ITEM # IX.2
STAFF REPORT
MEETING DATE: February 27, 2024
PREPARED BY: Joseph Arch, Interim Finance Director
AGENDA TITLE: Conversion of the Line of Credit for a Note Due Redwood Credit Union
RECOMMENDATION
Staff recommends that the City Council approve the conversion of the Line of Credit to a Note Payable with the terms indicated and collateralizing the Firehouse property for repayment of the Note.
BACKGROUND
The Line of Credit was created to allow for the City to advance pay on the Mill Street and Center Street projects. Unfortunately, both projects exceeded the funding and the City used cash reserves to repay the line of credit down to its current balance, which remains at $310,539.77. This amount would be financed plus a $50,000 line of credit, all secured by the Firehouse property, which would allow the City to repay the debt should the property be sold in the future. This would also allow for the possibility of renting the property and any rental revenue to be obligated to repay the debt. The $50,000 line of credit could be used to pay for operating costs and repaid currently as revenues exceed operating expenditures. This would need to be done on a very structured, targeted basis to prevent the already limited cash resources from being used up.
ANALYSIS
The terms and costs associated with the conversion to a note would be as follows:
Based upon an RWC evaluation of the Firehouse property and 100% collateralization, the note and line of credit would be for a 5-year term, variable interest rate at Prime plus 1%. Costs would include $600 for the evaluation, $375 for an environmental fee, a $350 documentation fee and title fees, which are based on a sliding scale. The overall repayment is recommended to pay the loan costs upfront, provide for the rest to be paid in monthly installments and potentially, refinance at the end of the term if a balloon payment is required.
FISCAL IMPACT
The fiscal impact of not converting to a note and operating line of credit is the City would not have the operating resources to continue.
Respectfully Submitted,
______________________________
Joseph Arch, CPA
Interim Finance Director