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TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
1. Provide any additional direction to Staff and the Finance Advisory Committee regarding the City Council assigned task of studying alternative sources of revenue and funding, including the investigation of borrowing and debt financing.
BACKGROUND AND DISCUSSION:
On April 29, 2006, the Draft 2006 Five-Year Financial Model was presented to the City Council with the following recommendation from the FAC:
- Fund the additional $2.3 million of storm drain projects recommended for FY06-07 using General Fund reserves;
Alternative Sources of Revenue and Funding Project
During the Budget Policy Workshop on April 29, 2006, the City Council directed Staff and the Finance Advisory Committee (FAC) to study alternative sources of revenue and funding that may be available to the City to fund infrastructure improvements. Staff and the FAC will be prepared to present the study’s findings to the City Council prior to the start of the FY07-08 Budget process.
Based on a review of the attached minutes relating to this assignment from the April 29, 2006 Budget Policy Workshop, it is Staff’s understanding that an examination of program expenditures is not a part of this assignment. Program expenditures are assessed by the City Council during the Budget Policy Workshop(s) that it conducts at the beginning of its annual budget process. The City Council continues its review of program expenditures through subsequent budget workshops leading to its adoption of the Budget at its annual Public Hearing. Staff provides analyses of program expenditures to assist the City Council in the budget policy decision-making process.
Prior to this assignment, Staff has researched and continues to monitor grant and low cost financing opportunities available to the City. On June 7, 2006, the State Water Resources Control Board approved Staff’s application to include the McCarrell Canyon interim drainage project on the 2006-07 State Revolving Fund Program Project Priority List. The list includes projects from many agencies in California totaling $11.2 billion; however, funding for the low-interest loan program is less than $300 million. In addition, the list is mostly comprised of wastewater projects, which receive priority. Staff has noted that water and wastewater projects in communities with low median incomes receive priority in many grant or low-cost financing opportunities in California. Staff believes that most any significant additional revenue sources will require a vote of property owners or registered voters. Additionally, the City would most likely be required to pledge a dedicated revenue source, such as the Storm Drain User Fee, to secure any type of financing. Finance staff, Fieldman & Rolapp, the City’s Financial Advisor, and the FAC do not believe that it is prudent to rely on the potential tax revenue from the proposed Terranea Resort Project to finance the City’s infrastructure needs, at least until the Resort is operational and a sufficient tax revenue stream is realized. The developer of Terranea is projecting an opening date in late 2008, which Staff believes to be optimistic.
Financial Analysis Regarding the Fiscal Impact of the Potential Repeal of the Storm Drain User Fee
On July 19, 2006, a group of residents submitted a petition to repeal the City’s Storm Drain User Fee. At the September 5, 2006 City Council Meeting, the City Clerk expects to present the results of the validation of the petition. If the petition is found to be valid, a repeal measure will be placed on the November 2007 general election ballot. Staff recommends that the City Council task the Infrastructure Financing Team with analyzing the fiscal impact of repealing the Fee on the City (the “Financial Analysis”) to coincide with the FY07-08 User Fee Rate Review to be conducted by the Finance Advisory Committee prior to the Public Hearing that will be conducted before the City Council in June 2007. Staff believes the Analysis would be presented to the FAC during Spring 2007. Staff feels this timeline is warranted so that the Analysis would:
- Include recommendations of the FAC resulting from the Alternative Sources of Revenue and Funding project;
Staff and the FAC are at the early stages of the Alternative Sources of Revenue and Funding project and the Pension & Post-Retirement Health Care project. Both projects are complicated, intensive and will require sufficient time to complete. Beginning the Financial Analysis prior to completion of the pending projects may impair Staff’s performance during any of the three projects.