CITY OF SACRAMENTO 926 J STREET

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1 CITY OF SACRAMENTO 926 J STREET OFFICE OF THE CITY TREASURER CALIFORNIA SUITE 300 SACRAMENTO, CA THOMAS P. FRIERS' TREASURER PH FAX June 15, 1994 F01005TF.MWY City Council Sacramento, California Honorable Members in Session: SUBJECT: Extension Agreement for $10,000,000 Loan between the City and the Sacramento Area Flood Control Agency LOCATION AND COUNCIL DISTRICT: Citywide RECOMMENDATION: This report recommends that the City Council approve the attached resolution authorizing the City Manager to execute an Extension Agreement to May 1, 1995 for the $10,000,000 loan between the City and the Sacramento Area Flood Control Agency ("SAFCA"). CONTACT PERSON: FOR COUNCIL MEETING OF: June 28, 1994 SUMMARY '' ' '' ' ' ''' On May 26, 1994, the SAFCA Board approved a staff recommendation to request that the City extend the $10,000,000 loan to SAFCA from June 30, 1994 for one year and to request that both the City and county consider an additional interim loan to finance the aggressive short-term flood control projects planned for FY 1994/95. SAFCA staff also recommended and the Board approved SAFCA pursuing other financing alternatives in the event both the City and county determine not to lend additional loans for these projects. This report recommends that the City Council authorize the City Manager to: Extend the $10,000,000 SAFCA loan to May 1, 1995, and Amend the repayment agreement with SAFCA to repay the City the $10,000,000

2 and that the City Council in the event SAFCA issues capital improvement or other similar financing prior to May 1, 1995, unless this creates a significant hardship, Defer consideration of additional loans until SAFCA formally requests such action. BACKGROUND INFORMATION In July of 1990 the City loaned $10,000,000 to the Sacramento Area Flood Control Agency (SAFCA) in order to temporarily finance the local portion of the Sacramento Urban Area Levee Restoration Project ("Levee Restoration Project"). The funds came from the City's 1989 Certificates of Participation (COPs) financing and the City's Storm Drainage Fund is fiscally responsible for the loan although it is being reimbursed by SAFCA from their annual 0 & M assessments. The City loan was to be paid back when SAFCA formed a capital assessment district for the regional flood control project and received the proceeds of a bond issue. It was envisioned this would occur prior to November 1, On May 26, 1992 SAFCA requested and the City Council approved an extension of the loan until May 1, On April 19, 1994, the City Council extended the $10,000,000 loan until June 30, 1994 to allow the SAFCA Board additional time to consider financial options. The extension was granted to permit SAFCA to continue levee improvement on the Sacramento and American Rivers while in the process of securing federal government approval for the final flood control project. Congressional approval was expected in October This did not occur. Efforts are underway to obtain Congressional approval of the final flood control project in Until the regional flood control project is approved by Congress, SAFCA cannot estimate its total capital need although it does have the figures for the Local Levee Project around Natomas and for the local projects necessary to provide 100-year protection from the American and Sacramento Rivers for the rest of the region which it proposes to accomplish over the next two years. The debt service for the levee restoration project on the Sacramento River (the reason for the $10 million loan) is being provided through SAFCA's 0 & M assessment (SAFCA's authorizing legislation allows the O&M assessment to be used to create a fund for flood control projects and other obligations such as the loan, but does not provide for using O&M funds for long term debt). In order to achieve its goal of providing 100-year flood protection by 1996, it will be necessary for SAFCA to borrow approximately $47 million (including $10 million for repayment of the City loan) early in SAFCA will request that its parent agencies provide short-term loans to meet this need. In the event such loans are not available, SAFCA will pursue bond anticipation notes. SAFCA proposes to refund the short-term borrowing from proceeds of a 1996 bond sale, the purpose of which will be to fund the local share of the regional flood control project. A request for additional short-term borrowing will be presented to the Council after the summer recess. As an alternative to the above-described short-term borrowing SAFCA could have created a localized assessment district based upon benefit for these projects in and of themselves rather

3 than being part of the final flood control project. However, to have done so would have defeated the basic purpose of providing a regional solution to a regional problem, eg. flood control on the American and Sacramento Rivers. Presently SAFCA along with City and county staff is evaluating the possibility of securing temporary financing through 1996 for the local projects. SAFCA has agreed to pursue including repayment of the City's $10,000,000 note in the temporary financing, which is envisioned to permit SAFCA to accomplish the financing on their own authority without any direct or indirect City/county backup. At this time SAFCA cannot guarantee a temporary financing will be successful. If SAFCA cannot secure a temporary financing, SAFCA could also elect to suspend it local projects until Congress approves the final flood control project. This alternative would be risky and burdensome to the City because 30,000 residents living in South Natomas will be exposed to the current high risk of flooding for a longer period and the development efforts in North Natomas would be negatively impacted. In early 1995 SAFCA should have a clearer understanding of the scope and cost of the final locally-preferred flood control project and therefore be in a better position to obtain temporary or permanent financing. In the opinion of the City Treasurer, it is in the best interest of both the City and SAFCA for the City to grant SAFCA an extension of the $10,000,000 loan until May 1, If SAFCA obtains a capital improvement or temporary financing prior to that date, SAFCA should be required to repay the City's loan unless such repayment causes a significant hardship. SAFCA should be encouraged to obtain temporary financing in order to continue the levee work underway. POLICY CONSIDERATIONS 1. What are the financial considerations to the City and SAFCA emanating from the City's loan with SAFCA which is now due in June 1994? SAFCA presently does not have a funding source to pay the City. A default by SAFCA on the loan might be remedied by abandonment of the local project construction program or by formation of a localized capital assessment district or a localized levy all of which are not in the best interest of SAFCA or the City. Also, a default by SAFCA would have negative consequences in public financing. 2. What are the impacts. if any. of extending the City's loan with SAFCA until either temporary or permanent financing programs can be put in place? In order for SAFCA to approve their FY 1994/95 budget they need an extension of the current loan for the Sacramento levy project which has been completed and they need to identify funding sources for the local projects being undertaken to

4 achieve 100-year flood protection by 1996 which is the next earliest date Congress is expected to consider the final regional flood control project. For public health and safety reasons it is in the best interests of all City of Sacramento residents and particularly those subject to flooding from the American and Sacramento Rivers to have the SAFCA proposed local projects completed pending Congressional approval of the larger regional project. Additionally it is important that this work continues to permit continuation of the North Natomas development plan. It would be appropriate for City Council to extend the June 1994 note with SAFCA until May 1, 1995 with Council intent to have the loan be repaid from either temporary or permanent financing by SAFCA which is not envisioned prior to the first quarter of Appropriate City staff have advised the City Treasurer that so long as SAFCA continues payment on their loan, there is no negative impact until Should the loan not be repaid by then it may be necessary to increase storm drainage rates less than 5% to provide the monies needed for completed capital improvements on the Sacramento River. 3. Should the City require SAFCA to repay the City's $10,000,000 if SAFCA can secure capital financing? City staff believes it is not in SAFCA's best interests to rely upon the City (or county) for financial support. Enabling legislation and the importance of the project to the region favor SAFCA proceeding on its own ability. FINANCIAL CONSIDERATIONS None. M/WBE EFFORTS Not applicable. tfully submitted, Thomas P. Fy City Treasurer Recommendation Approved: jam H. Edgar, City Manager

5 RESOLUTION NO. 4/33 ADOPTED BY THE SACRAMENTO CITY COUNCIL ON DATE OF A RESOLUTION AUTHORIZING THE CITY MANAGER TO EXECUTE AN EXTENSION AGREEMENT TO MAY 1, 1995 FOR THE $10,000,000 LOAN BETWEEN THE CITY OF SACRAMENTO AND THE SACRAMENTO AREA FLOOD CONTROL AGENCY WHEREAS, the City of Sacramento's $10,000,000 loan to the Sacramento Area Flood Control Agency ("SAFCA") is due June 30, 1994, and and WHEREAS, SAFCA has requested that the City consider an extension of the loan, WHEREAS, the City Treasurer has recommended that it is in the City's interest to extend the loan to May 1, 1995, and WHEREAS, the loan does not financially impact the City, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF SACRAMENTO THAT: The City Manager is hereby authorized to execute an extension agreement to May 1, 1995 for the $10,000,000 loan between the City of Sacramento and the Sacramento Area Flood Control Agency. ATTEST: CITY CLERK MAYOR A BY THE CITY COO 3UN OFFICE OF THE CITY CLPA I) FOR CITY CLERK USE ONLY RESOLUTION NO.: DATE ADOPTED: