Lone Council Member Raises Questions about Municipal (Over)Borrowing Practices

• Consideration of Issuing More COPs Now on the Table

BY BILL KOENEKER

Having borrowed money in the form of certificates of participation for Legacy Park, the purchase of the new City Hall, and possibly more for improvements to the new municipal headquarters, the municipality will be required to pay back nearly $62 million over the life of the borrowed funds, the Malibu City Council was told at a special quarterly meeting last week.
The information was revealed when Councilmember Pamela Conley Ulich asked the city’s bond consultants what would be the final cost of all the borrowed money when it was paid off in about 30 years.
In what sounded like the same dialogue now going on in Sacramento and Washington, DC, Conley Ulich, who voted not to explore borrowing any more money, said she was worried about the spending policies of the current city council.
The majority of the members countered that there is a revenue stream to pay back the COPs and that no money to meet the indebtedness will come from the general fund or the taxpayers in the form of increased obligations.
The agenda item before the council was the cost of construction for the new city hall, which is currently estimated at $3.7 million. The total price tag was expected to be presented to the council in March. The city currently has $1.1 million in its designated reserve fund for city hall acquisition.
The Administration and Finance council subcommittee comprised of Mayor Sharon Barovsky and Councilmember John Sibert, suggested that money be rolled over to a facilities deferred maintenance fund, and that the city issue $5 million in COPs even though the current project estimate is $3.7 million. They agreed with the reasoning that if other problems arise during the remodeling, the funds would be available; if not, the balance could be used for a capital improvement, as noted in the staff report.
Conley Ulich persistently question the timing and the need for the extra borrowing that would amount to a total of $6.9 million.
Barovsky and Sibert countered that the time is better now because money is cheaper than it might be in the future.
They tried to assuage Conley Ulich’s concerns by stressing that the council was not going to approve the money this week, but was merely starting the process for issuing the COPs.
A majority of the council argued that the current credit rating the city just received would be beneficial to the process of obtaining more money.
The council was told that if the city used money from its undesignated fund reserve, which will be $7.7 million by the end of June 3, 2010, the fund would drop to $4 million. That is about half of the $8 million the fund should contain, according to city policy.
That amount is dangerously low, according to the consultants, who told the council that it could lose its excellent credit rating if something like that should happen.
Most cities comparable to Malibu have a reserve much higher than that—usually about 100 percent of their total budget—to serve as a rainy day fund, rather than the city’s stated goal of $8 million, which is less than 50 percent of the annual budget.
Conley unsuccessfully questioned why the city could not find out what the city hall renovation costs would be before proceeding with obtaining financing.
Barovsky said the city would pay a lot more for funding in the future than now.
Some council members and the staff also talked about how once the city was moved into its new offices, the old city hall would be subleased.
“I don’t feel comfortable issuing more debt. I think we should try to do more with less. I just won’t approve this,” Conley Ulich said.
The council voted 4-1, with Conley Ulich dissenting, to direct staff to prepare the document for the 2010 COPs.