Editorial: City Council made right move on bonds
The proposal for the city to issue bonds to rescue the developer of the convention center project troubled us from the start.
Randy Lane and his company, Lake Tahoe Development, had presumably been scrambling to find financing to continue the $420 million project since Lane lost his funding in November 2007.
Yet no investors had stepped forward. Why, we wondered, would investors now be interested in buying bonds to finance the project – except for the fact that the city’s name would be on them, possibly lending credibility to a risky venture. That seemed to us like a dangerous move.
Later we heard that the bonds might appeal to investors because of their high interest rate and tax-free status – and the potential to grab the property at a bargain-basement price in event of a default.
At the same time, other troubling information came to light.
The bonds would raise about $25 million, of which about $14 million would go to pay off the developer’s debt. In theory, that would buy Lane two years to find other financing. And yet, Lane told us he was facing about $50 million in debt from the first phase of the project. He said his other creditors would be willing to wait two years.
It would have been interesting to see if all those lenders with liens on the property would indeed have been willing to sign a new parcel map for the project, a step that would be required before the bonds were issued.
If the developer failed to repay the bonds, the property would go into foreclosure, and the bond holders would be first in line for repayment, experts told the City Council.
A default would almost certainly hurt the city’s credit rating. And an ill-fated issue of the Mello-Roos bonds could hurt the chances of a later Mello-Roos issue to succeed. The city had been planning to issue Mello-Roos bonds further along in the development process, to be repaid by a special tax on the project’s hotel-condominium units, to pay for such improvements as sidewalks, landscaping and lighting in the public spaces.
The proposal rejected last week was for debt restructuring only and would have provided no money for construction to resume.
The bonds would have been structured so that the developer, and not the city or redevelopment agency, would be responsible for repaying them. And the plan included some substantial benefits to the city, including ownership of land at the project site valued at $18.3 million. The 29 parcels at the site would be consolidated into five, streamlining development.
Watching the council meetings, one could sense how badly council members wanted a solution to the financial problems plaguing the convention center, a project long-sought as an economic boost to the city.
But in the end, worries about the developer’s lack of a concrete plan for moving the project forward and fear of the city ending up with a “black eye” prevailed.
The City Council’s decision to reject the bonds was the right move.
– Contact Managing Editor Elaine Goodman at firstname.lastname@example.org.
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