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HomeMy WebLinkAboutR33-Economic Development Agency . , ECONOMIC DEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDINO FROM: Gary Van Osdel Executive Director SUBJECT: ORIGINAL PROPOSAL TO INCREASE THE CAPITAL CONTRIBUTION TO THE GROW SAN BERNARDINO FUND BY AN ADDITIONAL $250,000. (TOTALLY KIDS, INC. PROJECT) DATE: November 29,2004 Svnopsis 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 guaranty for the Totally Kids, Inc. Project and unanimously voted to forward this matter to the Community Development Commission for further direction. On AprilS, 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 guaranty for the Totally Kids, Inc. Project, to prepare the requisite guaranty documents for subsequent consideration and approval by the Mayor and Common Council. Synopsis Continued to Next Pal!:e..... Recommended Motion(s): (Community Deyelopment Commission) MOTION THAT THE COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF SAN BERNARDINO APPROVE AND AUTHORIZE THE DEPOSIT OF AN ADDITIONAL $250,000 WITH GROW AMERICA FUND, INC., BY THE REDEVELOPMENT AGENCY FOR CREDIT TO THE GROW SAN BERNARDINO FUND ACCOUNT, SUBJECT TO THE INLAND V ALLEY DEVELOPMENT AGENCY (IVDA) AGREEING TO CONTRIBUTE A LIKE AMOUNT Contact Person(s): Gary Van Osdel Phone: (909) 663-1044 Project Area(s) IVDA Ward(s): 3 Supporting Data Attached: 0 Staff Report 0 Resolution(s) 0 Agreement(s)/Contract(s) 0 Map(s) 0 Letters FUNDING REQUIREMENTS Amount: $ 250,000 Source: Agency Land Sales Proceeds SIGNATURE: See Fiscal Impact Commission/Council Notes: P 'Agcl\das\CUI1l111 lkv C0I11Illi~sioll\CDC 2004\04" 12-06 Totally Kids 111(; Project SR.doc COMMISSION MEETING AGENDA Meeting Date: 12/6/2004 Agenda Item Number: !..33 Economic Development Agency Staff Report TKI CDBG Limited Loan Guarantee SR December 6, 2004 Svnoosis of Previous Commission/Council/Committee Action(s): 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 Totally Kids, Inc. to secure a single "A" letter of credit. On November 1,2004, the Mayor and Common Council considered the Totally Kids, Inc. proposal, and after the discussion failed to approve the recommended action. Staff was requested to return with the proposal for reconsideration at the Council Meeting of November 15,2004. On November 15, 2004, the Mayor and Common Council once again considered the Totally Kids, Inc., proposal and voted to refer the Agenda item regarding Totally Kids, Inc., to the Community Development commission to be considered on the next available agenda for such action as may be deemed appropriate. P:\Agelldas\Comm Dev Commission\CDC 2004\04-12-06 Totally Kids Inc. Project SR. doc COMMISSION MEETING AGENDA Meeting Date: 12/6/2004 Agenda Item Number: ..&.33- ECONOMIC DEVELOPMENT AGENCY STAFF REPORT PROPOSAL TO INCREASE THE CAPITAL CONTRIBUTION TO THE GROW SAN BERNARDINO FUND BY AN ADDITIONAL $250,000. (TOTALLY KIDS, INC. PROJECT) BACKGROUND: Totally Kids, Inc. proposes to expand operations at their 1720 Mountain View site through development of 3 new additional buildings totaling approximately 20,000 square feet, which will include 30 new beds for the pediatric sub-acute care facility, a 90-unit expansion for the Kid Ship Medical Day Care facility, and educational offices (the "Project"). The Project is estimated to cost $13.2 million and is projected to create 150 new employment opportunities. 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 1st 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 that the City General Fund budget required all the CDBG funds designated for City projects/activities be paid to the City by June 30 of each 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 $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 guaranty of a Grow San Bernardino Fund loan was required. Subsequently, staff was advised by Scott Rodde, National Development Council consultant to the City/Agency, that the Grow San Bernardino Fund would provide a $2 million loan, 25-year term, at prime, plus 2 ~ points on a floating rate basis, to SYCC Properties, LLC, an affiliate of Totally Kids, Inc. (SYCC), to finance, in part, the $13.2 million Project. Commission Members may recall that the Grow San Bernardino Fund was created pursuant to a Capital Grant Participation Agreement dated November 1, 1999, between the Redevelopment Agency and Grow America Fund, Inc., in order to increase the Agency's lending capacity for small businesses and to remove lending decision making from political influences. Grow America Fund, Inc. is authorized by the Small Business Administration ("SBA") as a lending institution and recognized by the US Treasury as a Community Development Financial Institution. The Grow America Fund is capitalized with equity contributions from its client communities. All capital earmarked for lending in a particular client community such as San Bernardino, is undertaken in the community's name, i.e., Grow San Bernardino Fund. Through the SBA 7 (a) secondary market, the Grow America Fund is able to multiply the lending capacity of the Grow San Bernardino Fund four fold. The Agency's initial equity contribution of $200,000 was made from CDBG funds. Subsequent contributions totaling $550,000 were taken from land sales proceeds. To date, the Grow San Bernardino Fund has approved loans to local businesses totaling $2,877,000. P:\Agendas\Comm Dev Commission\COC 2004\04-12-06 Totally Kids Inc. Project SR,doc COMMISSION MEETING AGENDA Meeting Date: 12/6/2004 Agenda Item Number: /{a3_ Economic Development Agency Staff Report TKI CDBG Limited Loan Guarantee SR Page Number 2 Based on his review of SVCC and the proposed transaction on behalf of the Grow San Bernardino Fund, Mr. Rodde concluded that the financing structure for the proposed public/private partnership is such that all parties would be making reasonable contributions to fund the $13.2 million Project. Additionally, Mr. Rodde determined that the Grow San Bernardino Fund loan would require some form of limited guaranty from the City or Redevelopment Agency, in as much as the loan, ifmade, could only be secured by a 2nd trust deed subordinate to a senior $7.3 million 151 trust deed. Thus, at the Council Meeting of November 1,2004, the Common Council was presented with a proposed City guaranty of the $2 million Grow San Bernardino Fund loan, 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). Under the terms of the proposal, the City would have been required to appropriate the first $250,000 within the City's 2005-2006 CDBG Application to HUD, which would be held in a restricted, interest bearing account with the Grow San Bernardino Fund. Thereafter, for a period of time not to exceed three additional fiscal years the City would have to make similar appropriations, but only upon default. After due consideration by the Council, the proposed loan guaranty failed to receive the support of a majority of the Council Members present. At that time, staff was requested to bring the item back for further consideration at the Council Meeting of November 15,2004. Upon reconsideration of the proposed guaranty at the Council Meeting of November 15, 2004, Staff advised the Mayor and Common Council that word had been received from HUD that a written commitment for a $7.5 million Section 108 Loan would be forthcoming to the City from HUD and that the previously authorized annual payment of approximately $500,000 from the City's annual CDBG allocation would impede the City's ability to fund the $250,000 loan guaranty. Note: The Council had previously authorized Staff to seek approval of a $10 million HUD Section 108 loan and had pledged $500,000 from the annual CDBG allocation to amortize the debt. The Section 108 Loan proceeds are to be used to facilitate development of the Mercado Santa Fe and Arden/Guthrie areas. Based on this information the Council voted to refer the Agenda Item regarding Totally Kids, Inc., to the Community Development Commission. CURRENT ISSUE In response to the recent controversies that have arisen both at the Council and in the community over the proposed Limited Guaranty of the City for the Totally Kids Project, Agency staff has engaged in further discussions with Mr. Rodde regarding possible methods to further limit or eliminate the need for Limited Guaranties for the Project by either the Agency or the IVDA. Based on these discussions, Mr. Rodde agreed to submit the following proposal to the Grow America Fund senior staff committee. 1. Subject to obtaining the SBA loan guaranty commitment for the Totally Kids Project, both the Agency and the IVDA would be required to each contribute $250,000 in cash to the Grow San Bernardino Fund prior to the loan closing; this combined $500,000 amount would be considered to be an additional investment under the existing Capital Grant Participation Agreement between the Agency and Grow America Fund, Inc. The actual SBA loan would be funded by the Grow America Fund utilizing their commercial bank line of credit plus the $500,000 capital contribution. P:\Agendas\Comm Dev Commission\COC 2004\04-12-06 Totally Kids Inc. Project SR.doc COMMISSION MEETING AGENDA Meeting Date: 12/6/2004 Agenda Item Number: ~13 Economic Development Agency Staff Report TKI CDBG Limited Loan Guarantee SR Page Number 3 2. The $500,000 investment would be held internally by the Grow San Bernardino Fund as an additional deposit of funds in the manner provided for in the existing Capital Grant Participation Agreement. Such capital contribution is in lieu of any other Agency and IVDA guaranty that was previously discussed. 3. The SBA guaranty would be in an amount equal to 75% of the loan, which would be $1,500,000 of the initial loan balance of $2,000,000; the remaining $500,000 amount of this loan would be the obligation of the Grow San Bernardino Fund to be funded through the capital contribution described above. 4. The personal guaranties of the principals of Totally Kids would be in favor of the SBA and the Grow San Bernardino Fund, and not to the Agency or IVDA. The Agency and IVDA would not be required to execute any of the documents or loan agreements as a part of this loan transaction. 5. Neither the IVDA nor the EDA would be required to execute any Limited Guaranty Agreement or in any other manner guaranty the $2,000,000 to be made by the Grow San Bernardino Fund. The personal guaranties of the principals of Totally Kids would not be required to be in favor of the Agency or IVDA, and therefore, the Agency and IVDA would have no responsibility for the collection efforts on any personal guaranties in the event of a default. In order to move the Totally Kids, Inc., Project forward, the Commission would need to authorize the Redevelopment Agency to provide the additional capital contribution of $250,000 to Grow America Fund, Inc., for credit to the Grow San Bernardino Fund account, subject to the IVDA contributing a like amount. ENVIRONMENTAL IMP ACT: None. FISCAL IMPACT: The fiscal impact on the Agency will be $250,000. Such funds would be taken out of the total proceeds ($735,000) received from the sale of the Agency property at 5055 Hallmark Parkway. RECOMMENDATION: The Community Development Commission adopt the Motion. P:\Agendas\Comm Dev Commission\CDC 2004\04-12-06 Totally Kids Inc_ Project SR. doc COMMISSION MEETING AGENDA Meeting Date: 12/6/2004 Agenda Item Number: ECONOMIC DEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDINO FROM: Gary Van Osdel Executive Director SUBJECT: (CQ)[P))f PROPOSAL TO PROVIDE A CDBG LIMITED LOAN GUARANTEE TO THE TOTALLY KIDS, INC. PROJECT DATE: November 5, 2004 Svnopsis 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. Svnopsis Continued to Next Pal!e..... Recommended Motion(s): (Community Development Commission) MOTION THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO (1) AUTHORIZE A $1 MILLION LIMITED LOAN GUARANTY FROM THE CITY'S COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM (CDBG) ($250,000 COMMENCING 2005/2006 FISCAL YEAR AND THEREAFTER ANNUALLY, FOR 3 FISCAL YEARS, ONLY UPON THE OCCURRENCE OF A DEFAULT), 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 IVDA Phone: (909) 663-1044 3 Project Area(s) Ward(s): Supporting Data Attached: 0" Staff Report 0" Resolution(s) 0 Agreement(s)/Contract(s) 0 Map(s) 0 Letters FUNDING REQUIREMENTS Amount: $ 1 Million Source: CDBG Budget Authority: ---------. See Fiscal Impact In /~/\ i ,J SIGNATURE: ~ ~.. /). r I I~~~ Gary Van sdel, Executive Director Maggii!:checo, Deputy Director Commission/Council Notes: 1~~(ALLr-,"1 /? 4Cj ! I II ~ c,L P:\Agcndas\Comm Dc\' Commission\CDC 2004\04-11-15 TKl CDBG Limited Loan Guarantee SR.doc COMMISSION MEETING AGENDA Meeting Date: l2";t,/e)~ Agenda Item Number: R33 Economic Development Agency Staff Report TKI CDBG Limited Loan Guarantee SR November 15, 2004 -------------------------------------------------------------------------------------------------------------------------- Svnopsis of Previous Commission/Council/Committee Action(s): 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 Totally Kids, Inc. to secure a single "A" letter of credit. On November 1, 2004, the Mayor and Common Council considered the Totally Kids, Inc. proposal, and after the discussion, Staff was requested to return with the proposal for reconsideration. P:\Agcndas\Comm Dev Commission\CDC 2004\04.11.15 TKI COBG Limited Loan Guarantee SR.doc COMMISSION MEETING AGENDA Meeting Date: 11/15/2004 Agenda Item Number: a ECONOMIC DEVELOPMENT AGENCY STAFF REPORT PROPOSAL TO PROVIDE A CDBG LIMITED LOAN GUARANTEE TO THE TOTALLY KIDS INC. PROJECT 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 1st 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 that the City General Fund budget required all the CDBG funds designated for City projects/activities be paid to the City by June 30 of each fiscal year. Thus, it was determined that a Float Loan for the Project was not feasible. For fiscal year 2004-2005, the City was awarded $4,274,000 in CDBG funds and the Mayor and Common Council allocated the funds in the manner shown in the Attachment I. These expenditures represent either long- term financial commitments such as fire truck leases, code enforcement, on-going economic development programs and one time funding like for the EDA "F" Street Parking Lot improvements. 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 $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 to the City/Agency, that the Grow San Bernardino Fund will provide a $2 million loan, 25 year term, at prime, plus 2 Y2 points on a floating rate basis, to SVCC Properties, LLC, an affiliate of Totally Kids, Inc., (SVCC) to finance, in part, the $13.2 million expansion of the Totally Kid's facility. The Totally Kid's business, has in some form or another, been in operation, for at least 30 years, serving children both within the City and the County of San Bernardino, and outside the County. The expansion consists of development of 3 new additional buildings, which includes 30 new beds for the pediatric sub-acute care facility, 90-unit expansion for the Kid Ship Medical Day Care facility, and educational offices with an estimated total of 20,000 square feet ("Project"). The loan is however, subject to the City and IVDA providing limited guarantees of $1 million each ($2 million total). 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. The Totally Kids, Inc., Owners have also invested $1 million of their own cash to purchase the project land consisting of 3.5 acres at 1720 Mt. View Avenue, City of San Bernardino. The financing structure for this public/private partnership is such that all parties are making reasonable contributions to fund the $13.2 million Project as follows: Private Lender: $7.5 million (56.6%), public lenders, $2.5 million (City, IVDA, County)(l8.9%); and new market tax credit private equity investors P:\Agcndas\Comm Dcv Commission\CDC 2004\04-11-15 TKl CDSG limited Loan Guarantee SR.doc COMMISSION MEETING AGENDA Meeting Date: 11/15/2004 Agenda Item Number: R!J.L Economic Development Agency Staff Report TKI CDBG Limited Loan Guarantee SR November 15, 2004 Page Number 2 of $3.2 million (24.5%). Although the Owners have additional back-up resources as stated above, in the form of cash, notes receivables and real estate equity, it would not be prudent for them to invest more of their funds into the Project at this time. This is because they must maintain sufficient liquidity to back-stop short-term cash flow swings in the operations of the Project and other related businesses. Finally, 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 repay the loan prior to the 25-year 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 Project is also expected to add an additional 150 jobs to the existing jobs of 275 and will provide nurses an opportunity to train in a unique pediatric program. As such, the Project exceeds the mandatory public benefit analysis, that for every $35,000 of CDBG funds that are used in the Project, at least one full-time equivalent, permanent job is created or retained. 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 timing of the payments under the guarantee require the appropriation of the first $250,000 within the City's 2005-2006 CDBG Application to HUD which would be held in a restricted, interest bearing account with the Grow San Bernardino Fund ("Fund"). Thereafter, for a period of time not too exceed three additional fiscal years; the City would have to make similar appropriations, but only upon default. Subsequent to HUD's approval of the City's 2005-2006 CDBG Application, the funds for the initial $250,000 payment would be drawn down by the City and placed in the Fund. Thereafter, absent any default by SVCC, the City's first $250,000 would remain in the Fund for the 25 year term of the loan or until the loan is fully repaid, whichever occurs first. In the event of a default, the City's guaranteed payment would be made from the Fund 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. It should be further noted that the Mayor and Common Council has previously authorized Agency Staff to seek approval of a $10 million HUD Section 108 Loan Guarantee, and has pledged $500,000 from the annual CDBG allocation, for 20 years, for the repayment of said loan which is not noted as a budgeted item in Attachment I. Just recently, Staff learned that a written commitment for $7.5 million would be forthcoming to the City from HUD. This $7.5 million is to facilitate development of the Mercado Santa Fe and Arden Guthrie Retail/Commercial Shopping Center. 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 17, 2004, as an adjourned regular meeting of which the outcome of that meeting is unknown at the time of this writing. If approved, Staff will return to the Mayor and Common Council with the appropriate implementing agreements and corresponding documents on December 6, 2004. ENVIRONMENTAL IMPACT: None. P:\Agendas\Comm Dev Commission\CDC 2004\04-11-15 TKI COBO Limited Loan Guarantee SR.doc COMMISSION MEETING AGENDA Meeting Date: 11/15/2004 Agenda Item Number: fl.JI() Economic Development Agency Staff Report TKI CDBG Limited Loan Guarantee SR November 15,2004 Page Number 3 FISCAL IMPACT: The fiscal impact on the City's CDBG Program will commence in 2005-2006 in the amount of $250,000 as described above. RECOMMENDATION: The Mayor and Common Council adopt the Motion. ) , ,\L-. J ).\t(.J~ ~ I Gary Van Osdel, Executive Director P:\Agendas\Comm Dev Commlssion\CDC 2004\04-11-] 5 TKJ COSG Limited Loan Guarantee SR.doc COMMISSION MEETING AGENDA Meeting Date: 11/15/2004 Agenda Item Number: ..R!:I.L ECONOMIC DEVELOPMENT AGENCY OF THE CITY OF SAN BER.~ARDlNO FROM: Gary Van Osdel Executive Director SCBJECT: PROPOSAL TO PROVIDE LIMITED LOAN GUARA.'HEE TOTALLY KIDS. INC. PROJECT A CDRe TO THE DATE: October 7, 2004 CC((5)~Y Svnopsis 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 S 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 S 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 __I.,?~~-'.~y'.~!~?:.~!!!::.~g__~~~~~!:.~.?~~g!~.::~.::.~~~~~~__().~'.~.~~~!~:__m__.m.____.mm__..__.mm.m__m__.____m__..nmmumn.m..n.m..n...n.n...u......__m..... Recommended "Iotion(s): (Mavor and Common Council) MOTION: THE MAYOR A"-'D 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) AUTHORlZE 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, INe., AND THE CITY. TOT ALL Y KIDS, INe. 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 III Staff Report 0 Resolution( s) Amount: $ I Million Source: CDBG SIGNATURE: Budget Authority: See Fiscal Impact Maggie Pacheco. Deputy Director Commission/Council Notes: (P,N'lh-1K~ II/I/Clj. I=fR:S~ I' / S ON MEETING AGEN Meeting Date: 1/ -I s:- - eY Agenda Item Number: f2- 40 P \Agendas\Comm Ikv Commission\CDC 2004\04.11.0 I TKI COBG Limned Loan Guaranlccdoc E CON 0 M I C D EVE LOP MEN TAG E.N C Y ST AFF 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 I 00% 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 15t 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 HA" 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 Y2 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 1004\04.11-01 TKI CDBG Limited Loan Guarantee ,doc COMMISSION MEETING AGENDA Meeting Date: 11/01/2004 4.opnrlg ftPIn Nllrnhpro Economic Development Agency Staff Report TKI CDBG Limited Loan Guarantee Page 2 The Inland Valley Development Agency ("lVDA") 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 IMP ACT: None. FISCAL IMPACT: The fiscal impact on the City's CDBG funds has been described above. RECOMMENDATION: P\Agendas\Comm Dev Commission\CDC 2004\Q4-11-01 TKf COBG Limiled Loan Guarantee doc COMMISSION MEETING AGENDA Meeting Date: 11/01/2004 A(Jf1nrl~ Itpm Nllmhpro INTEROFFICE MEMORANDUM CITY ATTORNEY'S OFFICE TO: James F. Penman City Attorney FROM: Huston T. Carlyle, k____ Sf. Assistant City Attorn ~/{ 'J DATE: December 2, 2004 RE: Totally Kids, Inc. COPIES: Mayor and Common Council Rachel Clark, City Clerk Fred Wilson, City Administrator Reference is made to the above-indicated subject matter and the proposal by the Economic Development Agency that $250,000 be taken out of the total proceeds ($735,000) received from the sale of the Agency property at 5055 N. Hallmark Parkway and be contributed as an additional investment/capital contribution to the Grow San Bernardino Fund for the purpose of effecting a $2.0 million loan to Totally Kids, Inc. Please be advised that there are no restrictions attached to the $735,000 received from said land sale. This money may be spent as the Mayor and Common Council/Community Development Commission deem appropriate. This includes spending this money on more police officers and/or more firefighters. !:n+n"n", ;n+o Qpt'nr" :\t -Ld ~ Jo,.f C:J, ll(;11 (~~.~ City Clerk/COC See, City of San Bernardino