DEL MAR — Council members opted to borrow $18 million to fully finance the construction of a new civic center complex rather than go with a Finance Committee recommendation to put down $2 million in cash and take out a $16 million loan.
They made the decision at the Feb. 1 meeting with the understanding that the budget target is $16 million.
In November staff was directed to submit a loan application to the California Infrastructure and Economic Development Bank, also known as IBank, for the estimated $17.8 million project cost and to seek a recommendation from the Finance Committee on the amount of cash and debt that should be used.
Based on historic and conservative projections of Del Mar’s revenue and expenses it is estimated the city can easily borrow the $18 million. But the Finance Committee deemed the smaller loan “reasonable and conservative.”
The committee estimated the annual payments on a $16 million loan would be $889,000.
Council members and staff said they preferred the flexibility provided by the larger loan amount to cover unforeseen costs. When the project is complete the city would have the option to downsize the loan amount.
If that occurs before the estimated two-year construction time additional fees and interest would be saved.
The city is currently earning about .4 percent interest on its cash on hand.
Borrowing the extra money will cost an additional $161,000, however, if more money is needed as the project moves along there would be fees to apply for another loan.
The IBank loan is fixed for 30 years at 3.14 percent interest with a .30 percent fee on the outstanding balance.
The IBank loan is structured as a lease financing, the most common municipal funding structure and similar to how the city financed the Shores property.
As such Del Mar must provide an asset to the bank in the event of a default in payments, which City Manager Scott Huth said is an “almost immeasurable” risk.
The civic center building will serve as the asset once construction is complete.
In the meantime staff recommended Powerhouse Community Center.
Council members said they support the proposal as long as community groups such as Friends of the Powerhouse, which helped purchase and renovate the oceanfront facility, were not opposed.
Without a leased asset capitalized interest would add about $1.4 million to the size of the bond.
Council members said they appreciated the work of the Finance Committee but with construction costs on the rise it is preferable to have the cash in a reserve fund rather than committed at this time.
“We’re borrowing money cheaply,” Councilman Don Mosier said. “I hope we have don’t have to take a smaller loan to enforce financial discipline.”
To date the city has spent about $1.2 million on the project.