Too Good To Be True?

The parking authority has a plan to bond for up to $6.1 million to pay for garage improvements. It has secured a good interest rate for the first five years of payments. It’s the second five years that have Alderman Carl Goldfield worried.

Goldfield said as much Tuesday night at the meeting of the Board of Aldermen’s Finance Committee, where the first item on the agenda was a discussion of a proposal from the New Haven Parking Authority.

The authority is looking for aldermanic permission to bond for millions of dollars to pay for improvements to the Temple Street and Crown Street parking garages. Bill Kilpatrick, the authority’s executive director, told aldermen that the authority has secured a deal with Wells Fargo to borrow up to $6.1 million for less than 4 percent interest. It would be a 10-year bond, but the authority would have it paid off in five years, he said.

It’s important that it does have it paid off by then, because after five years the interest rate goes up to whatever the current market rate is. That facet of the deal alarmed Alderman Goldfield. He and other aldermen called for more details on the deal.

After some deliberation, the committee voted unanimously to send the plan to the full Board of Aldermen for a vote, with the proviso that it could be delayed if they don’t like what the find out about the deal in the meantime.

The liability for the bonding would be borne by the authority alone; the city would not be on the hook for any more debt. Aldermen were motivated to push the plan forward in part because the city is depending on the parking authority for several million dollars in voluntary contributions in the coming fiscal year. The authority won’t be able to make those contributions if it can’t borrow to pay for the maintenance.

Goldfield said he was made uncomfortable by the fact that the bonding involves a so-called ​“rate swap.” Unlike your traditional swap, however, this one would not involve a third party. That essentially means that the authority is paying a premium to the lender — Wells Fargo — in exchange for a fixed rate for five years, Goldfield said. Not paying that premium to a third party may make the deal safer than other swaps, Goldfield said, but it still means the interest rate is likely to jump steeply after five years.

“People have gotten really hurt by swaps,” Goldfield said after the meeting.

Why Borrow At All?

One peculiar facet of the bonding deal is that it’s not really necessary. Kilpatrick said after the meeting that the parking authority has enough money on hand to pay for the needed improvements.

But that would mean less money to give to the city in next year’s budget, Kilpatrick said.

That kind of reasoning stuck in the craw of West Rock Alderman Darnell Goldson.

“It’s horrible, horrible deal,” he said. ​“I think the city should figure out ways to cut the budget and not put other institutions into debt.”

“It’s not like this is free money,” he went on. ​“Somebody’s going to pay that bill.” The parking authority’s debt will be paid by New Haveners using the authority’s lots and garages, he said.

Instead of forcing the parking authority to borrow more money, the city should make budget cuts to make the borrowing unnecessary, Goldson said.

Budget-Shaping Postponed

Also on the agenda at Tuesday’s meeting was deliberation on the mayor’s proposed $475 million FY11-12 budget. The aldermen voted to postpone that deliberation, to give lawmakers more time to hash out the final details and come up with amendments to the spending and revenue plans.

The committee will meet again on Thursday evening for the final deliberations before sending the budget to the full Board of Aldermen for a final vote.

Over the past weeks, the committee has heard testimony from all city departments and entities affected by the budget. Having heard the many arguments why libraries or schools or police might deserve more money, the committee now has an opportunity to amend the budget before sending it to the full board (where further amendments will also be possible).

This year’s proposed budget, which does not include a property tax increase, has proved to be less controversial than last years. At this time 12 months ago, taxpayers had stormed City Hall in the hundreds to shout and even weep about the FY10-11 budget. This year’s budget meetings have not been marked by such an outcry, although there have been pleas from the public to preserve things like funding for school nurses.

The Independent reported live from City Hall as Tuesday’s meeting unfolded:

Live Blog

6:01 p.m.: Still quiet here in the aldermanic chamber. A handful of aldermen are present, along with a handful of citizens in the gallery. More lawmakers are filtering in.

6:07: Committee vice-chair Alderwoman Bitsie Clark is calling the meeting to order and reading the agenda. Seven aldermen are seated at the table, including clark. Some are munching on apizza. [I wonder what New Haven pizzeria they ordered it from? (One alderman said it was from Abate’s. I was unable to confirm that.)] Aldermen Matt Smith and Darnell Goldson are also here, but not at the table.

6:11: Clark: We start with item A: the bonding for parking garage improvements. Three gentlemen step up to sit at the table. William Kilpatrick, head of the parking authority, introduces himself. With him are authority CFO Brian Seholm and engineer James Stanowitz.

Kilpatrick: The bonds would be for repairs to structures including waterproofing, lighting, a ​“host of things.” They are needed repairs that are necessary for our current patrons, to continue to facilitate economic develop,ent downtown and accommodate the greater need for parking with Gateway coming downtown. … It will be debt of the New Haven parking authority, it will not be debt of the city on New Haven, but we need your approval to do it. … We will receive a favorable rate from Wells Fargo. This is good for the city and the parking authority and the people who use our facilities. … ​“Again, it would be on the balance sheet of the parking authority, not the city.”

Alderman Jorge Perez: This will be the full faith and credit of the authority, not the city?

Kilpatrick: Yes.

Perez: Are you committing any revenues?

Kilpatrick: It is a revenue bond. We’ve negotiated terms that are amicable to bank and authority. We’ll be able to easily meet the debt service. The only debt we have outstanding is the Air Rights Garage.

Perez: I’d like an itemized list of the repairs planned. We’re fixing this because we are going to raise fees, right? To bring in more revenue.

Kilpatrick: Yes.

Perez: I just want to see that on the record.

Alderman Carl Goldfield: Under any circumstances would we be giving up control of this asset? [This may be a question inspired by the concerns around parking meter monetization.]

Kilpatrick: No.

[Sure enough, Goldfield mentions the ​“m” word. Kilpatrick promises to show him the text of the bonding agreement.]

Goldfield asks about the life of the bonds.

Kilpatrick: Five years.

Goldfield: So why is there an interest rate swap?

Kilpatrick: We didn’t want to buy insurance and add costs. This is really a loan. If we were to go out into market and get a regular bond, there would be more costs associated. … These are revenue bonds, the bank has a direct purchase. … We’re paying to cap our rate.

Perez: What would the rate be fixed for five years, without the swap?

Seholm: Slightly over 5 percent.

Goldfield: There have been all sorts of problems with swaps. Why are we doing it? What are the alternatives? Back in the old days there weren’t swaps. ​“Life was very predictable and nobody got into trouble.” … Why are we doing this swap? Rather than straight ahead borrowing?

[Seholm has an answer but I couldn’t hear it]

Seholm: It’s creating a ​“synthetic fixed rate.”

Goldfield: Why not a straight simple deal?

Kilpatrick: It would come in higher.

Goldfield: We’re doing the swap with Wells Fargo? And we owe the money to them? So no chance we could get into trouble and end up in a lawsuit?

Seholm: The holder of the debt is the issuer of the swap.

Goldfield: We’re paying for them to give us this fixed rate. That ends up being a de facto higher rate.

Kilpatrick: The effective rate is lower than it would be if it were a fixed rate.

Goldfield: Are we going to have paid this back after five years? At 3.94 percent. But the swap protects us for five years. Then where are we on the rate after five years? … You’ve got a realy naked risk for the next five years.

Kilpatrick: It’s a favorable rate for the first five years.

Goldfield: But then it could be 20 percent. … Why don’t we cap it for 10 years?

6:33: Kilpatrick says it should be paid after five years. Seholm murmurs something else.

Goldfield: My concern honestly is that the city is looking to you for cash. And you have a bond that could jump up to 20 percent.

Kilpatrick: ​“We’re taking that all into account, Carl.” Air Rights garage will be paid off and generating money.

Goldfield: I’m not particularly comfortable. I want to think about this. … Wells Fargo is looking at this differently, they think interest rates will go up substantially in five years. … I’d like to look at the terms of this thing.

Alderman Justin Elicker: It’s a five year bond?

Kilpatrick: It’s a 10-year instrument.

Elicker: But the first five years are more favorable. And what are the interest payments? How much of an impact on total revenue?

Biran: 3.94 interest fixed for five years.

Kilpatrick: We’ve accounted for our reserves and our revenue. … We’ve always had our rates below market, by design. … This is just structural improvements, and maintenance.

6:41: Alderman Greg Dildine: These rate increases?

Kilpatrick: They’re already approved.

Dildine: We all want to see this 10-year table of liability and revenue.

6:45: Perez: Did you approach other banks and this was the lowest rate?

Kilpatrick: Yes. … We received three proposals. …

Perez: This is the best deal you got.

Kilpatrick: Of the three banks. We did an RFP. … This is the best of the three.

Goldfield: Can you send us the RFP?

Kilpatrick: Yes.

6:48: That’s it for parking authority. Several more aldermen have joined the meeting, at the table and in the gallery.

The public portion of the meeting is closed.

Perez moves the item. Alderwoman Migdalia Castro seconds.

Perez: I would like to see the schedule and the terms. I feel more comfortable that this is the best deal.

Goldfield: I’m concerned about it. I’d like to look at this a little more.

Dildine: We should also look at projections of payback and new revenues and liabilities.

Alderwoman Andrea Jackson-Brooks: It’s already approved by the parking authority, so we could look at the minutes of their meeting to see how they arrived at the decision.

Elicker: Is this time sensitive?

Perez: If we want to collect that $5 million we’re expecting to collect in the budget. The city will need the cash flow.

Dildine: We could keep to the schedule and change it if we don’t see what we like.

All approve the motion.

6:54: Now on to the deliberations of the FY11-12 budget. Aldermanic staff says there has been only one proposed amendment, a policy amendment from Elicker.

Goldfield: I recommend we adjourn and continue next Thursday when we may have more amendments.

So moved.

It passes unanimously. Meeting adjourned.