Chula Vista City Council members on Feb. 18 approved a resolution that would refinance the city’s debt, in a move they say could save the city an estimated $200,000 annually.
The 2014 certificates of participation—a type of bond where an investor purchases lease revenues of a program rather than the bond being secured of those revenues—allowed the city to refinance the debt the city owes from funding the Chula Vista police station in 2002.
“Basically we refinanced our debt,” said Councilman Rudy Ramirez. “Our debt with the police station was refinanced.”
The certificate bonds allows the city to pay off old debt from building the multi-million dollar police station with new bond debt at a reduced interest rate.
“Market conditions are favoring the opportunity to take the existing bonds and issuing them at a lower interest rate,” said Director of Finance, Maria Kachadorian.
Under the certificate of participation, the city is leasing the police station and is using that money to pay down its obligation.
Kachadorian said the initial debt the city incurred from the police station was also a certificate of participation bond.
Kachadorian estimates the city could save about $2.7 million for the life of the new bond with savings being split from the general fund and the public facilities development impact fee fund.
She said the reason why the funding is split between the two funds is that the new police station created the need for additional police, so new money was needed and she said the city did not want to impact revenues related to current population.
She said council has a policy of refinancing if a savings is at least five percent of the cost incurred of doing the refinancing.
There was a pre-existing need in the general fund to add subsidies for expanding the police department, Kachadorian said.
Mayor Cheryl Cox said the city is making progress in paying down its debt.
“In 2002, the city incurred $60 million to construct the police station, here we are in 2014 we’ve paid down from that $60 million to $49 million, which is pretty good,” Cox said.
The mayor said she supported the resolution because it saves the city and taxpayers money.
Recently, the city of Chula Vista received two upgrades in its credit rating from Standard & Poor’s, which Kachadorian said lowers the bond interest rates.
The first upgraded raised the city’s credit score from an A-minus to an A then another upgrade boosted the city’s score from an A to an AA-minus .
Councilwoman Patricia Aguilar said she supported the resolution because it puts the city on the right foot in paying off its debt.
“Taking steps like this to refinance that debt would be better off for the city, it’s definitely the right thing to do,” she said.