Will the Sacramento Zoological Society be forced to borrow to reach its $50 million for Elk Grove zoo project?

One of the looming questions about the $300 million Sacramento Zoo relocation project has been who pays. While Elk Grove taxpayers will be shouldering most of the burden, the zoo operator, the Sacramento Zoological Society, has some responsibility.

Specifically, the SZS has committed to raising $50 million. Mayor Bobbie Singh-Allen approved the timeline and terms of how the SZS pays Elk Grove during the June 26 Elk Grove City Council meeting.

In his presentation to Singh-Allen and her four councilmen about the cost-sharing agreement, Elk Grove innovations czar Christopher Jordan uttered one significant sentence (see video below). That question alluded to how the SZS could raise their $50 million.

In appearances during official meetings, SZS representatives, zoo patrons, Elk Grove city staff, and elected officials have implied the $50 million will be from fundraising efforts and large corporate donors. In one sentence, Jordan documented another way the SZS could raise funds.

"If there is any debt financing utilized to secure any portion of that 50 million dollar obligation, the society (SZS) would be fully solely responsible for the repayment of that debt," Jordan said.

Stated differently, Jordan said the SZS could borrow money to raise its share of the construction costs if its fundraising efforts fail. 

Jordan also noted that the SZS is responsible for 32 percent of the annual debt service on the $114 million bond obligations. According to this staff report, based on a 4.25 percent interest rate, the annual interest payment would be $7.8 million, of which the SZS is liable for $2.5 million. 

That same report indicates SZS's annual interest payment is capped at $2.5 million. In this scenario, if prevailing interest rates are higher than 4.25 percent when the bonds are issued, Elk Grove taxpayers would be obliged to pay a higher percentage of the total repayment. 

Regardless, what happens if the SZS is unable to convince corporate sponsors to make large donations and its fundraising efforts fall short? If the SZS has to borrow $20 million at 4.25 percent and repay it over 30 years, its annual payment for principal and interest would be about $1.3 million.

Under this scenario, the SZS would pay almost $4 million annually on debt. This debt is paid before costs for labor, maintenance, veterinary care, and the myriad costs of operating a zoological park 365 days a year.

If the SZS fails to meet the $50 million goal from corporate and individual sponsors, it could force them to seek loans, which is dangerous. The SZS will be building debt upon debt, which business and economic history demonstrate rarely turns out well.

As the SZS starts making its scheduled payments, taxpayers should be fully informed as to whether the SZS is meeting its goals through true fundraising or paying a vig to their local loan shark. After all, if they default, regardless of what the agreements say, Elk Grove taxpayers will be the ones loan sharks hunt down.     

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Eye on Elk Grove said...

One thing you can always count on with the Elk Grove City Council, they have very short memories of what is promised them when conducting the people's business. (Big exception, promised political contributions. Then they are like elephants in the zoo!)

Elk Grove taxpayers can bank on it happening again. Just like the Elk Grove Auto Mall promising $5K every year towards the community grants if the city council approved their first electronic reader board. There was much opposition, but the council ignored the residents.

Have we received the $5K every year to help those less fortunate in our city? What do you think?

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