FOR THE COUNCIL MEETING OF DECEMBER 5, 2023
COUNCIL AGENDA REPORT
TO: City Council
FROM: Interim City Manager Alex Posada
BY: Interim Director of Finance Xenia Bradford
SUBJECT: Receive a Presentation Regarding Financing Options for Capital Improvement Projects
Description:
The City Council will receive a presentation regarding financing mechanisms and options for capital improvement projects and provide general direction on whether staff should pursue financing options for capital improvement needs and return at a future date with details of what financing options are recommended for the Council to consider and provide for specific direction.
Environmental Notice: Environmental Notice: The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
RECOMMENDATIONS:
1) R eceive a presentation regarding financing mechanisms and options for capital improvement projects; and 2) Provide general direction on whether staff should pursue financing options for capital improvement needs and return to Council for specific direction.
BACKGROUND:
With the exception of water and wastewater infrastructure, the City historically paid for capital improvements on a pay -as-you-go basis. Currently , the City does not have any outstanding debt supported by discretionary General Fund revenues or assessed tax increments. On August 15, 2023 the City Council received a presentation on financing options, specifically financing the partially funded Fire Station 1 upgrade. The City Council requested that staff return with more information on available financing mechanisms.
DISCUSSION:
Staff have partnered with KNN Public Financing consultant to prepare a presentation for the City Council. Attachment A outlines the presentation materials which will be discussed in further detail at the City Council meeting. The presentation will provide general information on financing mechanisms available to the City as well as look at two specific 2 Fire Services capital i mprovement projects as an example of projects that could be considered for financing.
The first project is the Fire Station 1 upgrade. The project is estimated to cost approximately $10 million and is currently partially funded at $5 million. The project is currently in the design phase and is scheduled to be advertised for construction bids in the summer of 2024. This project was specifically discussed during the August 15 th City Council meeting. The presentation includes a lease revenue bond financing option to fully or partially finance the project to bridge the funding gap. Lease revenue bond financing does not require voter approval.
The second project is the Fire Station 2 project, which anticipates moving the station to a new location. This project is presented as an example of a project that may be considered for financing through the Fiscal Years 2024-26 Financial Plan Development. The need for the Fire Station 2 relocation is caused by the Blosser Ranch development. The Blosser Ranch developmen t is a fully approved 1,492-unit development. Through the project approval process, the City has negotiated the transfer of land at the project site for the Fire Station 2 project. The current Fire Station 2 location provides inadequate access to the Blosser Ranch development. While the land agreement lowers the overall cost of the project, the construction of the Fire Station at the new site is not currently funded. The construction cost is roughly estimated at $11 million. In order to parallel the anticip ated construction of the Blosser Ranch development, the Fire Station 2 project would need to be funded in the Fiscal Year 2024 -26 Financial Plan and begin construction in the next two to three years.
While financing capital improvement projects increases the overall cost of the project over time, financing options are widely used by local governments and provide a valuable option to timely fund a wider range of capital improvement needs than the pay-as-you-go option. Delaying addressing capital improvement needs can also result in higher future construction costs, liability issues, and decreased service levels.
As part of the Fiscal Years 2024 -26 Financial Plan development, staff will evaluate and prioritize capital improvement projects and will develop funding recommendations utilizing existing funding sources, grants, and if directed by the City Council, financing options.
The City maintains a City Council adopted debt policy, which will be followed if the City Council directs staff to pursue financing options.
Alternative(s)
The City Council could direct staff not to pursue further consideration of financing options and instead plan on funding capital improvement projects with available funds and, when feasible, grants. This methodology could result in delays of critical capital improvement projects or reductions in operations.
The City Council could also direct staff to look at alternative revenue-generating options to provide additional revenue to support the City programs and capital improvements.
Additional revenue could be generated by increases in taxes, raising fees, and various 3 infrastructure improvement districts formation. The revenue increases could also be used as a revenue stream to finance capital improvements. Staff can develop further analysis with the Fiscal Years 2024-26 Financial Plan development.
If the City Council directs staff not to pursue financing options, the Fire Station 1 project would require funding of $5 million from existing sources or the project will need to be paused. Staff have worked wit h the City’s grant consultant and there are currently no grants that the City could pursue to fund this need. The $5 million could be diverted by delaying other previously approved capital improvement projects or from reserves.
Utilizing reserves for this purpose would significantly decrease the available unrestricted fund balance. If the City Council directs staff to pursue this option, staff will return with specific funding recommendations at a future date.
Fiscal Considerations
Staff seeks general City Council direction and there are no immediate fiscal impacts.
Impact to the Community
The City’s Capital Improvement Program is essential to maintaining and providing for the community infrastructure.
ATTACHMENTS
Attachment A – Financing Options Overview Presentation