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Questions Abound in City's Planned Refunding of Stadium Bonds

The city council is being asked Tuesday to approve the refunding of $185 million of lease revenue bonds, including the 1996 Qualcomm Stadium bonds. (The facility was then named Jack Murphy Stadium.) The outstanding principal on those bonds is $54.7 million. They mature in 2027. Should the Chargers depart, they would have to pay some of that sum -- at least, as things stand now. This refunding proposal is extremely dubious. First, it bundles three bond offerings together: the 1996 certificates of participation for Balboa and Mission Bay Parks improvements, and the 2009 lease revenue bonds for various improvements are lumped with the stadium bonds. "Why the bundling?" asks Councilmember Donna Frye. Also, the original stadium bonds were taxable. Now the city claims that "tax counsel" has ruled that they can be refinanced as tax-exempt at a lower interest rate. "Who is that tax counsel?" asks Frye. The document doesn't say.

The thin document that the council is asked to approve has this line: "The leased properties are different from the assets that were financed with the original bonds." Those assets substituted for the stadium include the police headquarters and the Scripps Ranch Library. The document states that the stadium "would be released free and clear from the existing financing encumbrances" upon issuance of the 2010 bond. Former City Attorney Mike Aguirre issued a legal opinion saying a transaction like this is clearly a violation of the debt limit law because the assets that are securing the borrowing were not improved by the borrowed funds, and he says that outside counsel cannot be relied upon to rule on this matter because it makes money if the deal goes through. Essentially, with this maneuver, the city is borrowing against the general fund, says Aguirre, but the city claims that no vote is necessary in this case, although its documents states that the general fund is ultimately responsible for these bonds. "The idea of clearing the debt for Qualcomm is an obvious step in the direction of building a new stadium for the Chargers, and is another reason why there should be a vote of the public," says Aguirre.

Says Frye, "One issue is whether or not this refunding, which would release the stadium as collateral and in its place substitute other city properties -- what effect does that have, if any on the repayment schedule with the Chargers."

Former Councilmember Bruce Henderson observes, "There is no transparency. This document is almost as opaque as it gets. There could be a spectacular problem that is being papered over." Henderson suggests that through this maneuver, the National Football League could get off the hook on a public relations problem. Should the Chargers leave, the city would have to pay off part of the stadium bonds, and that could be a black eye for the league. "So the NFL would like those bonds to go away."

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The city council is being asked Tuesday to approve the refunding of $185 million of lease revenue bonds, including the 1996 Qualcomm Stadium bonds. (The facility was then named Jack Murphy Stadium.) The outstanding principal on those bonds is $54.7 million. They mature in 2027. Should the Chargers depart, they would have to pay some of that sum -- at least, as things stand now. This refunding proposal is extremely dubious. First, it bundles three bond offerings together: the 1996 certificates of participation for Balboa and Mission Bay Parks improvements, and the 2009 lease revenue bonds for various improvements are lumped with the stadium bonds. "Why the bundling?" asks Councilmember Donna Frye. Also, the original stadium bonds were taxable. Now the city claims that "tax counsel" has ruled that they can be refinanced as tax-exempt at a lower interest rate. "Who is that tax counsel?" asks Frye. The document doesn't say.

The thin document that the council is asked to approve has this line: "The leased properties are different from the assets that were financed with the original bonds." Those assets substituted for the stadium include the police headquarters and the Scripps Ranch Library. The document states that the stadium "would be released free and clear from the existing financing encumbrances" upon issuance of the 2010 bond. Former City Attorney Mike Aguirre issued a legal opinion saying a transaction like this is clearly a violation of the debt limit law because the assets that are securing the borrowing were not improved by the borrowed funds, and he says that outside counsel cannot be relied upon to rule on this matter because it makes money if the deal goes through. Essentially, with this maneuver, the city is borrowing against the general fund, says Aguirre, but the city claims that no vote is necessary in this case, although its documents states that the general fund is ultimately responsible for these bonds. "The idea of clearing the debt for Qualcomm is an obvious step in the direction of building a new stadium for the Chargers, and is another reason why there should be a vote of the public," says Aguirre.

Says Frye, "One issue is whether or not this refunding, which would release the stadium as collateral and in its place substitute other city properties -- what effect does that have, if any on the repayment schedule with the Chargers."

Former Councilmember Bruce Henderson observes, "There is no transparency. This document is almost as opaque as it gets. There could be a spectacular problem that is being papered over." Henderson suggests that through this maneuver, the National Football League could get off the hook on a public relations problem. Should the Chargers leave, the city would have to pay off part of the stadium bonds, and that could be a black eye for the league. "So the NFL would like those bonds to go away."

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