Aspen considers how to finance new city office building
Aspen City Council is considering how to finance a new municipal office building — borrow internally, or go with a riskier funding mechanism rather than typical general obligation bonds, which require voter approval.
Financing for the $30.5 million project is proposed to be done with certificates of participation (COPs), which require that the city would lease the property to a trustee and would pay lease payments.
The city would give those payments to the proposed trustee, Zions Bancorporation, and they would be equal to the combined principal and interest payments of the debt, according to City Finance Director Pete Strecker. Council reviewed the financing on first reading during its regular meeting Monday night.
These payments would then be remitted to the debt holders who purchased the COPs. As collateral for the debt, the city would pledge the site — until construction is completed — and then the newly erected building itself once its complete.
This collateral would be in place for the duration of the financing terms, currently proposed to be 30 years.
Strecker pointed out there’s risk with this type of financing because the annual lease payments are not deemed long-term debt, which could concern investors that COPs are not as attractive as other investment options.
“However, because of the worldwide recognition of the Aspen brand, the strong credit rating held by the city … and the essential nature of the public administrative building that is being proposed, staff supports issuing this type of financing and believe it will not deter investors from purchasing these certificates, nor will it have a significant impact to overall borrowing costs,” Strecker wrote in a memo to council.
The highest interest rate for the COPs is 5.25 percent, which translates into a maximum repayment of $60 million.
Strecker pointed out that the current market pricing is 3.78 percent for the proposed term length and quality of issue.
To potentially save taxpayer money, Councilman Ward Hauenstein suggested borrowing internally against the Wheeler fund, which has a balance of $30 million and is collecting interest.
The idea to borrow a portion of the project’s cost was discussed by council last year and it was decided by a majority not to do that.
Interim City Manager Sara Ott said she will send council information from those public meetings held last year as a refresher of why elected officials chose not to borrow internally.
One of the reasons is that it would put a stress on other city funds that would have to repay the Wheeler, she noted.
“We would have a conversation on what services would have to be cut,” she said, adding that current market conditions are favorable and at council’s direction last year, the 2019 budget is based on the COP model. “We think the borrowing opportunity is right now for the better rate.”
Strecker noted that the terms of the COPs could change if it’s a lower dollar amount or a shorter payback term, and there could be repercussions if the city puts in too much cash in the deal.
He said he will look into Hauenstein’s hybrid borrowing idea and present his findings to council March 25, when council has a second reading on the financing ordinance.
Mayor Steve Skadron was visibly frustrated by the suggestion to do something other than what was agreed to last year.
“We are here because of the work done and this is the best option,” he said. “Suggesting that an option exists that’s better than the one council gave direction to support suggests to me … that the discussion is going in a direction that simply delays this project as we muck it up with myriad financing options.”
Hauenstein said he doesn’t think it’s mucking it up.
“It’s about making a prudent decision and spending taxpayer dollars as if they are our own,” he said.
General obligation bonds also are an alternative, and carry a lower interest rate.
But Strecker said if general obligation bonds are considered, interest rate risk is possible and could negate any savings from a delayed issuance because they require a vote. He added that construction costs could escalate between now and a public vote.
The new office building, which will be located between Rio Grande Place and Galena Plaza, is one of three projects that accommodate the city’s 300-plus employees.
The existing Rio Grande building next to the new offices will require $1.2 million for renovation and another $13.9 million to renovate the current City Hall.
The total package is estimated to be $45.7 million.