San Diego has made its first public bond offering since the city’s rating was suspended in the fall of 2004, though it doesn’t necessarily indicate a turn around for the city itself.
The San Diego Redevelopment Agency will sell $109 million in tax allocation bonds next week specifically to pay for projects in the downtown redevelopment. The agency was able to access the public credit market despite being a city agency because it’s considered a separate legal entity.
Also, the bonds’ repayment is based solely on the tax increment generated downtown, a steadily increasing source of funds rather than the city’s General Fund. Two other reasons were that San Diego’s downtown is considered an economically vibrant area and the bonds are backed by insurance.
Three major bond rating agencies, Fitch, Moody’s and Standard & Poor's each gave the bonds their highest AAA ratings.
The bond money will go allow the Centre City Development Corp. (CCDC), which facilitates much of the Redevelopment Agency’s work, to initiate work on infrastructure and community projects downtown, such as low- and moderate-income housing, fire stations, a main library, improvements to the C Street corridor, parks, traffic signals and more. The changes will affect 1,400 acres of land.
According to Frank Alessi, CCDC chief financial officer, since fiscal year 2002 the incremental value of taxable property in the Centre City project area has increased more than two and a half times from $2.4 billion to $6.8 billion in fiscal year 2006. Approximately another $1.5 billion of development is currently under construction.
“These bonds are an important step in continuing the phenomenal growth of downtown’s diverse neighborhoods,” said Sanders. “They will help to address many of the infrastructure needs coming from rapid growth in the area.”
The bonds are not, however, a sign of financial health to come for the city. The ongoing city financial matters had no material effect on the Redevelopment Agency bond issue, said Richard Clark, director at RBC Capital Markets, the managing underwriter for the bonds. “Investors are aware that the security of the bonds is solely a pledge of property tax revenues generated from the downtown Centre City Redevelopment Project Area,” he said.
The city of San Diego can’t get back onto the open market until an audit is completed, and the audit report has been pushed back a number of times. The latest word from Kroll Inc., the firm conducting the investigation, is that the report will be done in June.
Sanders said he thinks it’s realistic that the city will be able to go to the public markets by the end of 2006 and that the market is interested in San Diego’s strong regional economy, but he made it clear that the Redevelopment Agency was able to sell these bonds because they are a separate entity from the city.