Warning about Elk Grove Zoo construction bonds hidden in city staff Mello Roos refinancing report

As Elk Grove's former finance manager, Matt Paulin, noted last year, the prospects of the proposed Elk Grove-Sacramento Zoo hinge on future interest rates.

At the time Paulin uttered his words, Joe Biden was president, and the economy, aside from inflation, was operating under the typical presidential orthodoxy that Americans had experienced in the post-World War II era. Since Donald Trump took office in January for his second term as president, his unorthodox policies have whipsawed financial markets. 

A story posted last week on Elk Grove News pondered how Trump's economic policies could affect the construction start date of the Elk Grove-Sacramento Zoo. Although conceptually approved last year by Mayor Bobbie Singh-Allen and her four city councilmen, the question remains as to when, and if, the $300 million first phase will begin construction. 

Last year, Paulin predicted interest rates would fall, which they have. Future interest rate drops are less certain. 

While Mayor Singh-Allen, the official spokesperson for the five-member governing body, has not provided any substantial zoo updates at official meetings since Trump took office, a staff report issued late last week mentioned the possible effects of the presidential economic policies. The staff report is for a hearing this Wednesday, when the Mayor will approve the refinancing of Mello Roos bonds.

Notably, the report said the following regarding the effects of Trump's tariffs:  

"The Federal Government announced the imposition of tariffs on April 2, 2025. Since the announcement, financial markets have experienced significant volatility causing the nation’s stock market to go down and interest rates to rise. Specifically, the Municipal Market Data (“MMD”) index, which is used to determine interest rates on tax exempt municipal bonds, like the Series 2015 bonds being considered for refunding, has risen 32 to 48 basis points along the yield curve as of April 14. Based on market conditions as of April 14, the estimated Net Present Value Savings is 4.02%. The City’s adopted Debt Management Policies state that a current refunding of outstanding bonds must meet a minimum Present Value Savings of 3.00% or higher. Staff is seeking flexibility in approving the potential issuance and sale of refunding special tax bonds given the recent market volatility. Staff will work with the City’s underwriter and financial advisor to determine the optimal day to enter the market to achieve the highest Net Present Value savings or to abandon the refunding. 

With City Council approval and given current volatile market conditions, staff does not recommend a specific date for bond pricing; rather, staff will proceed with bond refinancing only if the following conditions are met. If these conditions are not met, staff recommends that the bond issuance not move forward, thereby ensuring that only fiscally responsible financing opportunities are pursued. 

• Net Present Value Savings are equal to or greater than 6.00% 
• True Interest Costs are lower than 3.85%"

Of note, the estimated actual interest cost for the S&P AA bonds as of today is 4.50%, which exceeds their target threshold of 3.85%. Therefore, refinancing will not commence on these Mello Roos bonds.

Implications for the Zoological Park Project

While the staff report is limited to the refinancing of Mello Roos bonds, it should serve as a roadmap for taxpayers to monitor Mayor Singh-Allen's pursuit of the project. Be it construction financing or Mello Roos bonds, the same standard should apply. Here are some things for the mayor to consider:

• Higher Borrowing Costs: The tariff-induced interest rate increases would make the $114 million bond issuance for the zoological park more expensive than it would have been before the tariffs' implementation.
• Increased Project Costs: Higher interest rates would increase the total cost well beyond the current $300-plus million project over the life of the bonds.
• Potential Delay Strategy: Mayor Singh-Allen should adopt the same cautious approach outlined in the staff report and wait for more favorable market conditions and financial markets' stability before issuing the zoological park bonds.

In the context of zoo financing, the tariff-induced interest rate increases pose a significant financial risk to Elk Grove taxpayers. Mayor Singh-Allen must proceed cautiously with any large bond issuance, lest her legacy become that of the person who drove the city off a financial cliff.