LOS ANGELES — The San Diego City Council has approved the environmental report and a financial plan that involves issuing $549.5 million in bonds for its convention center expansion.
However, the proposal currently awaits a court ruling approving a tax on nearby hotels that is a significant feature of the financial plan.
City attorney Jan Goldsmith filed a validation suit in May seeking a judge’s ruling that it was okay to limit the vote for the tax on the special district to hotel owners. Hoteliers approved the tax in a 92% vote on May 7.
The city attorney doesn’t expect the judge to schedule a hearing until February, said spokesman Jonathan Heller.
The council also needs approval from the California Coastal Commission before moving ahead on construction, which is currently set to start in early 2014, with completion set for early 2017.
“The existing convention center has been an economic powerhouse for the city,” said Councilman Todd Gloria. “The expansion will bring not just job creation but millions of dollars in additional economic benefit to the city.”
The expansion would provide $689 million in annual regional impact, said Charles Black, the project’s manager.
Although the council approved the financial plan Monday, the city’s debt-management team will come back to the city for approval of bond disclosure agreements on the short-term notes and long-term bonds, said Lakshmi Kommi, San Diego’s debt management director.
The debt management team will seek approval in November for a $40 million short-term note offering with Goldman, Sachs & Co. and Citi as underwriters. The notes, which will have a two-year maturity with interest paid semiannually, will fund 18 months of design, pre-construction and roadwork. Current borrowing rates are less than 1%, Kommi said.
The hotel tax, expected to raise nearly $30 million annually, would be used to pay off the construction bonds. The $520 million project would require $549.5 million in bond proceeds, according to the plan, which calls for the issuance of $333 million of 30-year revenue bonds backed by the special-district hotel taxes and $3 million port district support payments.
The second bond issuance would consist of $175.5 million of 30-year supplemental lease-revenue bonds, leveraging the excess revenue above the actual debt service combined with incremental city-hotel bed taxes of up to $3.5 million diverted from the city’s general fund.
San Diego would be the conduit issuer of the primary bonds. The supplemental debt would be issued using a lease revenue bond structure through a joint-powers authority making use of the original convention center property as the subject of the lease.
The supplemental bond would need to be backed by the city’s general fund credit with the revenue allocated to cover debt service limited to $3.5 million annually from incremental hotel bed taxes.
The plan estimates all-in true interest costs between 4.27% and 4.42% for the special district bonds and 4.28% for the lease revenue bonds.
If the court doesn’t validate the hotel tax, Gloria said both mayoral candidates — one of whom would replace the termed-out Mayor Jerry Sanders in November — have said they are willing to go to the public for a vote switching from a special tax assessment to a general tax ballot.
But Gloria said the validation is just an extra precaution to protect the public and the bondholders; city officials expect the judge will rule in their favor.
The note sale is anticipated for March assuming the City Council receives court approval on the hotel tax.