Looking at City's Standing Bond Debt

The city of Alameda is currently entrenched in a multi-million dollar bond debt issue that could have a negative impact on the city's future budget and debt.

Alameda has 17 bond obligations as of 2009 — the last updated reports — according to a 2009 city sustainability report from City Treasurer Kevin Kennedy. The city's bond debt is split into two categories: general obligation debt and revenue debt, according to the report.

"The city's total General Obligation (GO) debt load is $23.57 million. This consists of one straight GO bond issue of $9.85 million and two Certificate of Participation (COP) issues totaling $14.11 million," Kennedy stated.

The city's revenue debt is $132 million as of 2009. It is called revenue debt because it consists of properties that can pay for themselves with the tax revenue they generate. These properties include: residential debt ($66.045 million), which generates money through tax increments; land-secured debt ($35.180 million); sewer-system debt ($13.5 million), which generates money from sewersystem tax revenue; lease-revenue debt ($12.6 million); and equipment leases ($4.4 million).

Debts stemmed from financing for different projects such as revitalizing Alameda Theatre or to finance the acquisition and construction of the city sewer system. For these projects to be completed the city had to acquire funds through bonds.

"Most capital projects and investments, public or private, are paid for using financing," said Kennedy. "For example, think of it like a mortgage when purchasing a home."

Some bonds date back to 1997 and others will not be paid off until 2033. For example, the city took out a bond in April 2003 with BNY Western Trust Company to finance the "acquisition and construction of a new main library and improvements to two branch libraries within the city." The 2003 bond had an original balance of $10.6 million and will be completed in 2033. Over the course of this 30-year bond — at a true interest cost rate at 4.916 percent, a net interest cost rate of 4.942 percent and a coupon rate that starts at two percent and ends at five percent — the city will pay a total of $20,822,326.94.

"Borrowing costs are determined by the marketplace," said Kennedy. "The city's credit rating is good, so we generally get favorable terms on loans." The city often times can change interest rates on these bonds in the middle of their terms. "Most bonds are callable, meaning the issuer can pay them off at their will," said Kennedy. "So again, like a mortgage, if interest rates drop and you can refinance your loan from six percent to four percent, it means a lot of savings for the city."

Of the 17 bond obligations, the 1997 bond issued by U.S. Bank Trust National Association for $37.685 million for the Alameda Public Financing Authority's Marina Village Assessment District was the most expensive bond the city took out. "The bonded debt is easily manageable," Kennedy said. "Alameda doesn't have a debt problem. Alameda has a cash flow problem.

Our spending is greater than our income."

Spending more than the city's revenue is troubling because with less spending, the city could allocate more tax increment money to the general fund, to education, to the county and to other special districts.

Alameda CFO Fred Marsh did not respond to calls for an update on the city's bond debt.


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