money left to build that library everyone talks about but no one is willing to raise money for or to finanacially support

     
  • Allan Alifano posted at 3:17 pm on Fri, Mar 15, 2013.

    Allan Alifano Posts: 3

    Mr. Ullom, we all appreciate your understanding of how focused we are to use these funds to pay off the city's debt. Thanks for the comments.


    Mr. Durden, your comments don't merit a reply.

     
  • Tyler Durden posted at 11:13 pm on Wed, Mar 13, 2013.

    Tyler Durden Posts: 414

    I still think council member Alan Alifano should check with his son Fireboard director Michael Alifano (currently the subject of a recall)who claims to be very knowledgeable about public finance issues. Maybe it would be better to use the $13 million to bring back our own "locally controlled, stand alone" police department. If Michael Alifano thinks such a thing will save money for the fire district then why shouldn't HMB follow suit? After all, Michael Alifano was "born and raised" on the Coastside which makes him even more of an expert on these kind of financial matters.

     
  • John Charles Ullom posted at 9:51 pm on Wed, Mar 13, 2013.

    John Charles Ullom Posts: 1059

    Kudos to everybody at City Hall. Seriously. Patridge, Muller, Mayor K, the staff and the rest. They have worked a miracle and they all seemed to be committed to using every penny to pay off debt.

    As far as I could tell, the advice they were given seemed sound. It took awhile but all of the CC members present got around to asking some good questions. Even some that I would have asked.

    Ms Patridge in particular was impressive. She made it clear that she intended to use every penny towards paying off debt. I believe she meant it. Even Mayor K, who did put up a devils advocate type of argument, seemed to be more interested in making sure all the bases were covered and that in the end, he understood the wisdom of paying off debt.

    As for the Extraordinary Optional Redemption Option. As much as I wanted to be right on that one, I was wrong on one very key point. The EOR is apparently is not as good of a get out debt free card as I figured. The way I read it, all we had to pay off was the principal but it seems per the hired guns, I was wrong about that. At 1250 per hour for the talent, I will defer to both their expertise and ethics.

    So, I think this one has been put to bed. An incredible Hail Mary to be sure. Somehow, we end up with the land for free. Our debts will be paid by 2019. We will receive a substantial cut in the payments we have to make until then. Win, Win, Win.

    The thing though that really impressed me was I think they really listed to us. They admitted up front that 99% of us wanted the debt paid off and in spite of the temptation to hand out goodies, they intend to do right by children yet unborn.

    Folks, if you see Naomi Patridge, Alan Alifano, Farmer John, Marina Fraser, or Mayor K, congratulate them on doing a great job. They earned it.

     

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