Aspen City Council on Monday approved the financing of a new government office building with certificates of participation, which will cover the debt of the project up to $60 million.
But Pete Strecker, the city’s finance director, said he doesn’t anticipate the repayment of the $30.6 million project to be that costly.
“We take this issue seriously,” Strecker told council about the municipal government issuing debt.
Current market sets the interest rate at 3.78%, although it could go as high 5.25%.
Council passed the financing with no discussion. Councilman Bert Myrin was absent.
By issuing certificates of participation (COPs), the maximum principal amount is $30.6 million with a 30-year term, with an optional call after 10 years.
COPS require that the city lease the property where the office is being built, located between Rio Grande Place and Galena Plaza, to a trustee.
The city then pays lease payments to that trustee, which will be Zions Bancorporation. Those payments will be equal to the combined principal and interest payments of the debt, according to Strecker.
These payments will be remitted to the debt holders who purchased the COPs. As collateral for the debt, the city will pledge the site — until construction is completed — and then the newly erected building itself once its complete.
Strecker pointed out there is 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.
Council chose COPs over general obligations bond, which typically carry a lower interest rate and require voter approval.
However, Strecker estimates the rate between general obligation bonds versus COPs to be 0.10%.
Work on the new office building, which will be around 37,500 square feet, is underway and is expected to be completed in two years.
It is one of three projects designed to 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.
The COPs will not actually be offered to the public and priced until mid-year, as staff plans to wait for a guaranteed maximum price from the contractor before issuing.
Council also had considered funding the new building with a combination of cash and an intrafund loan from the Wheeler Opera House fund.
If cash was to be considered, the council would have had to explore other ways on how to fund the renovation of the current City Hall, as well as determine what other capital projects that were planned to be paid for with cash would fall off the priority list.