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City staff advise caution on new borrowing, report strong credit profile and limited near‑term refinancing opportunities
Summary
Palo Alto staff told the Finance Committee May 20 that the city’s AAA utility and Moody’s AAA general ratings give it strong access to capital markets, but current market conditions and existing state credit features mean refinancing would likely produce marginal net present value savings unless conditions change.
Treasury and finance staff briefed the Finance Committee May 20 on the city’s debt posture and refinancing opportunities, saying Palo Alto enjoys top credit ratings but should be selective about new issuance and refinancing.
Taryn Narayan, manager of treasury, debt and investments, and staff from the city’s fiscal advisor PFM outlined best practices for debt issuance and noted the city’s high credit standing (staff referenced AAA ratings). Staff highlighted the practical costs of issuing debt — including a typical fixed portion of issuance costs currently near $300,000 and additional underwriting fees that scale with principal — and urged that new borrowing be matched to long‑lived capital assets.
Why it matters: The decision to issue new debt or refinance outstanding debt affects long‑term city expenses, debt service schedules and credit metrics. Refinancing that produces at least a 3% net present value savings is the city policy threshold for proceeding; staff reported current opportunities are marginal and no obvious refinancing would meet the 3% test today.
Staff pointed to a few large past financings — the Public Safety Building (roughly a $100 million issuance), the Cal Ave garage and prior library financings — and said those transactions benefited from historically low interest rates at the time. Committee members asked whether bond markets remain liquid in a downturn; staff replied that Palo Alto’s strong credit and low debt burden generally make its issues attractive and that the primary limitation is the interest rate level rather than market demand.
The committee directed staff to continue quarterly monitoring of refinancing opportunities and to develop a contingency plan for financing large capital projects such as Fire Station 4 should the need arise.
