Agenda Report
Fullerton City Council
MEETING DATE: february 20, 2024
TO: CITY COUNCIL / SUCCESSOR AGENCY
SUBMITTED BY: stephen bise p.e., public works director PREPARED BY: BRENDAN O’REILLY, AIRPORT MANAGER
ELLIS CHANG, DIR. OF ADMINISTRATIVE SERVICES
SUBJECT: FULLERTON FLIGHT CENTER RENOVATION PROJECT loan financing
SUMMARY
Request for a $1,300,000 interfund loan from General Fund to the Airport Enterprise Fund for a Fullerton Flight Center construction project and authorize City Manager, or designee, to submit a loan application with Caltrans.
PROPOSED MOTION
Approve $1,300,000 interfund loan with 3.989% interest rate from General Fund to the Airport Enterprise Fund.
Authorize City Manager, or designee, to submit application, negotiate financing terms, execute, deliver, implement, accept approved loan, and carry out the terms of the of $1,300,000 Caltrans Airport Development Loan Program financing.
Authorize City Manager, or designee, to make budget transfers and adjustments to establish and repay both loans.
ALTERNATIVE OPTIONS
Approve Proposed Motion
Reject interfund loan and pursue project funding via Caltrans Airport Development Loan Program Reject loan options and use Airport Enterprise Funds only Other options brought by City Council.
STAFF RECOMMENDATION
Staff recommends the Proposed Motion.
CITY MANAGER REMARKS
The City Manager recommends authorizing a $1.3 Million interfund loan as a bridge loan and pursue Caltrans Airport Development Loan Program funds.
PRIORITY POLICY STATEMENT
This item matches the following Priority Policy Statements:
Fiscal and Organizational Stability
Infrastructure and City Assets.
FISCAL IMPACT
Staff intended to use Airport Enterprise Fund and a private donation for the Fullerton Flight Center Renovation Project. However, increasing construction costs have raised the cost for the project and the project requires an additional $1,300,000 for construction contract shortfall, project contingencies, staff inspection, testing and administrative costs.
The City has bid the project and awaits award, making the Proposed Motion time sensitive. Approval of the interfund loan would move the renovation project forward with the current bid prices. Staff would need to be re-bid the project should City Council not approve the load which may result in higher costs.
The interfund loan would provide a bridge loan until staff submits the Caltrans loan application which may provide the funding to complete the renovation project if Caltrans does not approve the loan.
General Fund has available working capital to make the loan with a five years repayment term at 3.989% interest. Staff anticipates the Caltrans loan would have a 3.2% interest rate with a seventeen-year maturity. Staff recommends City Council approve both the $1,300,000 interfund loan from General Funds to the Airport Enterprise Fund and of a loan application submission with Caltrans for the same amount.
BACKGROUND AND DISCUSSION
City Council authorized the purchase and renovation of the Fullerton Flight Center building located at 4119 West Commonwealth Avenue on April 19, 2022. Airport staff commissioned an on-call architectural and engineering consultant to develop plans, specifications and cost estimates to renovate the building following the purchase.
Staff began project planning in late 2021 and early 2022 and estimated the Airport Enterprise fund and private donation would provide sufficient funding for this project.
However, significant construction cost increases, especially labor costs, over the past several years have increased the project cost beyond the available budget.
Staff investigated several options to address the project budget shortfall:
City Interfund Loan from General Fund to Airport Fund
Caltrans Aviation Loan Program
Airport Enterprise Fund Balance.
City Interfund Loan. This option provides flexibility to move promptly and secure project construction costs. Staff recommends this options as the primary source of additional project funding.
Caltrans Airport Development Loan Program. The Local Airport Loan Program provides discretionary state loans to eligible airports for projects enhancing airport general aviation services (hangars, General Aviation (GA) terminals, utilities, GA fueling facilities, Acquisition and Development (A&D)-eligible projects, etc.). Interest rates match the latest California General Obligation Bond sale interest rate, currently 3.2%.
Each Loan Agreement includes a pay-back schedule. Generally, a loan term 17 years unless a sponsor requests a shorter term. Borrowers may repay loans without penalty. The loan charges simple interest on the outstanding principal balance.
Staff does not recommend this as a primary option for additional project funding due to the minimum four-month duration to obtain the loan proceeds from Caltrans. The processing time may jeopardize current construction costs (contractors may not hold their costs and/or withdraw their bid) and push back the project schedule. Staff does recommend this option to repay the interdepartmental loan in an expedient manner and provides a longer loan repayment, reducing the burden on Airport revenues. Staff also recommends pursuing this proposed motion as repayment to the interdepartmental loan.
Airport Enterprise Fund Balance. Staff expects the Airport Enterprise Fund to maintain a $1.5 million to $2 million fund balance during construction providing a minimum reserve fund level to address expenses and services should interruption occur to expected revenue. Using available Airport Enterprise Fund balance to cover the project shortfall would leave the Airport Fund with a very minimal available fund balance which staff does not recommend.
Airport Finances. The Airport is in good financial health, with reserve funds and revenues historically higher than expenses. Staff would lease the property to one or more existing airport businesses after project completion. Staff anticipates using $8,000 per month revenue increases to help the Airport Enterprise Fund repay loan proceeds.
Attachments:
Attachment 1 - Interfund Loan Schedule
cc: City Manager Eric J. Levitt
Fullerton Flight Center Renovation Project Loan Financing February 20, 2024 - Page 2