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Home My WebLink About _ 4.2(c)--City of Redding General Fund commitment of fund balanceC IT Y OF REMDINO�" AN CITY OF REDDING REPORT TO THE CITY COUNCIL MEETING DATE: February 20, 2024 FROM: Steve Bade, Assistant City ITEM NO. 4.2(c) Manager ***APPROVED BY*** n 6, tee I S, er V12/2024 p n,, C -i ars e shade@cityofredding.org btippin@cityofredding.org SUBJECT: 4.2(c) --Consider establishing a General Fund commitment of fund balance for the Community Development Block Grant Section 108 Guaranteed Loan security. Recommendation Authorize and approve the following actions: (1) Authorize the Director of Finance, or designee, to establish a General Fund commitment of fund balance for $2,458,000 for the Community Development Block Grant Section 108 Guaranteed Loan security for the South City Park Project; (2) Direct the Director of Finance, or designee, to reduce this commitment annually by the Community Development Block Grant or other Community Development Fund principal payments; and (3) Direct the City Manager, or designee to update the reserve policy to reflect the treatment of committed funds. Fiscal Impact The proposed amount of funds approved by City Council (Council) to be borrowed from the United States Department of Housing and Urban Development (HUD) under the Community Development Block Grant (CDBG) Section 108 Loan Guarantee Program (Section 108) is $2,458,000 for the South City Park Project (Project). These funds would remain untouched unless the Federal Government ceases to fund the CDBG program. Since CDBG funds will be used to repay the Section 108 loan, the first annual commitment of CDBG funds received will be paid towards this loan. Annually, other CDBG activities would be funded out of the remainder of the CDBG grant. Alternative Action The Council may choose to not approve staff's recommendation and provide alternate direction to staff. Report to Redding City Council February 15, 2024 Re: 4.2(c) --City of Redding General Fund commitment of fund balance Page 2 Background/Analysis On November 7, 2023, Council Adopted Resolution 2023-108 accepting a Section 108 Program Loan, pledging the City of Redding's (City) general fund ($240,000) as security, and authorized the City Manager to execute a HUD Section 108 contract, note, and any other related documents pertaining to the loan. The General Fund commitment replaces this requirement. Although the City's obligation as borrower to make payments under the Section 1.08 Contract shall be payable first from CDBG funds, the General Fund is pledged as security in support of all obligations of the City as borrower under any notes executed by the City up to the amount of HUD's commitment for Section 108 Loan Guarantee Assistance. Under California law, the Council cannot obligate future revenues without two-thirds of the voters of the public entity. Council can commit current resources through administrative action in order to establish a commitment of current available funds. This commitment will provide only collateral for the Section 108 loan obligation. The risk to the City's General Fund is low as the City has been an entitlement jurisdiction, receiving annual CDBG funding allocations, for more than 40 years. In the last five years, the annual entitlement grant has averaged $737,400. The annual loan payments are estimated to be under $240,000. Once the General Fund commitment of funds balance is approved, the City Manager will execute and return the Section 108 Loan agreement and associated documents back to HUD for signature. The General Fund balance is the difference between total assets, total liabilities and deferred inflows of resources. Whereas, the City's cash reserve is the minimum cash balance maintained. This General Fund commitment is committing available cash, if needed, for the payment of the loan. Since this is unlikely to occur the reserve policy will need to be updated to reflect the treatment of this type of commitment when computing the cash reserve. Environmental Review Applying for and accepting funding is not considered a project under the California Environmental Quality Act. Under the National Environmental Policy Act (NEPA), administrative and management activities such as applying for and accepting funding are considered exempt activities. Site specific environmental studies are in progress for South City Park Redevelopment Project, and a NEPA determination will be made prior to receiving Section 108 loan funds. Council Priority/City Manager Goals • This agenda item is a routine operational item. Attachments Resolution 2023-108 RESOLUTION NO. 2023-108 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF REDDING ACCEPTING A SECTION 108 GUARANTEED LOAN UNDER SECTION 108 OF THE HOUSING AND COMMUNITY DEVELOPMENT ACT OF 1974, AS AMENDED, PLEDGING THE CITY OF REDDING'S GENERAL FUND AS SECURITY, AND AUTHORIZING BARRY TIPPIN, CITY MANAGER, TO EXECUTE A HUD SECTION 108 LOAN GUARANTEE CONTRACT, NOTE, AND RELATED DOCUMENTS CONTAINING THAT PLEDGE WHEREAS, The City of Redding City Council, by Resolution No. 2022-085 authorized the City Manager to execute all necessary documents or contracts as might be required by the U.S. Department of Housing and Urban Development ("HUD") as support of a loan in the amount of an application for a $3,737,000 Section 108 Loan Guarantee for Block 7 Infrastructure Project and Downtown Facade Improvement Program; and WHEREAS, the Block 7 Infrastructure project used American Rescue Plan Act (ARPA) funds instead of Section 108 Loan Guarantee funds as previously contemplated under Resolution No. 2022-085; and the South City Park Renovation project will now use the Section 108 Loan Guarantee proceeds, with an adjusted amount of $2,458,000, for the South City Park Renovation project; and WHEREAS, said resolution is hereby incorporated herein by reference; and WHEREAS, California Government Code sections 37103 and 53060 authorize cities to enter into agreements, including loan agreements, with the United States or any agency or department thereof for any lawful public purpose; and WHEREAS, City of Redding has successfully obtained a commitment in the amount of $2,458,000 from HUD for the Loan Guarantee; and WHEREAS, HUD's guarantee of the Note will be governed by a Contract for Loan Guarantee Assistance under Section 108 between the City and HUD (the "Contract"), in which this Resolution is incorporated herein by reference, and in which the City pledges Community Development Block Grants pursuant to 24 CFR 570.705(b)(2) and City of Redding' General Fund for the repayment thereof: NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Redding as follows: Section 1. The City Council hereby authorizes and directs the City Manager to execute any and all documents necessary to accept the loan guarantee referenced above and any subsequent notes. Section 2. The Note constitutes a general indebtedness of the City and is payable from any money as is lawfully available and authorized or pledged by the City for the payment of principal of and interest on the Note, including but not limited to CDBG block grant funds pledged by the Borrower pursuant to 24 CFR 570.705(b)(2). For as long as the Note is outstanding, the City irrevocably pledges that it shall, in the manner provided by law within the constitutional and statutory limitations provided by law without the assent of the voters, make the prompt payment of principal and interest on the Note as the same shall become due. The obligation of the City as Borrower to make payments under the Contract shall be payable first from CDBG block grant funds pledged by the Borrower pursuant to 24 CFR 570.705(b)(2). Section 3. The City Council hereby irrevocably pledges CDBG block grant funds pledged by the Borrower pursuant to 24 CFR 570.705(b)(2) and the General Fund in support of all obligations of the City as Borrower under any notes executed by the City, up to the amount of HUD's commitment for Section 108 Loan Guarantee Assistance, evidencing the Section 108 guaranteed loan for the City's South City Park Redevelopment Plan pursuant to paragraph 15 of the related Contract for Section 108 Loan Guarantee Assistance between the City and HUD. This pledge shall be enforceable in mandamus against the City. Section 4. The provisions of this resolution are declared to be separate and severable. If a court of competent jurisdiction, all appeals having been exhausted or all appeal periods having run, finds any provision of this resolution to be invalid or unenforceable as to any person or circumstance, such offending provision shall, if feasible, be deemed to be modified to be within the limits of enforceability or validity. However, if the offending provision cannot be so modified, it shall be null and void with respect to the particular person or circumstance, and all other provisions of this resolution in all other respects, and the offending provision with respect to all other persons and all other circumstances, shall remain valid and enforceable. I HEREBY CERTIFY that the foregoing resolution was introduced at a regular meeting of the City Council of the City of Redding on the 7th day of November, 2023, and was duly adopted at said meeting by the following vote: AYES: COUNCIL MEMBERS: Audette, Mezzano, Munns, and Winter NOES: COUNCIL MEMBERS: Dacquisto ABSENT: COUNCIL MEMBERS: None ABSTAIN: COUNCIL MEMBERS: None SHARLENE TIPTON, City Clerk MICHAEL IJACQUISTO, Mayor BA E."eALT, City Xt-forney