The City Can’t Qualify for an Interest Rate Low Enough to Refund the Bond
By: Libi Uremovic| Original Article at Patch.com
Four Seasons Area 7A is part of the original 12 developments listed on the first Mello Roos Bond issued in 1994, but their developer paid cash instead of incurring bond debt.
The only bond debt issued to Area 7A is the 2005 Series B bond for $12,280,000. Since this bond is 10 years old it qualifies for ‘Refunding’, which means ‘Refinancing’.
The reason the City of Beaumont wants to create a new district for Area 7A instead of simply Refunding the Bond is because the City can’t get an Interest Rate low enough to meet State requirements:
Cali Govt Code 53362.5: Refunding (new) bonds shall not be issued if the total interest cost to maturity on the refunding (new) bonds plus the principal amount of the refunding (new) bonds exceeds the total interest cost to maturity on the bonds to be refunded (old) plus the principal amount of the bonds to be refunded (old).
What the poorly written law is saying is:
Interest & Principal on New Bonds
can not exceed
Interest & Principal on Old Bonds
In the past decade the City has paid less than $700,000 still owes $11,585,000 on the 2005 Bond. The Face Page of the Bond lists the Re-offering Interest Rate at 4.650.
If the City had repaid more on the Bond the Principal owed would be lower – allowing the Interest Rate on the New Bond to be higher. Even though Four Seasons Property Owners paid double the amount of Premium and Interest for the past 10 years the City only paid the minimum on the bond and embezzled the remained of the funds.
The City’s financial situation has deteriorated considerably since 2005 and can not meet the interest rate qualifications.