CITY COUNCIL STAFF REPORT
July 16, 2024 {{section.number}}d
LONG-TERM CAPITAL PROJECT FUNDING AND EXPENDITURE STRATEGY FOR
COMMUNITY DEVELOPMENT AGENCY LOAN FUNDS
RECOMMENDATION:
Receive a report and recommendations on the Community Development Agency Bond Funds expenditure strategy and planning for long-term capital project funding, and provide direction as appropriate.
BACKGROUND:
At the City Council’s May 7 and May 21, 2024 meetings, staff presented information regarding the City’s portfolio of long-term capital projects, their proposed phasing and cost estimates. The City Council also discussed the timing to spend down the proceeds from the Community Development Agency (CDA) Bond proceeds. Staff were asked to return to a later meeting with strategies.
This report provides a full discussion of the history and recommendations to deplete the CDA proceeds in a timely manner and the next steps in long-term capital planning, including new planning processes and strategy development.
ANALYSIS:
CDA (Community Development Agency) Loan Fund
The Community Development Agency (CDA) Loan Fund was established for the repayment of loans that were made to the CDA from the General Fund. This fund received annual loan repayments of $2,780,754 and in October 2018, the City refinanced the balance of the loans with bonds and transferred the proceeds of $32,686,488 to the CDA Fund. At the time of the bond issuance the City Council established an exclusive list of capital projects, for which bond proceeds could be used. Attached is the August 2018 staff report describing the bond process and authorized list of eligible projects (Attachment 1). The CDA Fund must be fully spent down by bond maturity, estimated for September 2027.
Currently, the balance of CDA bond funds is $18,354,153, including $9.3 million reserved to fund improvements related to the relinquishment of SR-75 and -282, and estimated Fund investment earnings of $3,419,714.
To date, $17,752,049 in CDA funds have been expended or allocated for:
• Utility undergrounding design: (1) Adella and Ynez; (2) First Street; and (3) Silver Strand (cumulative: $400,000)
• Utility undergrounding construction Adella and Ynez ($2,000,000) • Parker Pump Station construction ($12,363,196)
• FY 2024/25 Vehicle and Equipment Replacement purchases ($2,988,853) To develop options for the full use of the Fund balance, staff analyzed the City’s current capital project list. Other projects/concepts on the bond-eligible list were not deemed likely to be completed by September 2027. Attachment 2 shows an assessment of CDA Fund eligibility, cost and completion horizon for the City’s current capital improvement projects. This analysis showed that five CIP projects totaling over $22.3 million are eligible for CDA funding and can be completed prior to the deadline for expenditure.
Recommendations
Staff proposes three actions for the most efficient draw down of the CDA Fund:
1. Restore $9.3 million transferred to Fund 275 SR-75/282 Highway Relinquishment Fund to the CDA Fund. Since the Relinquishment project has no definite completion horizon, these funds would be reprogrammed for immediate expenditure for eligible projects.
2. Allocate $14.3 million for the Parker Pump Station. In FY 2021/22 and 2022/23 a total of $14.3 million was transferred from Fund 436 (Major Facilities Replacement Fund) to Fund 510 (Wastewater Fund) for the Parker Pump Station. This proposed allocation would assign $14.3 million to the CDA Fund and restore $14.3 million to Fund 436, which is used for general facility improvements across the City. The Parker Pump Station is a critical infrastructure project which has experienced substantial cost escalation since the initial estimates. Restoring $14.3 million to Fund 436 would increase that fund balance from $18.5 million to $32.8 million.
3. Plan for $4,560,421 for FY 2024/25 - 2026/27 Vehicle and Equipment Purchases or Project Overages. Annually, the City has a need for $1-3 million in vehicle and equipment replacement. In particular, the City is scheduled to replace higher-cost fire apparatus in the next few years, including an engine and truck. Use of CDA Funds for this purpose would buffer the one-time budget impact of these $1-3 million acquisitions. This balance can also be used for cost overages for eligible projects under construction.
Attachment 2 includes other projects that meet eligibility criteria and can be completed in a timely manner. Another valid strategy would be to allocate CDA funds to those projects and reduce the amounts to the Vehicle and Equipment Replacement.
Attachment 3 provides a CDA Fund summary showing the effect of the recommended changes.
Long-Term Capital Project Planning
On May 7, 2024 as part of the FY 2024-25 Budget discussion, staff presented City Council with an overview of long-term capital projects and a tentative timeline for their completion. This was prepared in anticipation of larger projects on the horizon that extend beyond the usual five-year planning period.
On the following page is a sequenced list of major projects valued at $3 million or more and currently on the horizon within the next ten years.
A project phasing chart has been updated to reflect a potential phased approach to future Cays Park projects, and includes more detailed project timelines, as Attachment 4.
Assumes upper estimates for Winn Room and Animal Care Facility This table shows a first sequence of projects including Downtown Beautification, Golf Course Irrigation and Gateway Improvements. All are underway in planning or design and only the Downtown Beautification uses the General Fund.
Sequences 2 and 3 contain the next sets of projects. These projects are in the early stages of planning and scope definition. Design is not expected to begin for most projects until at least 12 to 18 months from the present. Construction is anticipated to be staggered over the next three to eight years.
There are numerous process steps before each project matures to construction. Decisions about scope, features, design elements, bidding, and construction award will be presented to the City Council at the appropriate time. Also imbedded in these conversations will be funding strategies.
Project Funding Considerations
With the potential for tens of millions in projects and facilities investments over the next decade, the City is taking care to analyze existing resources and demands and will craft funding plans simultaneous to project development.
The City has a number of existing funding resources to help fund long term capital projects as summarized below:
• Facilities Replacement Fund (Fund 436)
In 2015, the City established a Facilities Replacement Fund (Fund 436) to provide a reserve for the normal repair and renovation of most of the City’s capital facilities across their lifecycle for the next 60 years. The Facilities Replacement Fund balance stands at $18.5 million, which may escalate to $32.8 million if CDA Funds are allocated to the Parker Pump Station.
The City makes designated annual General Fund contributions to Fund 436 using an index-based formula that uses the prior year’s budget base value and multiplies it by the San Diego area Construction Cost Index (CCI). The annual Fund 436 formula will be recalibrated this year to account for the new estimation of facility needs and the current cost of construction.
Priority Project
($3 million+)
Total Estimated
Cost General Fund Funding Source
Estimated
Project Design
Begins
Estimated
Construction
Completion
Sequence 1
Downtown Beautification Project 3,400,000 2,650,000 General Fund/TransNet FY 2024/25 FY 2025/26 Golf Course Irrigation Replacement 9,000,000 N/A Golf Course FY 2024/25 FY 2027/28 Coronado Gateway Improvements 5,300,000 N/A Coronado Bridge Tolls FY 2024/25 FY 2027/28 Sequence 2
Fire Station #36 (Main) 30,000,000 30,000,000 General Fund FY 2025/26 FY 2029/30 Winn Room Renovation 9,700,000 9,700,000 General Fund FY 2025/26 FY 2028/29 AnimalCare Facility $1-3 million $1-3 million General Fund FY 2025/26 FY 2027/28 Sequence 3
Fire Station #37 (Cays) 30,000,000 30,000,000 General Fund FY 2025/26 FY 2029/30 Cays Park Rehabilitation (Phase 1) 10,500,000 10,500,000 General Fund FY 2025/26 FY 2029/30 Cays Park Rehabilitation (Phase 2) 8,500,000 8,500,000 General Fund FY 2025/26 FY 2030/31 Cays Park Rehabilitation (Phase 3) 12,100,000 12,100,000 General Fund FY 2025/26 FY 2031/32 Total $ 121,500,000 $106,450,000
In the future, the City Council may wish to consider shifting any annual budget surpluses to Fund 436 to continue to grow these savings for project investments. Staff will present this as a strategy after the closure of surplus budget years.
• Harpst Fund
In 2010, local philanthropist and Coronado resident Frances Harpst made a generous donation to the City of Coronado from her estate. The remaining balance in the Harpst Donation Fund stands at $1 million (estimated by June 30, 2025) and is available for broad use. • General Fund Reserves
The City has a robust General Fund Reserve policy that sets aside 6 months of operating expenditures. With past prudent budgeting, the Reserve has attained a funding status of 226% this fiscal year, exceeding the minimum reserve by about $45 million. This includes $4 million set aside by the City Council for future capital projects. The City Council may consider some use of Reserves to support these one-time projects.
Other Revenue/Funding Strategies include:
• Fee Studies
The City receives some revenues to support select public facilities from use fees. Fees must comply with Section 66000 et seq. of the Government Code, which states fees must be related to the level of service provided by the local jurisdiction and the portion of the public facility attributable to the development on which the fees are levied. While not a primary source, revenues from user fees can be available to augment select capital projects. Facility maintenance/replacement costs must be fairly and accurately accounted for in the development of fees. • Grants & Federal and State Funding
The City will pursue grants more assertively in the coming year. The City will also continue its requests for project funding through Federal and State awards. The City has had recent success in both, receiving grants for the Parker Pump Station (Federal) and Library enhancements (State). • General Obligation (GO) Bonds or Other Financing
Another potential option to explore is the issuance of general obligation bonds backed by tax revenues to pay debt service or other financing vehicles. The City has not preferred financing in the past, but this mechanism is worthy of investigation if the City wishes to advance larger scale projects more quickly than a pay-as-you-go approach. If initiated, a thorough analysis of these options will be conducted in partnership with a financial advisor experienced in working with city clients on financial planning, capital investments, and bond issuance support and would consider the interest rate environment and cost of borrowing.
• Tax Change Options
A change to Transient Occupancy Tax (TOT), sales tax, real estate transfer tax, or the introduction of a utility users tax are options explored by cities to raise revenue for a variety of purposes.
Next Steps
FY 2024/25 is predominantly a planning year. Aside from the three projects in design (Golf Course Irrigation, Gateway Improvements and Downtown Beautification), the other long-term projects are under scoping and planning which will take at least a year before shifting to design.
Primary capital planning activities for FY 2024/25 are:
1. Community Risk Assessment to Support Future Fire Station Design The City has a need to rehabilitate or replace its 50-year-old fire stations. As a preparatory step, this year the City will obtain consultant services to conduct a citywide assessment of our projected fire and emergency medical needs. Understanding our geography, demographics, circulation and building attributes will inform community service needs—and the infrastructure and apparatus required to support them.
Staff are preparing a solicitation for these consultant services and expect to return with a report to the City Council in about one year.
2. Grant Engagement
The City lacks the internal resources to actively identify and apply for grant funding—or financing programs that may be available through the State or Federal government. In the FY 2024/25 Budget, the City Council approved funding for a grant consultant to locate grant or funding program opportunities, prepare applications and provide advice on strategy to better position the City for external resources to support priority capital projects.
A request for qualifications will be released this summer to secure a grants consultant.
3. Public Facilities Assessment and Allocation Strategy (Fund 436) In 2018, the City commissioned a facility assessment study to evaluate the condition of City facilities and project anticipated maintenance and replacement costs over time. The study calculated an annual amount the City should save in anticipation of these future facility costs. This year, the study will be updated to encompass the full range of City facilities and with contemporary construction costs. A new annual funding formula will be calculated.
The City Council approved funding in the FY 2024/25 Budget for this study and consultant solicitation will proceed in late summer/early fall.
4. FY 2024/25 Project Planning
This year, staff will initiate scoping and planning for renovation of the Animal Care Facility. Other long-term projects such as the Winn Room, Cays Park and Fire Stations would commence planning and design next fiscal year.
5. Explore Financial Planning Consultants
Staff also will explore obtaining the services of a financial planning consultant who can assist in strategic development for larger cost investments.
FISCAL IMPACT:
There is no fiscal impact associated with this report.
ALTERNATIVE:
None.
CALIFORNIA ENVIRONMENTAL QUALITY ACT:
Not Applicable.
PUBLIC NOTICE:
No notice required.
ATTACHMENTS:
1. August 21, 2018 Agenda Report Establishing Bond Proceeds Project Allocations
2. CDA Loan Fund - Project Eligibility List
3. CDA Loan Fund Sources and Uses Summary
4. Long Term Capital Planning List
Submitted By: City Manager’s Office / Tina Friend and Tony Winney; Administrative Services / John Kim; Public Services and Engineering / Leon Firsht