Sacramento's treasurer said delays from a lawsuit will cost $27 million of additional interest costs on bonds issued to fund the Golden 1 Center sports arena.

PHOENIX – A lawsuit against the pro basketball arena project in downtown Sacramento will end up costing the city about $27 million in extra debt service, according to city treasurer Russ Fehr.

The lawsuit, which challenged the sale of nearly $300 million of bonds on the basis of environmental protection laws, state constitutional provisions, and city government corruption accusations, was struck down in Sacramento Superior Court last year.

But while the city prevailed in court, the lawsuit did lasting damage by delaying the sale long enough for interest rates to rise, Fehr told the city council in a presentation Tuesday. He put the cost at about $900,000 extra each year.

"A year ago I said this was going to cost us a significant amount, and it did," Fehr told the Bond Buyer Wednesday, adding that the actual costs of the lawsuit were far smaller than the long-term costs of the borrowing delay.

The new Golden 1 Center will be home to the Sacramento Kings basketball franchise.

Fehr said that the rate rose 44 basis points from when the long-term debt was originally targeted to be issued in May compared to when it was finally priced in late September. Fehr said that everyone on the deal team agreed that the cost of borrowing would have been lower had the bonds come to market sooner.

"We had to boost our yield a little bit to attract the buyers," Fehr said.

The treasurer said the worsening situation in Puerto Rico was likely to blame for some of the rise, and that the city could have avoided the worst of it had it been able to sell earlier.

"In May we wouldn't have been exposed to market concerns about appropriation debt surrounding Puerto Rico," Fehr said.

The lawsuit is now behind the city, as the plaintiffs signed an agreement not to appeal following the city's win in Superior Court.

The project is now well under way with a targeted opening late this year. Fehr said that the city's general fund will receive more than adequate lease payments from the team and tax revenue to make the deal work. Fehr will retire early next month.

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