City to start repaying in earnest its bond debt from new City Hall
BY ZACK STOYCOFF World Staff Writer
Wednesday, January 30, 2013
1/30/13 at 7:39 AM
Payments on the $67.8 million in bonds used to purchase the new City Hall building in 2007 will increase by about $1 million this year as the city begins repaying its debt from those bonds in earnest.
The city has paid about $3.7 million toward the bonds in each year since 2008, but much of that has been for interest, Finance Director Mike Kier said. Only $600,000 total has been for principal, or the amount it actually borrowed.
The increase to $4.7 million this year is due to a scheduled deadline to begin repaying the principal, Kier said.
To level out the annual payment totals, the city set its interest payments to decrease after the capital payment grace period, he said.
The increase is further softened by recent success in renting unused space at City Hall and by a decision to refinance of some of the bonds.
The bonds - issued to purchase the 15-story One Technology Center at 100 S. Cincinnati Ave., demolish vacated city structures, and fund relocation and security - were financially dependent on the city's ability to lease space it didn't need in the building.
The city struggled to find tenants for much of the five-year grace period on capital payments, but the building's occupancy rate jumped to about 93 percent after a recent agreement with Magellan Midstream Partners LP, which will rent the ninth floor.
City Hall's five tenants now pay the city's Public Facilities Authority $4.7 million a year, with some of that going to help repay the bonds and some going to building operating costs.
Without revenue from a fully-rented City Hall to offset expenses, officials previously estimated that the city would have to pay $8.9 million out of its own pocket for building expenses after 10 years.
That was envisioned as a possibility in 2010, when City Hall's vacancy rate remained unchanged from 2008 at nearly 20 percent under one method for calculating the figure. Officials had estimated that the building would be fully occupied by then.
Although a more fully-occupied City Hall has recently kept the city's out-of-pocket expenses down, any loss in tenants would force the city to pay more directly for operating expenses, Kier said.
Partly as insurance for such a loss, the city hopes to rent fairly soon its remaining unused space - about 48,000 square feet on its 14th floor, he said.
"That additional floor would be pretty important from a city standpoint," Kier said. "In the short term, it might allow us to pay maybe a little less, but that would be a policy decision."
That extra money could also be saved for other purposes, such as starting a fund to prepare for any future renovations, he said.
"The attraction of tenants and whatnot is a bigger job than I might have thought," Kier said. "Since we've been through some ups and downs - maybe more downs on the rental business - I might be a little more inclined to make sure that we'd be able to cover it if we had a tenant move out at some point."
The bonds were authorized at up to $76 million. That was based on an assumption that the city would use some of the money to create a debt reserve - a method of assuring the bond holder that the bond would be repaid if there was insufficient revenue, Kier said.
Instead, the city bought an insurance policy for the bonds because it was cheaper, he said.
Original Print Headline: City to start repaying its bond debt in earnest
Zack Stoycoff 918-581-8486
City Hall Exterior. STEPHEN PINGRY/Tulsa World file