DALLAS – The Glendale, Ariz. City Council is planning to mortgage City Hall as it grapples with the costs it incurred through efforts to keep the Phoenix Coyotes hockey team playing at city-owned Jobing.com arena.
Selling the city hall complex and leasing it back over 20 years through certificates of participation could provide about $30 million, according to city officials.
A city council vote on the transaction is scheduled Tuesday.
The city would use $29 million of the proceeds to pay off loans from city enterprise funds that the city had used to subsidize the operations of the National Hockey League team, according to the staff report from Glendale chief financial officer Diane Goke.
In related news, the council was expected to hire JNA Consulting of Boulder City, Nevada Tuesday to guide the deal and others as the city’s primary financial advisor.
The debt will likely be sold to a bank, insurance company or other institutional investor, said John Peterson, vice president of JNA.
“We’re hoping to have everything closed and money in the bank by the end of July,” Peterson said.
Debt service in the first year is expected to be $1.8 million, which is included in the general budget for the fiscal year beginning July 1.
Goke estimated the annual interest rate on the loan to be between 5-7% annually. If the city fails to make lease payments, it can be evicted from the buildings it now owns, she noted.
The arena, built with $180 million of Glendale sales-tax backed revenue bonds in 2003 for the Coyotes, has become a financial drain after the team filed for bankruptcy in 2009.
When a prospective buyer planned to move the team to Canada, Glendale and the NHL stepped in. The NHL bought the team on a temporary basis and kept the Coyotes playing, while the city provided annual subsidies of $25 million over the first two years.
To provide the payments to the NHL, the city borrowed internally from funds in the city budget and voted to raise property taxes to balance the budget amid falling revenues.
The city is hoping to close an arena management contract and find a buyer for the team by July 2. The NHL is negotiating with a group known as Renaissance Sports and Entertainment, the latest in a series of potential buyers.
The general fund balance at the end of FY 2011-12 was negative $27 million which has contributed to the city being downgraded by the rating agencies and put on negative outlook.
“The rating agencies should look favorably on the city’s attempt to restore operating funds,” Goke wrote in recommending the deal.
Glendale’s general obligation bond ratings are A-minus from Standard & Poor’s with a negative outlook and A2 with a negative outlook from Moody’s Investors Service after a downgrade from Aa1 on Feb. 9, 2011.
By choosing JNA as financial advisor, Glendale expects to save money by consolidating its business, which has been handled by three separate financial advisory firms.