S.D. to Refinance $90 Million in Bonds

The San Diego City Council voted Tuesday to refinance as much as $90 million in bonds for open space and for the new police headquarters in order to save millions of dollars in interest payments over the next 25 years.

In approving the refinancing, the city has acted much like a homeowner who has taken advantage of lower interest rates by refinancing his house, thereby reducing his monthly payments. Because the new bonds will replace bonds with higher interest rates, the city will be able to save an estimated $42 million in “debt service” payments to bondholders over the life of the bonds.

The refinancing package was approved through two council actions. In one, the council voted to issue as much as $70 million in “certificates of participation,” sold since 1983, to pay for the $43.7-million police headquarters and technical center downtown, and for two police substations worth $7 million and a heavy-vehicle facility costing $5 million.

The new bonds will be sold at interest rates averaging 7.1%, contrasted with the 10% average for the current certificates. The difference means that the city can save $36 million to $39 million on interest payments over the next 25 years, city officials said.

In the second action, the council voted to refinance about $20 million in open-space bonds, which were issued in 1981 and 1982 to buy and preserve land in the city’s canyons. By reducing the interest rate from about 10% to 7%, city officials estimated they could save $3.3 million over the life of the bonds.

The $3.3 million will be an immediate savings, and it will be used to leverage the issuance of an additional $20 million in open-space bonds. That issuance is the final installment of a $65-million package of open-space bonds approved by San Diego voters in 1978.

City officials have promised that the bonds would not be issued if it meant increasing taxes. As a result, they traditionally have waited until there was enough in the city “environmental growth fund” to act as leverage for any issue of open-space bonds. But since contributions to the environmental growth fund have slowed, city officials recently estimated that the final $20-million installment in open-space bonds would not be issued before July, 1987.

With the $3.3-million savings from refinancing, however, city officials say they have enough to issue the final $20 million in open-space bonds now.