Sonoma-Marin Area Rail Transit approved a plan Wednesday to refinance its construction debt by issuing up to $160 million in bonds to free up millions of dollars each year.
The move is estimated to save the agency an average of more than $3 million per year in debt payments, according to SMART’s chief financial officer, Erin McGrath. These savings, in addition to recent budget and service cuts, will keep the agency on “very solid ground” financially and retain its reserves until its sales tax expires in 2029, she said.
The agency had originally sought to reduce its debt payments by as much as $12 million per year by extending its sales tax by 30 years and stretching its debt payments through 2059. Marin and Sonoma voters rejected the tax extension in the March primary election, however.
“Although I think we’re in very good shape, there will be continued limitations on service expansion because we just didn’t get the $12 million-plus we were hoping to get,” McGrath told the SMART board. “That’s unfortunate, but we go on.”
Earlier this year, SMART approved $7.2 million in cuts, including a reduction in weekday trips. The move was in response to dramatic ridership losses and a decline in sales tax revenues caused by the coronavirus pandemic, as well as a preexisting operational deficit.
SMART received about $15 million in federal stimulus funds and used $7 million from its $17 operational reserve fund to balance its budget.
At the same time, the pandemic has resulted in historically low interest rates, which presented an opportunity for SMART to achieve higher savings than was previously anticipated, McGrath said. SMART had originally explored refinancing in the spring of 2019, but estimated it would only save $350,000 per year given the interest rates at the time, McGrath said. Rates have since dropped by 75%, she said.
SMART has about $137 million in outstanding bond debt, which does not include interest payments from the $190.1 million in bonds it issued in 2011 to construct the rail system between Santa Rosa and San Rafael.
Yearly debt payments are set to increase from $17.4 million this year to as much as $22 million beginning in 2028. Full repayment is expected to occur on March 1, 2029. If the refinancing is achieved, the highest annual debt payment would be reduced to $17 million.
SMART’s refinancing strategy would include issuing $123.3 million in new bonds to pay off the existing interest and principal that are due on the bonds through their call date of March 1, 2020. The district is estimated to save about $3.34 million each year on average in debt payments, staff said, with interest rates being reduced from 3.31% to about 1.84%.
SMART might also be able to liquidate a $17 million debt service reserve fund it was required to maintain when it issued the original 2011 bonds and use it in the refinancing, according to SMART financial consultant Sarah Hollenbeck.
Following the sale of the bonds in the coming weeks, McGrath said staff will provide an update to the board.
Marin County Supervisor Damon Connolly, a member of the SMART board, said recent budget cuts in combination with the potential debt savings will put the agency in a “strong financial position to weather the uncertainties we face going forward.”
Board member Patty Garbarino said the savings “will help us save SMART.”
“This at least stops the bleeding and keeps our reserves in great shape,” said board member Deborah Fudge, a Windsor councilwoman.
Some members of the public — including David Schonbrunn, president of the Train Riders Association of California, and Novato economist Mike Arnold — questioned SMART’s financial figures and said issuing up to $160 million of bonds could end up increasing the district’s annual debt payments.
Schonbrunn called for a spreadsheet detailing the savings.
“Otherwise, I’m not convinced that there are any actual savings here,” Schonbrunn said.
In response, Hollenbeck said the $160 million amount is a cap but does not mean that total will be issued. The board approval also requires a certain amount in savings or the deal will not go through, she said.
SMART board member Shirlee Zane, a Sonoma County supervisor, questioned whether there is any risk to taxpayer money. McGrath reiterated several times that the board risks more by not refinancing.
“Your risk is that you’re costing taxpayers more by not achieving the savings,” she said. “The legal documents require us to have sufficient savings in this deal.”
The board voted unanimously to approve a resolution authorizing the refinancing process to begin.
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SMART to refinance construction bonds to boost savings - Marin Independent Journal
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