City Council Agenda Report
TO: Mayor Clauzel and Members of the City Council
FROM: Ken Irwin, City Manager
BY: Ken Irwin, City Manager
MEETING DATE: March 14, 2023
ITEM NO: 6.4
SUBJECT: Adopt Resolution No. 2023-06 to Authorize an Interfund Loan from the Water Enterprise Fund to the Storm Water Enterprise Fund for the Costs of Public Improvements.
RECOMMENDATION
Staff recommends the City Council adopt Resolution No. 2023-06 to Approve and Authorize an Interfund Loan from the Water Enterprise Fund to the Storm Water Enterprise Fund for the Costs of Public Improvements.
BACKGROUND
On December 12, 2006, the City Council (“City Council”) of the City of Patterson (“City”) adopted Resolution 2006-122, approving a Combined Preliminary and Final Development Plan and other entitlements for a development project known as The Villages of Patterson (“Villages Project”).
Following that approval, on December 19, 2006, the City Council adopted Ordinance No. 681 which approved a Development Agreement (“DA”) for the Villages Project. The DA divides the Villages Project into four (4) project areas, including VOP Area 1, located in the southeastern quadrant of the Villages Project area, south of Olive Avenue, west of Sycamore Avenue, east of Hartley Street, and north of Walnut Avenue. Patterson Ranch Development, LLC (“Developer”), has begun development of properties within VOP Area 1. As part of that development, the DA requires the installation of oversize public improvements to benefit other parcels within the area, subject to reimbursement with interest, for the costs associated with the public improvements that exceed Developer’s fair share allocation of the costs for the necessary improvements.
The Developer has installed the required public improvements, but a dispute has arisen with regard to the timing of the reimbursement obligation for those improvements. The City disputes any interpretation of the DA that requires payment of the reimbursement obligation for the public improvements prior to the issuance of bond proceeds from Community Facilities District 2018-01.
Despite this, Developer has agreed to waive its claims as to timing of the full reimbursement obligation in exchange for reimbursement of some of their costs associated with the oversized public improvements.
With the exception of the City’s Storm Water Enterprise Fund, the City has funds sufficient in its other enterprise funds to provide the partial reimbursement amount to the Developer. The City’s Water Enterprise Fund has sufficient funds to address the discrepancy in the reimbursement amount from the City’s Storm Water Enterprise Fund. Therefore, the City is loaning funds from the Water Enterprise Fund to the Storm Water Enterprise Fund to proceed with reimbursing the Developer for some of their oversize improvement costs related to VOP Area 1 of the Villages Project.
ANALYSIS
Interfund loans are sometimes a necessary practice between City funds, and state law does not prohibit such loans between funds. Generally, interfund loans are used to: 1. Offset timing difference in cash flow, 2. Offset timing differences between expenditures and reimbursements, 3. Advance funds for capital improvement projects, or 4. Other needs deemed appropriate by the City Council.
To properly account for such a loan, the terms of an interfund loan should result in no permanent diversion of the source funds. Additionally, the terms of an interfund loan must identify the repayment source, specify the repayment schedule, impose interest at a rate at least equal to the investment earnings the source funds would have earned if the loan had not occurred, and be immediately due and payable if needed by the source fund.
Based on the inability of the Storm Water Enterprise Fund to meet the reimbursement obligation for the Developer and the Water Enterprise Fund’s ability to make up that difference, those funds were identified for the loan, in the amount of $1,600,000. The term of the loan is ten (10) years but may be repaid at any time. As the improvements completed in this request fall under the Villages of Patterson Community Facilities District (CFD), the loan will be paid back to the Water Enterprise Fund using proceeds from the CFD. As Such, the funds from the third bond tranche from the Villages of Patterson CFD is anticipated to pay the loan. The loan is subject to the Local Agency Investment Fund (“LAIF”) investment yield as an interest rate and the City is required to annually appropriate the monies necessary to repay the interfund loan. These requirements ensure that the interfund loan proposed under the Resolution comply with all requirements for interfund loans and that the loan will be repaid.
FISCAL IMPACT
The Resolution will not result in significant financial impact, except with respect to the interest charged for the loan. The interest paid will be at the same rate that the funds would have earned as the City’s enterprise funds are invested in the LAIF. The interfund loans ensures that the City avoids the costs of litigation of the Developer’s claims.
POLICY ALTERNATIVES
The City Council’s options are:
1. Adopt the Resolution No. 2023-06 without any changes;
2. Adopt the Resolution No. 2023-06 with changes and revisions;
3. Continue the item to a later meeting of the City Council and provide direction to staff for any changes; or
4. Reject the Resolution No. 2023-06 entirely.
ATTACHMENTS
Resolution No. 2023-06