The City of Redlands has issued $76.645 million in certificates of participation.
According to limited information put out by the city, the money generated by the certificates of participation will be utilized to finance the construction of municipal capital improvements, including a police headquarters.
The former police station, known as the Safety Hall located at Brookside Avenue and Eureka Street, was closed in 2008 due to unsafe structural conditions. The building was subsequently demolished, and the city sold the vacant property in 2016 to help fund a new headquarters.
In 2021, the city acquired for $16.1 million the Kmart building and its parking lot located on Redlands Boulevard at Alabama Street which had been closed in 2018. In December 2021, the city said its intent was to convert the building and the premises into a police station. In the five years since, however, that changeover has not taken place. The city has committed to entirely demolishing the Kmart building and erecting in its place the Redlands Safety Hall with the address of 1625 West Redlands Boulevard at a cost of $93 million. Representing as being what is cataloged as a “centralized facility” it will include a single-story 65,000 square foot-police building and presumably a separate building to house the fire department’s administration. The site, to be surrounded by an 8-foot perimeter security wall, will feature new parking areas, solar canopies, along with secure equipment and evidence storage. In May, the Kmart building was razed, and preparation for construction on the property is underway, with a completion date set for October 2028.
On July 6, 2026, Stifel, Nicholas & Company, a wealth management and investment banking firm headquartered in St. Louis, announced that $76,645,000 in certificates of participation related to the “City of Redlands police and fire facilities” were to be sold, that “institutions” would get first dibs and that “retail customers could shop in the secondary market” in order to purchase the instruments.
The creation of the certificates of participation angered and galvanized a minority – what is at present a minute minority – of the citizenry in Redlands. As people have learned of what was done, a clamor – yet consisting of a low grumble – has begun, one which is anticipated to grow into a huge outcry, indeed a firestorm, which is likely to shake the foundations of City Hall. It appears that the city issued the certificates participation rather than traditional municipal bonds to finance a major portion of the construction of the public safety hall and to perhaps do certain other municipal capital improvements and upgrades to selected existing structures.
Certificates of participation are a relatively complex mode of financing and carry severe systemic and credit risks.
Word among those who know about the certificates of participation is that Redlands officials, following a strategy laid out by City Manager Charles Duggan, elected to use certificates of participation to finance the public safety hall project to bypass a taxpayer referendum that would have been needed to issue traditional bonds to get the money to fund those capital projects.
Governments often use certificates of participation to fund capital projects without issuing formal long-term general obligation debt. Traditional bonds usually require taxpayer referendums, but certificates of participation are structured as “lease-purchase” agreements, allowing agencies to avoid voter approval and statutory debt limits.
Knowledgeable Redlands residents say that a majority of the city’s residents would not have supported such a bond issuance because doing so would have entailed an increase in taxes. A handful of people at present are calling what city did underhanded.
In addition to circumventing the city’s need to get voter approval, utilizing certificates of participation as a funding source further bypasses categorizing the money the city is obligated to pay to the certificate holders being legally classified as long-term debt. Lease payments a city pays to have a municipal department/division or departments/divisions occupy any buildings constructed with the revenue from the sale of certificates of participation do not technically qualify as debt but rather ongoing rent. Nevertheless, if the city were to skip out on such payments, its credit rating would be deleteriously impacted.
In theory, the governmental entity in a certificates of participation/lease back arrangement, such as Redlands in this case, could, at will, stop leasing the building and walk away. This would entail severe complication, however, such as, in the instant matter, leaving questions as to where the Redlands Police Department and the city fire department administration would be housed.
Some cities which have used certificates of participation were faced with severe public backlash for using them to incur hidden financial obligations as well as to get around requirements, as is contained in the State of California’s Constitution, that any new taxes must be approved by a majority of those voters who are to bear the onus of those taxes.
The troubled reputation and history of certificates of participation taken together with the secretive manner in which Redlands officials worked out the lease back arrangement in this case has resulted in accusations against city officials that they have removed necessary democratic oversight of municipal processes. Incipient expressions of such discontent are afoot in Redlands now.
A certificates of participation/lease back arrangement entails the creation or selection of an entity or third-party trustee, often in the form of a bank/lending/investment institution which builds the structures. The governmental entity, in this case the City of Redlands, makes annual “lease payments” to the trustee, who then distributes these payments to the certificate of participation holders as tax-exempt income. This introduces another middleman into the equation that raises the overall cost. Furthermore, when voters approve a revenue bond, they approve additional taxes to pay for the project. But when the government uses certificates of participation to construct a building, it creates no additional revenue to pay back the loan. Instead, the annual payment of principal and interest is taken from city departments, often, but not necessarily always, the department or departments housed in the constructed building that is being leased to the city. All of this, ultimately, entails greater expense for the city than if it had made more traditional financing arrangements, essentially increasing costs by a factor of two over time.
In addition, the secretiveness and lack of disclosure that surround certificates of participation create a circumstance in which untoward maneuvering by the public officials involved in their issuance, somewhat akin to insider trading, can take place. Certificates of participation have been used by local governments previously, leading to significant controversy in San Bernardino County.
One such contretemps consisted of the County of San Bernardino’s use of certificates of participation, in the early 1990s, to build/purchase the 222 Building, what is today the county’s Hall of Records, and the scandal that ensued when, because of the way the acquisition of the building was kept from the public but was known to the county’s innermost and most powerful decision-makers, a series of middlemen jumped into the deal, selling the building at a profit multiple times before the county acquired it, escalating the building’s then-cost of something over $2 million to almost $6 million. One of those who got in on this untoward bonanza was then-Fifth District Supervisor Robert Hammock, whose wife acquired title to the building through her real estate company before spinning it off to another buyer before the building was ultimately acquired by the county.
Because of the whisperings in Redlands to the effect that Mayor Mario Saucedo, councilmen Marc Shaw, Eddie Tejeda and Paul Barich along with Councilwoman Denise Davis are engaged in some form of self-dealing relating to the issuance of the certificates of participation as masterminded by City Manager Duggan, the Sentinel gave Duggan an opportunity to get on the record as quickly as possible his rationale for using the controversial financing tool for the construction of the Redlands Safety Hall in a way that will allay suspicions that something improper is afoot.
The Sentinel asked Duggan if he was the architect of the lease back/certificates of participation strategy and if he was not, who is. Duggan was asked if the investors in the certificates of participation were purchasing a share of lease revenues generated by the lease back arrangement the city is entering into with regard to the Redlands Safety Hall. The Sentinel asked if the city used the lease back/certificates of participation strategy to bypass a taxpayer referendum and if the city did any polling to determine whether there was sentiment in the community to support the issuance of bonds.
Duggan was asked by the Sentinel why he and the city council chose to go the certificates of participation route in doing the financing. The Sentinel asked Duggan if it was his intention and that of the city council to use certificates of participation to hide the financial obligations the city is taking on. Duggan was asked to give his response to those who maintain he and the city council put one over on the city’s residents in issuing the certificates of participation. Point blank, the Sentinel asked Duggan if, by using the certificates of participation/lease back arrangement, the city is being profligate/cavalier/irresponsible with taxpayer money.
The Sentinel asked Duggan to explain how he reached the conclusion that using the certificates of participation/lease back arrangement was not being profligate/cavalier/irresponsible with taxpayer money. The Sentinel asked Dugan how using the certificates of participation/lease back arrangement in this case is good for the city and of benefit to its taxpayers.
The Sentinel asked Duggan, given the secretiveness with which the financing for the Redlands Safety Hall construction was worked out as part of a backroom deal, how the public would know whether or not some scandal similar to what occurred with San Bernardino County’s 222 Building price escalation involving informed insiders is infused into/intertwined with the City of Redlands’ current issuance of certificates of participation.
The asked Duggan if there is a contingency plan in the City of Redlands’ certificates of participation/lease back arrangement to walk away from the buildings in question.
The Sentinel encouraged Duggan to provide any further information with regard to the issue that he wanted the Sentinel’s readership to take into consideration.
Duggan ducked the questions, instead having the city’s spokesman, Carl Baker, send the Sentinel an email in which he referred to agenda item K3 discussed and voted upon at the Redlands City Council’s June 16, 2026 meeting. Baker emphasized that the report relating to that item and action was “delivered during an open, public meeting,” and had accompanying documents which would explain the city’s action.
Of note, the report Baker referenced stated that while the council was “authorizing the execution and delivery of certificates of participation, Series 2026, in an aggregate principal amount not to exceed $85,000,000,” the issuances specified a “principal amount estimated [at] $78,415,000” with an “estimated true interest cost [at] 4.50%” entailing an “estimated finance charge [of] $572,622.” The report, without any explanation, gave indication that the “estimated net proceeds” to the city from the sale of the certificates of participation would be $74,400,000” and that the “estimated total payment amount through maturity” would be “$143,870.375.”
According to the report the “ground lease” associated with the certificates of participation “provides for the lease of the property from the city to the Redlands Public Improvement Corporation” and the “lease agreement provides for the lease-back of the property to the city and establishes the city’s rental payment obligations,” while the “purchase agreement provides for the sale of the certificates to BofA Securities, Inc. and Stifel, Nicolaus & Company, Incorporated, as co-underwriters.”
Baker did not explain how it was that, according to the report provided to the city council and the public on June 16, investors would be purchasing the certificates of participation at a price of $4 million more than the amount of money the city would realize in proceeds from the sale. Nevertheless, Baker said the public was given “all the information necessary to understand how the city is utilizing a common, legal process to fund the projects listed in the agenda item,” which included the safety hall, fire station construction and HVAC [heating, ventilation and air conditioning] improvements to Smiley Library. Nor did Baker explain the discrepancy between the $76.645 million in certificates of participation being offered for sale by Stifel in its advertisements to potential investors and the $85,000,000, $78,415,000 and $74,400,000 amounts that appear in the report.
-Mark Gutglueck