SMART authorizes sale of $191 million in construction bonds

Directors of the Sonoma-Marin Area Rail Transit District on Wednesday authorized the sale of $191 million in construction bonds, clearing the way to award bids for construction next month.

The sale, however, is being done in an unconventional way because of the risk created by RepealSMART, which is gathering signatures to put a measure on next year's ballot to repeal the quarter-cent sales tax that is SMART's major source of funding.

"We had planned to issue fixed-rate bonds, but subsequent to that the repeal effort got under way," said Sarah Hollenbeck, senior managing consultant with Public Financial Management Inc., the firm handling the bond sale. "It changed the marketability of the bonds significantly."

SMART had planned to sell $191 million in bonds at a fixed interest rate, which would have netted $171 million after the cost of issuing the bonds.

Because of the added risk created by the repeal effort, however, SMART would have to pay an additional $10 million in costs to issue the bonds at a fixed interest rate, netting only $161 million, Hollenbeck said.

In addition, investors would demand a higher interest rate, which would cost an additional $7 million in interest payments, she said.

Instead, Hollenbeck said the bonds would be sold at a short-term, variable interest rate, which would be lower than the fixed rate, and it would still net SMART the $171 million it needs.

The $171 million would be set aside in an escrow account. If the repeal effort fails, the bonds would be converted to fixed interest rates and the money released from the escrow account for SMART construction.

If the repeal effort succeeds, however, the money in the escrow account is available to repay the bond purchasers.

Meanwhile, SMART can award a construction contract in mid December for the initial operating line, estimated to cost $109 million, using other funds that it has available.

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