City considers Shores debt financing options

DEL MAR — Presented with about a half dozen funding scenarios for retiring the Shores property debt, City Council members initially wanted to keep all options that didn’t require use of the general fund on the table. But after a 90-minute discussion at the Aug. 3 meeting, they agreed to eliminate, at least for now, any plan that would require selling or leasing a portion of the 5.3-acre lot or creating a Mello-Roos or other assessment district.
That left two major options, with the most popular being a general obligation bond that would be repaid with a property tax increase. Considered the safest financing mechanism with the lowest interest rate, a general obligation bond would require approval by a two-thirds vote.
“I have real concerns about the ability to get a two-thirds vote,” Councilman Carl Hilliard said. “That’s a very hard mountain to climb, and I’m a little reluctant to spend the kind of money necessary to put it on the ballot without a pretty strong indication from the community that’s the way they want to go.”
Councilman Richard Earnest agreed. “A two-thirds vote on anything is difficult,” he said. “I think it’ll take a lot of work. Do I think we should be prepared to take on that work and that communication challenge? Yes, I do.”
The city will hold a Sept. 26 workshop and several community conversations to help determine what percentage of voters would support a general obligation bond.
If the community appears interested, council members would like to include the measure on the ballot of the upcoming June 10 special election at an estimated cost of between $14,000 and $20,000. If it comes close to passing, it could be resubmitted for inclusion on the Nov. 2, 2010, general election. That would cost another $6,000 to $10,000.
Staff was also directed to obtain information about selling city assets such as the 22,215-square-foot Balboa lot. Formerly the site of the city reservoir, the property at 2123 and 2160 Balboa Avenue is zoned for single-family residential and could be split into two parcels.
In addition to disposing of an unproductive asset that costs the city money, the sale would provide a means to pay off the loan and could result in future property tax revenue. “The concern with this is, once you sell something, it’s gone,” assistant City Manager Mark Delin said. “Is this the best time to sell it?”
Although council members agreed it may not be the ideal time to dispose of such a prime piece of real estate, Mayor Crystal Crawford said even in the current down economy the city might still be able to attract the right buyer for the ocean-view lot.
“There (are) very few other pieces of property like it in the community,” she said. “I think the right person would pay a premium for the opportunity to have that location.”
In May 2008, the city bought the Shores property west of Camino del Mar at Ninth Street and Stratford Court from the Del Mar Union School District for $8.5 million. Later that year, to save on interest, the city paid off the district using a three-year loan from Union Bank of California.
Friends of Del Mar Parks initially raised about $5 million in donations to secure the purchase. Since then, fundraising has slowed considerably, but the group has been able to keep up with the payments so city funds have not yet been used.
After making the June 30 payment, the balance of the loan is $3,668,925. If the loan is not renegotiated, a balloon payment of $3,245,588 will be due in November 2011.
Council members said they would make a final decision on retiring the debt by this November, when the interest rate on the current loan is scheduled to reset. Until then, community input on all options is being sought.
“No offense intended towards the fundraisers (who) have worked their hearts out … but it’s pretty clear that we’re not going to be able to raise the amount of money necessary to retire the debt,” Hilliard said.
“I personally have heavily supported the (campaign) with my wallet and by sponsoring a fundraiser, so my sentiments as a resident are well-known. But when it comes to being a council member I have a different responsibility. … It’s up to the community at this point to decide what they want to do.”

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