San Diego Misses $1.6-Million Payment to City Bondholders

San Diego defaulted last week on a $20-million bond issued seven years ago to pay for improving the city’s river channel, officials said Tuesday.

The city’s finances have been hampered by depleted reserves and depressed property values. The land has not generated enough revenue to pay off the debt and the property is now worth less than the issue.

On Friday, the city failed to make a $1.6-million debt service payment to about 137 bondholders, and officials said no payment will be made until after a City Council hearing expected to take place later this month.

“This is the first bond issue to reach this point,” said Jack Sturak, San Diego’s assistant treasurer. “It is the first default of a bond administered by the treasurer’s office.”

In a July assessment, City Treasurer Conny Jamison warned of a danger of ultimate default on the unrated First San Diego River Improvement Project Improvement bonds, of which about $20 million worth are outstanding. The current appraised value of the land does not exceed $11.2 million.

In addition, the city’s bond reserve fund, used to meet earlier bond principal and interest payments, has been depleted and contains only $773,000. The city owed bondholders about $761,000 in interest and $850,000 in principal as of Sept. 2.

“We have enough in the reserve fund to pay interest only,” Sturak said. San Diego’s next interest payment, due March 2, will total between $736,000 and $765,000, Sturak added.