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Recommendation to Approve Revisions to an Interfund Loan for the Financing of Fire Station #3 and to Transfer Remaining Balance of the Loan to the General Fund. (Finance 2410)
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To: Honorable Mayor and Members of the City Council
From: David L. Rudat, Interim City Manager
EXECUTIVE SUMMARY
Revise repayment term for the Equipment Replacement Fund interfund loan and transfer loan balance to the General Fund.
BACKGROUND
In July 2014, City Council approved an interfund loan in the amount of $809,000. The proceeds from the interfund loan were used as one of the financing mechanisms for the construction of the new Fire Station #3. The interfund loan is from the Equipment Replacement Internal Service Fund to the Emergency Operations Center/Fire Station #3 Capital Project Fund. However, the repayment of the loan is secured by the General Fund. The original terms of the loan provide for a repayment over a 20-year period, bearing a simple annual rate of 3%.
In June 2018, City Council approved an Ordinance for the sale of the former Fire Station #3 located at 1703 Grand Street, Alameda, for a total price of $800,000. At the same time, staff recommended and Council approved using the proceeds from the sale of this property, net of prior $450,000 budget allocation and closing transaction costs, for partial repayment of the Equipment Replacement Internal Service Fund Loan.
DISCUSSION
The sale of the property was finalized on September 17, 2018. The net proceeds from the sale of the property available for partial repayment of the interfund loan are $307,315 (sale price less closing costs and less $450,000 prior budget allocation). This balance will be applied to partially repay the interfund loan. After the partial repayment, the loan balance will be $408,626. There are two options on how to repay the remaining balance of the loan:
1. Continue making annual payments of the same amount of $54,378 as approved in the original loan with the final payment of $38,035. This will allow repayment of the loan by June 2027, eight years sooner than originally expected.
2. Re-amortize the remaining balance over the remaining life of the loan. This will reduce the annual payment amount from $54,378 to $31,206 with full repayment occurring in June 2035.
It is staff’s recommendation to keep the annual payments on the remainder of the loan the same at $54,378 and repay the loan sooner (Option 1 above). By doing so, the General Fund will save $57,450 in interest compared to Option 2 above.
In addition, since the repayment of the loan is secured by the General Fund, and the Emergency Operations Center/Fire Station #3 Capital Project Fund will be closed due to completion of the construction of the project, the balance of the interfund loan needs to be transferred to the General Fund.
FINANCIAL IMPACT
Staff recommends keeping the annual payments on the remainder of the loan the same at $54,378 and repay the loan eight years sooner than originally expected. Earlier repayment will save the General Fund $57,450.
The balance of the loan of $408,626 will be transferred to the General Fund, which ultimately is responsible for the loan repayment. The annual loan repayments will continue to be included in the Fire Department’s Budget. Because since the inception of the loan, the General Fund was the source of the loan repayment, there will be no additional financial impact to the General Fund. However, it will streamline the accounting and better reflect the obligations associated with the Fund.
MUNICIPAL CODE
This action is in conformance with the Alameda Municipal Code and Budget Resolution.
ENVIRONMENTAL REVIEW
This activity is not a project and is exempt from the California Environmental Quality Act (CEQA) pursuant to section 15378 (b)(4) of the CEQA Guidelines. It does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
RECOMMENDATION
Approve revisions to an Interfund Loan for the Financing of Fire Station #3 and to transfer remaining balance of the loan to the General Fund
Respectfully submitted,
Elena Adair, Finance Director
Exhibits:
1. Promissory Note - Original
2. Promissory Note - Revised