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Home My WebLink About11- City Administrator .CITY OF SAN BER ARDINO - MEMORANDUM . To RAYMOND D. SCHWEITZER, From WARREN A. KNUDSON CITY ADMINISTRATOR DIRECTOR OF FINANCE Subject FINANCING ALTERNATIVES FOR CITY HALL FURNITURE Date JANUARY 4, 1988 AND FURNISHINGS Approved Date At the meeting of the Mayor and Common Council on December 21, 1987, the matter of the funding for City Hall furniture and furnishings was continued with the direction that alternative financing mechanisms were to be presented (see attached Council Action Correspondence) . As a matter of background, the lease-purchase financing mechanism was approved by the Mayor and Common Council when the bid for the furniture and furnishings was presented and approved. When the lease purchase documents from Pacific Corp Capital were examined by the City Attorney's Office, concerns were noted and passed on to the Mayor and Common Council by the City Attorney. The following funding alternatives have been developed as a result of Council direction and discussions between the City Administrator, City Treasurer, City Attorney's Office, and the Finance Director. The final delivery of the furniture and furnishings is scheduled for February 15, and payment is due to the vendor 10 days following that date. FUNDING ALTERNATIVES 1. Loan From Redevelopment Agency The attached response (Attachment 1) from the Redevelopment Agency indicates that the Redevelopment Agency would need to borrow the funds and, in turn, lend them to the City. 2. Bank Loan The City Treasurer has contacted the First Interstate Bank to ascertain the availability and rate of a bank loan. The stated rate is 8 3/4 percent. The rate is variable quarterly and is based upon the prime rate. The necessary motion to initiate this process would be: Direct the City Treasurer to obtain a loan from the First Interstate Bank for City Hall furniture and furnishings and to authorize the City Treasurer to execute the related documents. i a 3 r 1 ` ;`GGRE S kt MEMORANDUM JANUARY 4, 1988 PAGE - 2 3. Inter-Fund Loan An inter-fund loan from the Sewer Line Construction Fund could be authorized. The cash balance in this fund would support this trans- action and an interest rate could be assigned to equate to the current rate of return on City investments. The current rate is approximately 8.5 percent. The City Attorney's Office has been made aware of the possibility of such a transaction and has given verbal concurrence. The necessary motion to authorize this action would be: Authorize a loan from the Sewer Line Construction Fund to the Public Facilities Renovation Fund in an amount to fully fund the City Hall furniture and furnishings (approximately $350,000) . The term of the loan shall be 3 years and the rate of interest shall be established by the City Treasurer to coincide with the rate of return on City investments. 4. Lease Purchase Another possibility for the financing remains the lease purchase agree- ment. The City Attorney's Office has expressed concern over this mechanism mainly due to recent changes in Federal Tax Law dealing with such transactions. John Wilson of the City Attorney's Office has been in contact (free consultation) with Sabo and Dietsch, the City's Bond Counsel, and was able to notify me by telephone on Thursday, December 31, of the results of his Thursday afternoon conversation with Mr. Sabo's Office. Hopefully Mr. Wilson will be available on January 4 to answer questions of the Mayor and Common Council. To roughly paraphrase Mr. Wilson's comments, Mr. Sabo's office found the lease purchase documents presented by Pacific Corp Capital to be representative of those in the industry. Mr. Sabo's office has reviewed many similar documents. Percent changes in Federal Tax Laws make lease purchase agreements impractical for all but small governmental entities. The interest rate quoted by Pacific Corp on Wednesday, December 30, was 7.9%. 4 MEMORANDUM JANUARY 4, 1988 PAGE - 3 Even though the lease-purchase mechanism will not prove to be practical or timely for this transaction, the City has made use of it in its present form many times in the past. Prime examples have been the financing of fire and refuse vehicles. Should this mechanism no longer be available to the City, alternative multi-year capital financing would need to be developed or major equipment requisitions would need to be on a cash basis. This would involve a major charge in budgetary planning. Appropriate City staff should continue to pursue further evaluation of lease-purchase and other capital financing mechanisms. This may necessitate the formal involvement of bond counsel. CONCLUSION If lease-purchasing of the furniture and furnishings is no longer an alternative, the least costly method would be an inter-fund loan from the Sewer Line construction Fund. Inter-fund loans should generally be used only after careful consideration of all other alternatives. WARREN A. KNUDSON DIRECTOR OF FINANCE Attachments cc: Mayor Wilcox vm Aowk No. 11i Jar. 19" REDEVELOPMENT AGENCY MEMORANDUM OF THE CITY OF SAN BERNARDINO, CALIFORNIA DATE December 29, 1987 TO Warren Knudson, Director of Finance FROM Glenda Saul , Executive Director SUBJECT ADM - REQUEST FOR FURNITURE LOAN I am in receipt of your memorandum of Monday, December 28, 1987 inquiring into the availability of Agency funds for the purpose of financing the City' s purchase of furniture. In order for the Agency to make funds available to the City the Agency would have to borrow the funds and then lend them to the City at a like interest rate and borrowing cost. The City itself may be able to borrow the funds directly from the bank and avoid the "middleman" . This would, however, in all likelihood, be a market rate loan. An alternative to consider is a lease revenue bond issue similar to the Tri-City Fire Station financing completed last year. If the City should chose this method of financing I am sure the Commission would be happy to accommodate. I do believe however, that the City may be able to issue these bonds without the use of the Agency as owner and leasor of the property. If you would like to discuss this further, please give me a call . Glenda Saul Executive Director GS:SL:mv:3382G cc: Mayor Glenda Saul Sandy Lowder Chron Barbara Lindseth C I T Y OF S A N B E R N A R D I N O INTEROFFICE MEMORANDUM 8712-118 TO: GLENDA SAUL, EXECUTIVE DIRECTOR, RDA FROM: WARREN A. KNUDSON, DIRECTOR OF FINANCE SUBJECT: LOAN OF RDA FUNDS FOR CITY HALL FURNITURE/FURNISHINGS DATE: DECEMBER 28, 1987 (7302) COPIES: CITY ADMINISTRATOR; MAYOR WILCOX ------------------------------------------------------------- Earlier this year during the planning stages for the City Hall renovation, one of the alternatives for funding the renovation that was proposed by several Council members was a loan from the Redevelopment Agency. The issue has again been raised , this time specifically for the financing of furniture and furnishings . The amount to be financed would be approximately $350 ,000 over a period of 3 years . Please advise me of the availability of RDA funds for this purpose and the interest rate which would be attached to such a loan. Your response will be included in a report on funding alter- natives which was requested to be presented to the Mayor and Common Council at the January 4 , 1988 meeting . Your cooperation to provide this information on this short notice will be appreciated . If you have any questions regarding this request , please contact me . WARREN A. KNUDSON DIRECTOR OF FINANCE vm A } + COUNCIL ACTION CORRESPONDENCE To James F. Penman Subject Lease/Purchase with City Attorney Pacificorp Corporation Date December 22, 1987 Meeting Date December 21, 1987 Agenda Item No. S-9 Action The proposed Resolution authorizing the execution of an agreement with Pacificorp Capital, Inc. , relating to equipment was continued to January 4, 1988, with a request that the Finance Director, City Administrator and City Treasurer come back with alternate financing mechanisms. SC:re cc: City Administrator Finance :O 'SHAUNA CLARK City Treasurer City Clerk