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Ruling boosts San Diego’s stadium case to NFL

Court clears financing method league had questioned

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San Diego’s case to the NFL that it’s capable of building a new Chargers stadium was strengthened by a state appeals court ruling that the city can continue using its preferred method of financing infrastructure projects.

NFL officials recently expressed concerns about litigation that has threatened the city’s plan to use that method — the sale of lease-revenue bonds — to raise $200 million city officials have pledged toward stadium construction.

Friday’s ruling by the Fourth District Court of Appeal, which upheld a lower court decision from November 2014, may alleviate one of several concerns league officials raised in a Nov. 10 letter to the city’s lead stadium negotiator.

City negotiators have been working directly with the NFL since June, when the Chargers terminated stadium talks as the NFL considers whether the Chargers, St. Louis Rams or Oakland Raiders can move to Los Angeles next year.

The letter from the NFL, which the city released on Monday, also raised concerns about potential legal challenges to the environmental review of the proposed stadium, how much rent the Chargers would pay and the possible impact of a new citizens initiative that could lead to a combined stadium and convention center expansion downtown.

City officials say they are drafting a response letter to the NFL that will include an explanation of last week’s appellate ruling, which City Attorney Jan Goldsmith called a significant victory.

"Whether you like them or not, lease-revenue bonds are a legal way to pay for public infrastructure projects," Goldsmith said.

Critics say lease-revenue bonds, where city buildings and other assets are used as collateral to borrow money, violate the spirit of state law by skirting the two-thirds voter approval that would typically be required to raise such money.

In April 2014, attorney Cory Briggs filed a lawsuit challenging San Diego’s use of lease-revenue bonds, which includes creation of a special financing agency that sells the bonds and collects rent from the city and its taxpayers to cover the debt payments.

The lower court and the appeals court both ruled against Briggs, pointing to a 1998 state Supreme Court decision that says cities can bypass public votes by setting up the special financing agencies.

"The city presumably uses the financing authority to avoid the two-thirds vote requirement, but doing so is legal," the appeals court wrote in its decision.

Briggs, who said Tuesday he plans to appeal the case to the state Supreme Court, contends the appeals court "got it wrong" because the financing agency is controlled by the city, instead of a separate entity like it was in the 1998 case.

"The city has created a bogus joint powers authority that is run by the city," Briggs said. "The city’s current JPA is an intentional bastardization of what the Supreme Court approved two decades ago, which the politicians designed in order to avoid getting voter approval of their profligate spending practices."

The appeals court called such arguments "immaterial" and said they were not "well taken."

The ruling paves the way for San Diego to sell $270 million in lease-revenue bonds over the next three years for infrastructure projects — including fire stations, libraries and storm drains — primarily in older communities.

Since 2009, the city has sold $333 million in such bonds to help tackle an infrastructure backlog that’s been estimated at $5 billion.

The city has approximately another $700 million in assets that could be used for additional lease-revenue bonds, chief financial officer Mary Lewis said Tuesday.

After the planned $270 million in bond sales, that leaves $430 million — more than enough to raise the $200 million the city pledged in a 24-page term sheet the city/county stadium negotiating team submitted to the NFL.

That term sheet, which the city released Monday, didn’t commit the city to a particular funding method, but lease-revenue bonds were the first option listed.

In the NFL’s two-page letter in response to the term sheet, league officials listed that approach among their primary concerns.

"The risks associated with timing and/or project completion include litigation related to the Environmental Impact Report, litigation related to other aspects of the project including the city’s proposed sale of lease-revenue bonds, the inherent uncertainty of a referendum vote, the status of city and county finances at the time of the referendum, and any potential impacts of the downtown initiative," they wrote.

The letter also complained about the term sheet’s vagueness on the Chargers proposed annual lease payment, which the term sheet describes as "equal to the amount necessary to cover certain annual operating expenses" of a joint powers authority the city and county would create to build the stadium.

Mayor Kevin Faulconer said through a spokesman that each of the NFL’s concerns would be addressed in a response letter.

In addition to the ruling on lease-revenue bonds, the spokesman said the response letter will focus on Gov. Jerry Brown’s Oct. 21 certification of San Diego’s stadium project for streamlined judicial review.

"Any litigation challenging project approval, including any involving the EIR, would be completed within 270 days, with the project continuing forward during that time period," said the spokesman, Matt Awbrey.

The letter will also explain that if the Chargers, city and county agree to an amended term sheet by early next year, the deal could be presented to voters for approval in June and a new stadium could open as early as 2019.

The term sheet says $125 million of the county’s $150 million contribution would be immediately available upon voter approval to jump-start stadium construction.

The term sheet says the remainder of the $1.1 billion needed for the stadium would include the $200 million from the city and $750 million collectively from the Chargers, the NFL and the sale of personal seat licenses.

Awbrey said the city’s letter will also stress that while a public vote is clearly a risk, the measure would only need majority approval instead of two-thirds because no new taxes are included.

The letter will point out that the city and county both have strong credit ratings, he said. And it will say that the city is open to exploring downtown options, but that they would take many more years and much more work to accomplish, Awbrey said.

Chargers special counsel Mark Fabiani declined to comment on Tuesday except to say "the NFL’s letter speaks for itself.”

david.garrick@sduniontribune.com (619) 269-8906 @UTDavidGarrick

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