Newport Beach may need voters’ permission before taking on some large debts

Newport Beach voters might be asked to approve a charter amendment that would require voter support before taking on certain major debts.

The City Council will decide Tuesday if that amendment should go before voters this fall, requiring future individual approvals to issue lease-revenue bonds, such as certificates of participation, or COPs, for big-ticket capital projects costing more than a to-be-determined minimum.

Call it the civic center effect. The city used COPs for the Civic Center and Park, which was completed in 2013 with a price tag of roughly $140 million — about $17 million in cash and $123 million in COPs.

Costs for the Civic Center project — which included City Hall, an expansion of the Central Library, a 14-acre park with sculpture garden, a dog park, a pedestrian bridge over San Miguel Drive and a 450-space parking garage — ballooned from about $105 million at the start of construction in 2010 to $140.2 million by the time the complex opened in 2013.

COPs are a common, but complex and potentially controversial funding mechanism, City Manager Dave Kiff wrote in a staff report. In a COP arrangement, the city creates a lease stream by essentially leasing its own facilities back to itself — technically, itself as a different public facilities corporation created to hold the facilities — with the facilities offered as collateral to its bondholders. When the debt is repaid, the facilities become the agency’s — unencumbered by a lease.

COPs do not require voter approval like general obligation bonds would, as general obligation bonds lead to increased local property taxes.

The cost of the Civic Center project emerged as a key issue in the 2014 election and criticism of its swelling scope helped form the main platform of the successful “Team Newport” slate — Diane Dixon, Scott Peotter, Marshall Duffield and Kevin Muldoon, all of whom are up for reelection this year.

Peotter has been consistently critical of the facility, which he calls the “Taj-Ma-City Hall,” and is a driving force in putting any future COP debts to the voters. He requested the item be placed on the agenda for next week.

Newport spends about $8.2 million a year on the Civic Center debt, which staff expects to hit a $104 million balance by the end of the next fiscal year. The city projects paying off the debt in 2041.

The proposed new charter language would set a dollar amount threshold for voter approval, limited to specific projects, and bar policymakers from assembling a project piecemeal as an end-run around voters.

The city last used the funding mechanism in 1992 for the Central Library. That required $7.5 million in COPs.

The council and city staff will discuss the issue, including the dollar amount threshold, at a study session before deciding later that evening whether to place it on the upcoming ballot.

Tuesday’s council meeting starts at 4:30 p.m. with the study session, followed by the regular session at 7 p.m. at City Hall, 100 Civic Center Drive.

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