Save Newport Real News in Newport Beach
City Hall’s price is a disaster. Nobody disputes that. In total, we will be paying about a quarter-billion dollars for this building– far more than should ever be justified for a municipal structure. But there is another aspect to this: Financing, which accounts for nearly half of the $263.3m total cost to the city.
A month ago, Dixon threw Curry off as the Finance Committee Chair, and last week, Dixon and Will O’Neill penned an article in the Daily Pilot. The article was a horrifying and thinly-veiled accusation against Keith Curry and Company. It stated that several paragraphs of text had been mysteriously removed from the agreement just weeks before signing it.
I’ve met Will O’Neill many times and he used to always strike me as a straight-shooter, so these accusations with his name on them really hit home. Was Newport getting the short-end of this stick? Did O’Neill and Dixon uncover one of the largest mis-managements of funds in Newports history? Is Dixon finally doing something… useful and productive?
Here’s the backstory… In total, the build-cost of the city hall was $140million. Holy cow. But still– who finances a $140m loan? Definitely not Cash Call. So we brought in the big guns from the big firms. We did the negotiating. We pounded our fists on the table and so did they.
We had an advantage: interest rates had never been cheaper for such a long period of time– ever. We needed to figure out a way to lock these in as a long-term scenario, and the banks needed to make sure they limited their exposure on the deal. I spoke to finance expert and SaveNewporter Jon Pedersen from Lido Isle.
He broke it down pretty simply– there were two ways of doing this:
1) Take out a 10 year bond, not callable until year 10. Then the city’s options are a) Pay off the loan early (if the city had all the cash) or b) Refinance (plus more fees) into what interest rate environment in 2021?
2) Lock in a lower interest rate for 30 years like home mortgage and promise to pay the whole thing in full (no early payoffs).
#1 would be a bet that says we either expected a ridiculous windfall of money that we didn’t know what to do with, or that we expected the interest rates to get even lower than they were (both of which were, unlikely and risky propositions)
#2 would be a bet that we wouldn’t find significantly better interest rates in the years to come. Further, the city would know exactly what our total costs were.
We took option #2, and therefore removed the 3 paragraphs of the early-payoff text that would have cost the city millions or perhaps tens of millions of dollars more– depending on the market rates.
This is all available on public record for anyone who wants to spend the time digging into it– you know, like if you were on the Finance Committee like Diane Dixon and Will O’Neill.
But did we get the best deal? In a nutshell: Yes. We have $123.3m of bonds we are paying a blended interest rate of 4.45% with a Federal Interest Credit.
We can argue the lunacy of spending on City Hall… but that argument is old and tired and even those who approved the spending have backpedaled and said they should have said “no” more often. It is beating a dead horse. What we have now are two people who are raising questions about the financing of the city hall– but all of these questions were vigorously debated, voted on, and their agreements signed with all proper documentation included and available on public record long before either Dixon or O’Neill either moved to Newport. Perhaps that is why they are asking questions which already have answers. Or perhaps it is because O’Neill is trying to locate a campaign issue to champion. Or perhaps Dixon is just using O’Neill’s name to attempt to further inflict damage to Curry’s reputation. Unfortunately, whatever the reason– it backfired, big time.
There is absolutely nothing wrong with our city’s financing, and as two of the seven people on the finance committee, both O’Neill and Dixon should have done their homework before lofting bombs in the paper and stirring up the public on this subject. I asked Pedersen how long it took him to dive in blindly to the subject as an outsider in order to find out the actual numbers here. He said it took him about three hours– probably the same amount of time it took Dixon and O’Neill to write their piece. Nice.
Pedersen added “To note, the Build America Bonds were a temporary fix designed by the Federal Government to encourage exactly the kind of municipal building that we did. The BABs– which were only available for 20 months– expired shortly after we locked them in, so there is absolutely no reason to “review” this. The answer is clear, obvious, and extremely simple: There is no better deal today, nor has there been any better deal since the ink dried on this agreement“.
If anyone was paying attention to things that actually mattered, they would account for our $257m unfunded pension liability (actually far closer to $1b when you consider the flawed way this is calculated), and the fact that we are essentially borrowing to pay that bill at a whopping 7.5%– if you had a credit card at 4.45% and a credit card at 7.5%– which one would you be concerned about paying down first?
To some, perhaps, baseless accusations for political gain are more important than actually fixing our citys finances.
