MARIETTA - A citizens committee charged with reviewing a proposal to refinance the city's hotel and conference center bond debt released a report Tuesday, which endorses the proposal, but offers a number of caveats the City Council should take before moving forward.

The committee of businessmen was formed by Councilman Grif Chalfant after the council voted down the debt restructuring proposal at its Sept. 9 meeting in a 4-3 vote.

The report was written on behalf of the committee by Marietta Housing Authority member Larry Stevens, a retired partner with PricewaterhouseCoopers. It advises the council to postpone the refinancing proposal - which the city's bond adviser, Gordon Mortin, of Morgan Keegan, has advised the council to approve - until after receiving opinions from an independent bond adviser and independent bond attorney.

The refinancing proposal would restructure the debt on the city owned Hilton Marietta Hotel & Conference Center on Powder Springs Street by paying off the outstanding $29 million bond debt that is currently set at a variable interest rate and issue $33.4 million in new revenue bonds with a fixed rate.

"This complex scenario has unknown, but potentially high risk that is beyond the scope and talents of the committee. The city should get an independent opinion on the viability of the approach, potential risk, and consider other fixed rate alternatives that may not entail the same issues as the independent advisor may determine," Stevens writes.

The City Council's finance committee will discuss the proposal at tonight's meeting, which begins at 5:15 p.m. on the fourth floor of City Hall.

The report found that the city's existing hotel debt should be refinanced with fixed rate bonds, using either revenue bonds or general obligation bonds, as soon as possible after being reviewed by the independent advisor and attorney.

The reason for the refinancing proposal comes from the crash of 2008, which caused a meltdown in the municipal bond market. This put the city in the position of paying a debt service on the conference center bonds that was higher than the fixed lease payments it received from the firm that manages the conference center, Dallas-based Remington Hospitality.

To "stop the bleeding," according to the report, last fall the city's staff bought back all but $300,000 of the $29 million bond debt using "unrestricted cash" that was invested in CDs, a decision the committee said saved the city $540,000.

The City Council was not formally part of the decision to buy back the $29 million in bonds, although city policy doesn't require them to be. They were informally aware of the decision, the report found.

Indeed, City Councilwoman Holly Walquist told the Journal she learned of the buy back when City Manager Bill Bruton mentioned it to her in passing as the council was having dinner at the Marietta Diner one night - after a televised formal council meeting.

"Regardless of the investment policy, it appears, with hindsight, that it would have been prudent to obtain formal council buy in of the bond buy back given the sensitivities around the conference center and the fact that the investment in bonds was inextricably linked to the conference center and was not an investment decision made in the ordinary course," the report states.

And while the bond buy back may not have been a bad decision, "the absence of formal buy-in by the City Council creates the appearance of a potential conflict that could have been avoided," according to the report.

Mortin's refinancing proposal is not a simple one even for the citizens committee, whose members ranged from a bank president to an attorney.

"The refinancing package presented to the City Council is not user-friendly," according to the report, "unless perhaps you are a finance or bond specialist, and was worthy of considerable study by the council before making a refinancing decision." Moreover, "the documentation underlying and supporting the bond refinancing was at best sketchy and at worst inadequate."

Councilman Van Pearlberg has complained that the proposal was dropped in his lap for the first time on Sept. 3 and that he was expected to approve it Sept. 9 with a Labor Day holiday in between. Mayor Bill Dunaway is the one who placed the item on the agenda, urging a fast track adoption.

The committee found that the variable interest rates make the bonds risky on a long-term basis. Holding the bonds as they are now could "potentially make the city's investment grade bond rating problematic," the report states.

The committee is unanimous in its belief that the council should engage and independent financial advisor to advise the city finance department and the council in the current refinancing decision.

"While it is common to have an investment bank serve as both underwriter and financial advisor on bond issues (which is what Mortin is doing), it is the opinion of the committee that while such duel responsibilities may not present an actual conflict of interest, they clearly present the appearance of a potential conflict," the committee found.

The independent advisor should, moreover, be used on all future bond issues and refinancing decisions, and provide advice on alternatives to Mortin's proposals, according to the committee.

If the council elects to issue $33.4 million in new revenue bonds, it intends to use that funding to pay for construction projects for the city's Board of Lights and Water. The BLW, which already has funding for those projects, would in turn provide the city with its funding to cover the existing conference center bond debt. And lease payments from Remington would go to pay down the new revenue bond debt.

"These are highly complex issues, especially in the current economy, and while the citizens committee believes the refinancing is financially and economically appropriate, the structural, legal, governmental and political issues are beyond its scope and purview," the committee wrote.

This is why, they said, an independent bond attorney is needed other than the city's bond counsel, Atlanta attorney Earle Taylor of McKenna, Long & Aldridge.

"The financing structures proposed by Morgan Keegan are creative and may present and attractive alternative for the city to lower its overall debt service on bonds. However, the structures are highly complex, with many moving parts, and the city could be criticized for relying on the bond underwriter and their legal counsel with respect to the effectiveness and the efficacy of these structures," the report found.

The committee also advised that city attorney Doug Haynie, in addition to an independent bond attorney, review the risks of failing to have a public referendum on the new bonds, since "there is the potential that it could be attacked by the press, a group of citizens or a single citizen merely because of its association with the Marietta Conference Center."

The committee also advised the council to appoint a citizens committee to advise the council on long-term issues related to the city's 200-room hotel.

These long-term issues could mean selling the conference center when the market recovers or dealing with another bond issue should Hilton demand another $7 million for future improvements.

The committee said the original bonds, which total about $37 million, were issued on three occasions between 1996 and 2008.