S&P Is No Villain for Diamond Bar

While the economy is down, cash-rich Diamond Bar is looking up.

After purchasing and paying for renovations on a new city hall and library with nearly $16 million in cash, the city of Diamond Bar will now begin pursuing refinancing for the project while interest rates are hitting record lows.

To do so, the city will look to get its first credit rating from Standard & Poor's with confidence in faring better than the United States government did last week.

In early August, S & P downgraded the federal government's credit rating, causing further trouble for the U.S. stock market and prompting a promise of record low interest rates for two years from the Federal Reserve, the nation's central bank.

James Fabian, a financial consultant for the city, said at study session Tuesday that the city can expect a good credit rating that would allow it to lock in a fixed rate loan averaging around 4 to 4.5 percent interest over the next 22 years on the Diamond Bar Center, which was built eight years ago.

Up to now, the city has financed the project on a variable rate loan, which has averaged out to around 3.1 percent interest over the last eight years, but the city's financial advisors are warning that continuing with a variable rate could leave the city vulnerable when lending regulations change in 2015.

Those new regulations — called BASEL III — will require banks to keep more liquid assets, which city advisors said could raise interest rates and make loans more scarce.

"I think the opportunity to lock in low rates is terrific," Mayor Steve Tye said.

For now, Fabian said Diamond Bar is in a unique position among other Southern California cities.

"We work with a lot of California cities and Diamond Bar is a very well-run city with great financial stability," Fabian said.

After the $9.9 million cash purchase and $6.1 million renovation of the city's new 57,000 square foot city hall and library building — a former Allstate Insurance call center — the city still expects to have at the end of 2012.

On Tuesday, city officials considered financing options for the renovation of the city hall and library, but decided to move ahead paying for the project in full.

At the for the new project in late July, state Sen. Bob Huff (R-Diamond Bar) praised the city's financial standing in contrast with the state of California and the federal government.

"When you look at a time when the Fed is trying to raise debt ceiling to continue to function and when the state has basically ripped off cities and counties to balance its budget, Diamond Bar has done things wisely and fiscally prudent and Diamond Bar has done that from the very beginning," Huff, a former mayor Diamond Bar, said. "This is the way that we should be doing government projects instead of borrowing and having it cost twice as much as it should."

Fabian said a credit rating from S & P will depend on demographic statistics, median home price, cash reserves, and management — all areas where he said Diamond Bar would fare well in contrast with the federal government.

"There's no correlation between how they look at the national picture and the local picture," Fabian said.

For continuing financing on the Diamond Bar Center project, the city will be seeking a $12 million loan. Fabian said the cost for securing that loan would be around $15,000 to the city.