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  AGENDA ITEM NO. L.4.       
Meeting Date: 09/21/2021  

SUBJECT:
Consideration of Resolution No. 8259 and Additional Appropriations for the Purchase of 300 East State Street (Management Services/Finance Director Garcia)
MOTION(S):

If the City Council determines that staff’s recommendation is appropriate, the following motions are provided:

I move to approve additional appropriations in the following funds and for the following amounts:
  1. General Fund (101), $14,000,000 from the unassigned fund balance
  2. Water Fund (501), $5,577,569 from the unassigned fund balance, $4,500,000 of which is an interfund loan
  3. Solid Waste Fund (511), $516,844 from the unassigned fund balance
  4. Sewer Fund (521), $405,587 from the unassigned fund balance
AND

I further move to adopt Resolution No. 8259 authorizing an interfund loan from the Water Fund (501) to the General Fund (101) in the amount of $4,500,000 to offset timing differences in cash flow and support the building purchase for a period of time not-to-exceed one year, per the City Council's Interfund Loan Policy.
RECOMMENDATION:

Staff recommend that Council appropriate the funding according to the details included in the motion and adopt Resolution No. 8259  for the interfund loan between the Water and General funds.
 
DISCUSSION:

On June 15, 2021, Council approved a purchase and sale agreement (PSA) with Redlands Community Investment Corporation for the acquisition of Assessor's Parcel Number 0171-132-16-0000 in the amount of $16,000,000.  Once that agreement was approved, staff set to the task of conducting a comprehensive due diligence assessment of the property as well as a space allocation study. Upon completion of the assessment & study and based on the findings thereof, staff recommended and Council concurred that the property was acceptable to the City.

During July 2021, Council approved a PSA with LDC Industrial Realty, LLC for Assessor’s Parcel Nos. 0292-041-08; -38; and -44-0000 for a sale price of $46,050,000.  If the sale is successful, the proceeds  could offset the General Fund's share of the purchase of 300 East State Street. The transaction with LDC Industrial Realty, if successful, is set to close escrow sometime during the first two weeks of October. If the agreement with LDC Industrial Realty is unsuccessful for some reason, there are several backup offers that the Council may consider.

According to the terms of the PSA for 300 East State Street, the close of escrow is now set for September 30, 2021. The full purchase price must be deposited into escrow prior to that date.  Per the fiscal impact discussion of the staff report date June 15, 2021 for this purchase, staff is returning to present to Council its recommendations for funding sources to for the transaction.  The cost of the building purchase would be recorded as follows, if approved by Council:
 
Funding Sources - 300 E. State Street
Fund Description Amount
101 General Fund* $  14,000,000
501 Water Fund  1,077,569
511 Solid Waste Fund 516,844
521 Sewer Fund 405,587
Total   $   16,000,000
*Of the $14 million, $2.8 million is expected to come from the unassigned fund balance and the other $11.2 million from the land sale proceeds identified above for Assessor’s Parcel Nos. 0292-041-08; -38; and -44-0000.

Funding amounts allocated to Enterprise Funds above are based on a square footage estimate that General Fund operations will occupy 87% of floor space and Enterprise Funds will occupy 13%. From there, the proportionate share of the $2,000,000 (representing 13% of the total building purchase) between Water, Solid Waste and Sewer funds is based on the comparative total budgets for each fund.

In consideration of differences in cash flow between the two transactions, Finance staff recommends that an interfund loan be issued from the Water Fund (501) to the General Fund (101) in the amount of $4,500,000. The term of this interfund loan would comply with the requirements of Resolution No. 7354 - Interfund Loan Policy, meaning that it would be made on a short term basis for less than 1 year and will include an interest component that equals the investment earnings the Water fund would have received had the loan not occurred. Resolution No. 8259 outlines these terms.  The table below depicts the cash sources that would be used to deposit funds into escrow; it also reflects the totals requested in the additional appropriation attached to this report.
 
Cash Sources - 300 E. State Street
Fund Description Amount
101 General Fund $   9,500,000
501 Water Fund (1,077,569 + 4,500,000 loan) 5,577,569
511 Solid Waste Fund 516,844
521 Sewer Fund 405,587
Total   $   16,000,000

The ending fund balance at 6/30/2022 for the Water Fund, notwithstanding the expenditures or loan proposed above, is projected at $16.4 million.  The ending fund balance at 6/30/2022 for the General Fund, notwithstanding the expenditures proposed above, is projected at $16.2 million.
 
ALTERNATIVES:

The Council may choose to modify, reject or table this item.
STRATEGIC PLAN:
N/A
SUBMITTED BY:
Danielle Garcia, Management Services/Finance Director

RECOMMENDED BY:
Charles M. Duggan Jr., City Manager

REVIEWED BY:
Daniel J. McHugh, City Attorney
Janice McConnell, Assistant City Manager
  

Fiscal Impact
Fiscal Year: FY 2021
Amount: 16,000,000
Budgeted Y/N: No
Account No.: various
Discussion:
As a result of adopting Resolution No. 8259, the Water Fund will transfer $4,500,000 to the General Fund as an interfund loan to offset timing differences in cash flows in the General Fund. The repayment term will be limited to one-year or less and will either be repaid from land sale proceeds described in the staff report or through a structure borrowing, covered by the reimbursement resolution (No. 8245) adopted by Council on July 20, 2021.  The estimated applicable interest rate that would apply to the interfund loan would be based on LAIF interest earnings, currently 0.26%, or $1,170 for one year.

Additionally, approval of the additional appropriations will increase spending in the following funds by the following amounts for the purpose of funding the property acquisition and interfund loan.
  1. General Fund (101), $14,000,000 from the unassigned fund balance
  2. Water Fund (501), $1,077,569 from the unassigned fund balance and another $4,500,000 as an interfund loan
  3. Solid Waste Fund (511), $516,844 from the unassigned fund balance
  4. Sewer Fund (521), $405,587 from the unassigned fund balance
Attachments
Resolution No. 8259 - Interfund Loan Water to General Fund
Addt'l Appropriation Form -300 E. State St.Addt'l Appropriation Form -300 E. State St.


    

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