Commentary: Let’s examine refinancing N.B. Civic Center debt
A recent proposal for addressing governments’ pressing pension obligations may also point the way for Newport Beach to deal with its Civic Center debt.
Chapman Law School dean and former U.S. Rep. Tom Campbell recently raised an interesting point regarding long-term pension obligations in an opinion piece in the Orange County Register. A Harvard law school graduate, UC Berkeley professor of business, and former California director of finance, Campbell is widely recognized as a national leader in economics.
Campbell’s premise is that with bond interest rates at historic lows, governments have an opportunity to address long-term financial obligations by borrowing at reduced interest rates.
Campbell was discussing pension debt and Newport Beach has significant unfunded pension and retirement benefit obligations that are included in Campbell’s proposal. Additionally, Newport Beach spends approximately $8 million per year paying down the $281 million-plus Civic Center debt, and we are curious whether the same prescription could apply.
Piggybacking on Campbell’s thesis, we believe it’s time to conduct some serious fact-finding to determine whether the market conditions are right to revisit our Civic Center debt obligation.
Now, this is not a discussion of whether the project should have been built. It’s done. Some like it, others don’t. So be it.
Our goal is to ask questions concerning the best financial strategy going forward, not accuse, nor cause emotions to rise. We simply want to know whether the timing is right for an accelerated payoff that ultimately reduces the burden on taxpayers and explore the options, if any.
Newport Beach taxpayers and businesses generate significant annual revenue. As policymakers our job is to prudently allocate these funds with the goal of limiting the burden on all taxpayers. And one thing we have learned about Wall Street is that if the deal is right there is always a buyer.
We support retaining the appropriate professionals to advise the city on these issues:
•When the City Council approved the Preliminary Official Statement on Nov. 9, 2010 to issue the proposed Certificates of Participation to finance the Civic Center project, it included three full paragraphs devoted to permitting prepayment of certain certificates. The COPs were then issued a week later, but the final version deleted those paragraphs and simply stated that the certificates “are not subject to prepayment prior to maturity.” Basically, the City Council waived its rights to prepay or refinance a $280 million debt obligation for a period of 40 years. What happened? And is the prepayment penalty our biggest obstacle to accelerating the payoff?
•Are rates low enough to offset the prepayment penalty?
•The debt was issued as a “certificate of participation,” which is a way for local government to finance projects without requiring a public vote. If we are able to refinance, should the City Council ensure that the issue be put to a public vote?
These are very complex issues that require careful analysis. We don’t have the answers but look forward to the Finance Committee with outside counsel putting in the time to determine if market conditions are right for the accelerated payoff of our $281 million-plus Civic Center debt obligation.
DIANE DIXON is mayor of Newport Beach. WILL O’NEILL is an attorney and member of the Newport Beach Finance Committee.