The City of Turlock’s Redevelopment Agency bonds found a willing buyer at a better than expected interest rate, Turlock Senior Accountant Marie Lorenzi said Friday.
“We successfully sold them,” Lorenzi said.
The Turlock RDA had pursued the approximately $25 million bond issuance since mid-2010 as a lynchpin in the strategy to fund the proposed Public Safety Facility – a two-story, 57,570 square foot future home of Turlock’s police and fire departments. The issuance has been fraught with difficulties, though, ranging from higher-than expected construction bids to local taxing entities concerned with entering subordination agreements, which establish how tax revenues are distributed to repay the RDA’s debt obligation. Agencies had feared the size of the Turlock RDA’s bond issuance could cut into their own passthrough tax revenues.
Most recently, the bond issuance was jeopardized by Gov. Jerry Brown’s Jan. 10 state budget proposal, which calls for the dissolution of all redevelopment agencies statewide. That proposal shook the bond markets, leading the Turlock City Council to raise the bond’s interest rate cap to 8.5 percent on Jan. 25, well above the 6.75 percent cap initially suggested in November 2010.
In the end, the issuance was priced at 7.47 percent, just above the 7.25 percent cap approved by council on Jan. 11.
“The interest rate was definitely better than what the market had indicated just a few days earlier,” Lorenzi said.
At the 7.47 percent interest rate, the City of Turlock Redevelopment Agency will clear just over $13.5 million in proceeds to fund the approximately $28 million Public Safety Facility. A 6.75 percent interest rate would have raised about $15 million, while an 8.5 percent rate would have raised just $11.5 million.
The city has approximately $8 million in secured funding for the Public Safety Facility, plus $13.5 million in bond proceeds, leaving about $6.5 million to fund.
The City of Turlock hopes to sell the existing police facility on N. Palm Street for $2.5 million. The remaining $4 million would be added to Turlock’s capital facility fee program.
The CFF program works by charging developers a fee based on the costs of city infrastructure, effectively burdening developers and ultimately consumers with that cost. Though, as the new general plan update calls for higher housing densities, the per-unit fees should be similar to existing fees, the city said.
Under the original interest rate proposal, only $2.5 million would have been added to capital facility fees.
As the projected $4 million in CFF and $2.5 from the sale of the existing facility may take some time to materialize – development is slow, and a sale of the police department could not occur until the new building is completed – the city will likely borrow from other city accounts in the short term, possibly other capital facility fee accounts.
The council has yet to authorize the construction of the new PSF. Construction bids expire Wednesday, and a special council meeting to approve the bids was expected on Tuesday, but no agenda has yet been released for that meeting. A special, 6 p.m. Monday meeting at City Hall was called for “Strategic Planning Discussion,” but no action items are agendized.
Should the council not approve bids by Tuesday, the city would have to rebid the entire project, likely raising the overall cost by at least $1 million, according to City Engineer Mike Pitcock.
The Turlock Police Department has lobbied for the new building, in planning for more than four years, as the existing facility does not meet state and federal standards for such facilities. The two department buildings are 53 and 51 years old, and one building was never designed for police operations.
According to Turlock Police Chief Gary Hampton, the current facility has inadequate space for current staffing levels. It also features an “inadequate and uninhabitable” evidence facility, where biological and DNA evidence has been compromised due to poor conditions, and an unusable lockup facility, which does not meet state standards.
“Those operations are being conducted in a facility that does not meet essential service standards for public safety,” Hampton said.
Additionally, all maintenance was stopped on the police department more than three years ago, when it was determined the department would move into a new facility rather than retrofit the existing buildings. Those buildings now have failing roofs, air conditioners and even doorlocks. Constructing the new facility would cost less than renovating the old facility, Hampton said.
The bond sale will not settle until Feb. 8. The city and buyers have until then to sign all the related documents, which contain provisions which could yet void the sale in case of natural disaster or changing laws – a threat, in the wake of Brown’s proposal to quash RDAs.
But even should the council opt not to accept the PSF bids, the $13.5 million in bond proceeds will likely remain in the Turlock RDA’s coffers for three years to be spent on other projects. Even if Brown eliminates RDAs, the City of Turlock would likely retain the funding, unless the state legislature opts to retroactively ban new bonds.
“Come Feb. 1 if we don’t want to authorize the project, that’s fine, but we’ll have the money in the bank for three years, and we’ll have the bonds sold,” Councilman Forrest White said at the Jan. 25 council meeting.
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