Background:

On September 24, 2019, a work session was conducted, which resulted in the Board authorizing the Executive Director to move forward with pursuing the purchase of the real property at 6300 U.S. Hwy. 19, further known as the Walgreens Property.  On October 29, 2019, an Agreement For Purchase and Sale was signed, which contractually obligated the City to purchase the property at $1,750,000.   

Funding:

After careful consideration, Staff is proposing that the purchase be funded through a 3-year interfund loan from the City’s Water & Sewer Fund, in the amount of $1,700,000.  $50,000 will be paid with available CRA funds.  Use of an interfund loan allows the CRA to secure the strategically located property quickly, while also allowing time to determine the best long-term use of the site. 

The State provides the minimum acceptable procedures for making and accounting for interfund loans as follows:

• The legislative body of a municipality must, by ordinance or resolution, approve all interfund loans, and provide in the authorization a planned schedule of repayment of the loan principal, as well as setting a reasonable rate of interest (based on the external rate available to the municipality) to be paid to the lending fund.

• Interest should be charged in all cases, unless the borrowing fund has no other source of revenue other than the lending fund or the borrowing fund is normally funded by the lending fund.

• The borrowing fund must anticipate sufficient revenues to be in a position over the period of the loan to make the specified principal and interest payments as required in the authorizing ordinance or resolution.

• The term of the loan may continue over a period of more than one year, but must be “temporary” in the sense that no permanent diversion of the lending fund results from the failure to repay by the borrowing fund.

As part of the most recent CRA Plan Update, Urbanomics, a forecasting consulting firm, completed a 5 year financial projection for the CRA, which supports that the CRA will have the cash flow over the next 3 years to repay the interfund loan without causing a financial strain on the Agency. Furthermore, if the CRA is able to sell any of its properties held for resale, then the CRA would be in a position to repay the loan sooner than 3 years.

Staff has analyzed the cash flow needs of the Water/Sewer Utility fund and finds that there are sufficient funds available to make this loan for the three year period. The table below summarizes unrestricted fund balance available.  It starts with beginning unrestricted fund balance for FY2020 and backs out required reserves (amounts the City is required to hold).  Then, budgeted Revenues for FY2020 are added and budgeted expenditures for FY2020 are subtracted. What’s left is the amount that is available for use. 

The estimated interfund loan terms will be:

• $1,700,000 from the Water/Sewer Utility fund,

• The term will be three years, but the loan can be repaid any time during that period,

• The interest rate paid on this loan will be 1.8%, based on the analysis and repayment plan done by Ford & Associates, the City’s Financial Advisors.