The City Council decided this week to eschew a competitive bidding process to refinance nearly $87 million worth of bonds because officials feared the issuance would have no takers if they went the traditional route.
But the decision didn’t come without trepidation from at least one council member.
Instead of inviting bond underwriters to submit bids and selecting the competitor with the lowest interest rate, Glendale council members on Tuesday approved hiring an underwriter that has issued bonds for the city in the past. Underwriters buy the debt and then sell it to investors.
Following this week’s decision, officials plan to work directly with underwriter Southwest Securities on the price and terms of the refinance, which officials said could save the city hundreds of thousands of dollars over the next 11 years.
The decision to forgo a competitive sale ruffled Councilman Zareh Sinanyan’s feathers since just three months ago, local residents voted against a city-sponsored ballot measure that would have cut out the required competitive bidding process.
“The city had Measure C on the ballot and it got defeated,” Sinanyan said.
In April, 8,248 residents voted against Measure C, while 6,537 residents supported it.
There are two ways to issue bonds: through a bid competition or via negotiations with a single underwriter. Officials have said the latter gives the city more flexibility, but open government advocates and the U.S. Securities and Exchange Commission have warned that ditching competitive bidding can lead to pay-to-play issues and less transparency.
This refinancing does not fall under city rules regarding competitive bidding because the bonds are connected to an independent city agency called the Successor Agency.
While Successor Agency meetings take place at City Hall and are conducted by the City Council, the agency doesn’t follow city rules, said City Atty. Mike Garcia.
The Successor Agency is charged with the dissolution of Glendale’s former Redevelopment Agency, which had used incrementally higher property taxes from new developments in once-blighted areas to help fund projects such as the Americana at Brand and Disney's Creative Campus.
But last year, state lawmakers eliminated 400 such agencies throughout California, including Glendale’s, shifting the tax revenue to Sacramento to close a multi-billion dollar budget gap. Successor agencies were created throughout the state to pick up the pieces post-dissolution.
The end of redevelopment has seen several skirmishes waged between state finance and Glendale officials and a slew of confusing rules that have sent heads spinning at City Hall.
Officials said the muddiness of redevelopment’s dissolution could scare off potential bidders, or even worse, prompt them to raise their proposed interest rates. That would clash with the goal of refinancing: getting a lower interest rate to save money.
“With this, it’s a little bit of a different animal,” said Phil Lanzafame, Glendale's officer for economic development and asset management.
Officials hope to reduce the 4.3% to 5.5% current interest rates on the bonds to 3.25% to save about $850,000 annually. More than half of those savings would go to the city, with the rest being distributed to other taxing agencies, such as Glendale Unified and the County of Los Angeles, which have already received former redevelopment funds.
-- Brittany Levine, firstname.lastname@example.org