MEETING DATE:
MAY 13, 2025
SUBJECT:
Title
RESOLUTION NO. 2025-9433 - APPROPRIATION OF FY 2024-25 GENERAL FUND ONE-TIME REVENUES PURSUANT TO THE FISCAL MANAGEMENT POLICY
Body
Recommendation
Recommendation
ADOPT a resolution to approve appropriation of FY 2024-25 General Fund one-time revenues as recommended pursuant to the Fiscal Management Policy.
Body
Board or Commission Action
Not applicable
Relevant Council Strategic Theme
Quality of Life
Planning for the Future
Good Governance
Relevant Department Goal
Not applicable
Executive Summary
In 2019, the City entered into several purchase/sale agreements and construction loan/funding agreements with Lab Holdings, LLC (borrower), also known as AOA San Marcos for the creation of a mixed-used development on Grand Ave near Linda Vista parallel to the 78 freeway. The funding agreements were modified January 28, 2025 via the Agreement Regarding Modification of Loan Agreements, including repayment of the purchase loan $6.2M principal balance and associated interest which resulted in one-time unanticipated General Fund revenue. Per Policy Statement Number 3 of the Fiscal Management Policy, all significant one-time revenues resulting from one-time items such as real estate transactions, legal or dispute settlements, unanticipated reimbursements or other unanticipated revenue receipts not contemplated in the current fiscal year budget will automatically be allocated to the three rehabilitation/replacement funds. The City Manager may, based on specific project needs at a specific time, recommend an alternate allocation of funds and will bring that recommendation forward to the City Council for approval.
In January 2025, the City purchased property as the future site of Fire Station 5. The construction and related costs of Fire Station 5 are anticipated to exceed $25M and would present a significant challenge to fully fund with other applicable funding sources such as Measure Q funds, general funds, Public Facility Fee funds, and other eligible sources. In order to facilitate the construction of Fire Station 5 and in lieu of borrowing money at the high current market rate of 6% to 7%, City staff is recommending the use of one-time general fund revenue to be appropriated to a future Fire Station 5 Capital Improvement Program (CIP) project.
Discussion
In 2019, the City entered into several agreements regarding the purchase/sale of parcels owned by the City at the time (Agreement 6110), as well as construction loan/funding of the land (Agreement 6113), with Lab Holdings, LLC (borrower), also known as AOA San Marcos for the creation of a mixed-used development on Grand Ave near Linda Vista parallel to the 78 freeway. The agreements were modified January 28, 2025, which resulted in the repayment of the $6.2M principal balance and associated interest relating to the land purchase loan, which is classified as one-time general fund revenue. Per the City’s Fiscal Management Policy, the City Manager may, based on specific project needs at a specific time, recommend an alternate allocation of funds and will bring that recommendation forward to the City Council for approval.
Per the Fiscal Management Policy, the $6.2M principal balance represents a significant one-time revenue source which would be transferred to the three infrastructure rehabilitation/replacement funds noted above, provided that the general fund reserves meets the 40% reserve level per the City’s General Fund Reserve Policy 2012-04. After an analysis of the three infrastructure rehabilitation/replacement funds, as well as an analysis of the general fund reserve levels projected for FY 2025-26, staff has determined that they do not present a higher need at this time and are anticipated to remain sufficient, per their respective City policies.
While precise estimates are unknown at this time, construction costs of Fire Station 5 are expected to exceed $25 million. Alternative means of funding the Station 5 construction have also been analyzed. Staff reviewed current market costs associated with borrowing funds in the same amount as a basis of comparison. Average construction loan interest rates for a 10-year period is 6.25%, which would add an additional $2.7M in interest expenses to the construction costs of Fire Station 5.
Therefore, staff is recommending the appropriation of the one-time revenues to the Capital Improvement Program budget for the future Fire Station 5 construction project as it represents the best and highest use of the funds and maintains the City’s commitment to fiscal responsibility and forward planning. The proposed resolution would ensure the City incurs no unnecessary external interest costs associated with borrowing the funds in the future, thereby ensuring Fire Station 5 is constructed at the lowest actual financial cost to the public. At the same time, appropriating significant unanticipated one-time revenue will also minimize the anticipated funding need to be filled by other future funding sources which would, in-turn, limit availability of those funds for other eligible City projects. Limiting the anticipated need of these funding sources therefore also ensures Fire Station 5 construction is completed with the lowest possible opportunity costs to the City as well.
Environmental Review
Appropriation of funds noted above does not constitute a “project” as defined by Public Resources Section 21065, and is exempt from CEQA or other environmental review pursuant to CEQA Guidelines section 15061(b)(3).
Fiscal Impact
One-time revenues received as a result of the loan repayment in FY 2024-25 totaling $6.2M in principal and associated interest would be appropriated to the Capital Improvement Program Budget in a future CIP for the construction of Fire Station 5.
Attachment(s)
Resolution No. 2025-XXXX
Prepared by: Janet Brotherton, Budget and Analysis Manager
Submitted by: Janet Brotherton, Budget and Analysis Manager
Reviewed by: Donna Apar, Finance Director
Approved by: Michelle Bender, City Manager