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.
That initial contract is for construction of the line and stations from Railroad Square in Santa Rosa to the Marin Civic Center, with a contract later for the line from the Civic Center to downtown San Rafael.
SMART has received two bids. General Manager Farhad Mansourian would only say the bids are favorable in the current construction climate.
"This is an unprecedented time. We are dealing with historically low interest rates and construction costs," Mansourian said. "We want to get the biggest bang for the buck. This is the time."
While the sales tax is the major source of funding, SMART also receives significant funds from local, Bay Area, state and federal sources that will allow SMART to award a bid next month.
SMART has a $360 million plan to build the initial segment between Railroad Square and downtown San Rafael. When additional funds become available, it will be extended to Cloverdale and Larkspur, the two original hubs envisioned in the 2008 Measure Q sales tax measure.
Train service is expected to begin in 2015 or 2016, one or two years later than initially planned.
RepealSMART contends that is not the plan that voters approved in 2008. It is gathering signatures to place an initiative on the 2012 ballot that would repeal the tax.
John Parnell, a Novato resident who serves as co-chairman of RepealSMART, said the additional cost caused by the repeal effort was unfortunate.
"I wish they would wait," said Parnell, referring to the bond sale. "I actually wish they would put it on the ballot themselves and get the vote before going forward."
The SMART board approved the bond sale on a 12-0 vote.
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