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Home My WebLink AboutR35-Economic Development Agency ECONOMIC DEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDINO FROM: Gary Van Osdel Executive Director OR1G1NA l:UBJECT: PROPOSAL TO PROVIDE LIMITED LOAN GUARANTEE TOT ALLY KIDS, INC. PROJECT A CDBG TO THE DATE: October 7, 2004 Synopsis of Previous Commission/Council/Committee Action(s): On March 16,2004 Redevelopment Committee Members Estrada, Longville and McGinnis considered the Mayor's request for the City/Agency to provide a loan guarantee for the Totally Kids, Inc. Project and unanimously voted to forward this matter to the Community Development Commission for further direction. On April 5, 2004, the Community Development Commission directed staff, upon receipt of the County ECD Loan documents and a formal request for a $1.5 million loan guarantee for the Totally Kids, Inc. Project, to prepare the requisite guarantee documents for subsequent consideration and approval by the Mayor and Common Council. On August 17, 2004, the Redevelopment Committee (Members Estrada and McGinnis present) considered a proposal to provide a $1.5 million CDBG Float Loan for the Totally Kids, Inc. Project and voted to move the matter forward, without recommendation, for consideration by the Mayor and Common Council. On September 7,2004, the Mayor and Common Council tabled a proposal to provide a $1.5 million CDBG Float Loan for the Totally Kids, Inc. Project upon being advised of the City's lack of capacity to provide such a loan and of the inability of _I5?_!~_~~Y-_~\~~~_!~!::_!5?__~~~~~~_~_~_\!l.g!~_::~~~J~!!~~_5?L~~~~!!:_________n____mmmmmmm____________________________m__mmmnmmm__n_________n_mm_m____ Recommended Motion(s): (Mavor and Common Council) MOTION: THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO (I) AUTHORIZE A $1 MILLION LIMITED LOAN GUARANTY FROM THE CITY'S COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM (CDBG) ($250,000 PER YEAR FOR 4 YEARS, COMMENCING 2005/2006), AND (2) AUTHORIZE THE PREPARATION FOR CONSIDERATION BY THE MAYOR AND COMMON COUNCIL A LIMITED GUARANTY AGREEMENT AND CORRESPONDING DOCUMENTS, BY AND BETWEEN GROW SAN BERNARDINO FUND, TOTALLY KIDS, INC., AND THE CITY - TOTALLY KIDS, INC. PEDIATRIC SUBACUTE CARE FACILITY. Contact Person(s): Gary Van Osdel Phone: (909) 663-1044 Project Area(s) Supporting Data Attached: FUNDING REQUIREMENTS IVDA Ward(s): Third o Staff Report 0 Resolution(s) Amount: $ I Million Source: CDBG SIGNATURE: Budget Authority: See Fiscal Impact Maggie Pacheco, Deputy Director Commission/Council Notes: ~--_._-------------------------------------------------------------------------.------------------------------------------------------------------------------------------------------------------------------------ P:\Agendas\Comm Dev Commission\CDC 2004\04-1 ]-01 TKI COBG Limited Loan Guarantee _doc COMMISSION MEETING AGENDA Meeting Date: 11/01/2004 Agenda Item Number: ~ 35 ECONOMIC DEVELOPMENT AGENCY STAFF REPORT Proposal to Provide a CDBG Limited Loan Guarantee to the Totallv Kids Inc. Proiect BACKGROUND: At the Council Meeting of September 7, 2004, in considering the possibility of providing a HUD CDBG Float Loan for the Totally Kids, Inc. Project (the "Project"), it was noted that the City had zero ($0.00) Float Loan capacity because unlike years prior to 1999, virtually 100% of the annual CDBG funds are spent in the year received, and that in order to fund a CDBG Float Loan, the City would be required to delay the timely receipt of at least $1.5 million of 2004-05 CDBG funds (presently earmarked for various City functions: e.g., fire truck leases, code compliance and demolition) until on or after July 1 sl of the next fiscal year, thereby creating the necessary Float Loan capacity. At that time, the Mayor and Council were advised of the inability of Totally Kids, Inc., to meet the "A" rated letter of credit requirements of a Float Loan and that the City Administrator and City Finance Director had indicated the City General Fund budget required that all the CDBG funds designated for City projects/activities be paid to the City by June 30 of the fiscal year. Thus, it was determined that a Float Loan for the Project was not feasible. Prior to requesting that the matter be tabled, Staff advised the Council that efforts would be made to assist Totally Kids, Inc. in obtaining the necessary $1 to $2 million loan needed for the Project through the Grow San Bernardino Fund and that Staff would return to the Council if some form of CDBG guarantee of a Grow San Bernardino Fund loan was required. CURRENT ISSUE: Staff has been advised by Scott Rodde, National Development Council consultant, that the Grow San Bernardino Fund will provide a $2 million loan, 25 year term, at prime, plus 2 ~ floating rate, to SVCC Properties, LLC an affiliate of Totally Kids, Inc., (SVCC) to finance, in part, the Project, subject to the City and IVDA providing limited guarantees for the $2 million loan. According to Mr. Rodde's review of the organization, they have been consistently profitable for the last four (4) years, and the managing partners, who have a combined net worth in excess of $25 million, will be providing personal guarantees for the loan. Furthermore, his analysis concludes that SVCC has a very strong operational cash flow and because of this, and amongst other financing factors, he is optimistic that SVCC will pay the loan off prior to the loan term. For this reason, the Grow San Bernardino Fund is requesting that the City and IVDA provide limited guarantees of the $2 million loan needed for the Project. The City's guarantee of the $2 million Grow San Bernardino Fund loan would be limited to $1 million and to payment, only in the event of default, in an amount of $250,000 per year for a total of four (4) years, payable from the City's annual Community Development Block Grant (CDBG). The guarantee would require the appropriation of $250,000 within the City's 2005-2006 CDBG Application to HUD. Subsequent to HUD's approval of the City's 2005/2006 CDBG Application, the funds would be drawn down by the City and placed in a restricted, interest bearing account. Thereafter, absent any default by SVCC, the City's $250,000 would remain in the restricted account for the 25 year term of the loan or until the Fund loan is paid in full, whichever occurs first. In the event of a default, the City's guaranteed payment would be made from the restricted account and, depending on the outstanding balance of the loan, the City would appropriate up to $250,000 in CDBG funds per year for each of the following three (3) years to fulfill its $1 million guarantee obligation. P:\Agendas\Comm Dev Commission\CDC 2004\04-11-01 TKI CDBG Limited Loan Guarantee ,doc COMMISSION MEETING AGENDA Meeting Date: 11/01/2004 Agenda Item Number: R35 . " Economic Development Agency Staff Report TKI CDBG Limited Loan Guarantee Page 2 The Inland Valley Development Agency ("IVDA") will be asked to provide a similar limited guarantee on the balance of the $2 million Grow San Bernardino Fund loan, The IVDA previously approved, in concept, the guarantee of a portion of a loan from the County of San Bernardino for the Project However, the facts and circumstances with respect to the previous approval in concept are now irrelevant Thus, the limited guarantee requested of the IVDA for the proposed Grow San Bernardino Fund loan for the Project, will have to be considered by the IVDA Board of Directors, The first opportunity for the IVDA to consider the modified request for a limited loan guarantee for the Project is at the meeting of the IVDA Board on November 10, 2004, If approved, Staff will return to the Mayor and Common Council with the appropriate implementing agreements and corresponding documents on November 15,2004, ENVIRONMENT AL IMPACT: None, FISCAL IMPACT: The fiscal impact on the City's CDBG funds has been described above, RECOMMENDATION: That the Mayor and Common Council adopt the Motion. P:\Agendas\Comm Dev Commission\CDC 2004\04-11-01 TKI cnBG Limited Loan Guarantee ,doc COMMISSION MEETING AGENDA Meeting Date: 11/01/2004 Agenda Item Number: ~,?5