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HomeMy WebLinkAbout _ 4.10(a)--Forgive Loan from REU to General Fund for Soccer Park Turf CITY OF REDDING REPORT TO THE CITY COUNCIL Recommendation Approve forgiveness of the Redding Electric Utility Soccer Park turf replacement loan of $3,206,743, including accrued interest, thereby directing removal of interfund receivable and payable respectively for accounting recognition as directed during the February 16, 2023, City Council Biennial Budget Workshop. Fiscal Impact Currently, the City of Redding General Fund (General Fund) has a loan obligation of $3,725,184, which includes interest, owed to Redding Electric Utility (REU). By forgiving the portion of the loan associated with the settlement proceeds, the General Fund would realize a reduction of the interfund payable of $3,206,743, which brings the new total owed to $518,441. Additionally, the General Fund would reduce the estimate payment from approximately $400,000 per year to $72,000 per year. REU would receive $72,000 per year instead of the approximately $400,000 per year from the General Fund and the interfund receivable would be removed from the balance sheet. Alternative Action The City Council (Council) could choose to maintain the $3,725,184 loan between REU and the General Fund. This would require the General fund to budget to repay these funds at $400,000 per year over the next eleven years. MEETING DATE: March 7, 2023 ITEM NO. 4.10(a) FROM: ***APPROVED BY*** grobinett@cityofredding.org btippin@cityofredding.org SUBJECT: 4.10(a)--Forgive Loan from REU to General Fund for Soccer Park Turf Greg Robinett, Director of Finance/City Treasurer Report to Redding City Council February 28, 2023 Re: 4.10(a)--Forgive Loan from REU to General Fund for Soccer Park Turf Page 2 Background/Analysis On March 5, 2019, the Council approved a Soccer Park turf replacement loan of $3,621,500 from REU with payments commencing as the General Fund could afford. The final approval with budget resolution approving the transfer from REU to the General Fund was approved by the Council on September 30, 2019. At that time, no payments were scheduled and decisions on the repayment terms were deferred to a future Council’s direction and budget development. During the biennial budget development for Fiscal Year 2021-22 and Fiscal Year 2022-23 the Council directed staff to plan for repayment of the loan beginning in Fiscal Year 2023-24. The annual payment was projected to be approximately $400,000 per year for 8 years. The funds used to issue the loan were mostly the result of settlement litigation proceeds. REU received $3,131,137 on July 12, 2018 as settlement to outstanding litigation regarding wholesale power sales. These funds were not anticipated at that time and were not programmed into the fiscal management plan. During the Biennial Budget Workshop on February 16, 2023, the Council voted to forgive the loan between REU and the General Fund. Since issuance, the loan has accrued annual interest in the amount of $103,684; including interest, the loan balance as of June 30, 2022, was $3,725,184. Staff is recommending reducing the loan to $518,441. This reduction accounts for the proceeds of the settlement and interest associated to the proceeds thereby reducing the loan by $3,206,743. Based on the intent of the Council to forgive the loan, staff performed a recalculation of interest and reduced the principal balance to $490,363. The corrected interest accrual from the date of the loan to June 30, 2022, is $28,078, which results in a total loan of $518,441. The General Fund will receive rent revenues of $6,000 per month from the Shasta Regional Soccer Association. This will provide a source of revenue to make the payments due on the remaining balance of the loan. The $72,000 per year will be used to pay the loan until the loan is paid off. Environmental Review This is not a project defined under the California Environmental Quality Act, and no further action is required. Council Priority/City Manager Goals • Budget and Financial Management – “Achieve balanced and stable 10-year Financial Plans for all funds.” • Communication and Transparency – “Improve the quality of communication with the public and City employees to enhance knowledge and increase transparency to improve public trust.”