Item No. 11.
| MEETING DATE: October 5, 2020 |
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| TO: | HONORABLE MAYOR/CHAIR AND COUNCILMEMBERS/DIRECTORS |
| FROM: | JIM SADRO, CITY MANAGER/EXECUTIVE DIRECTOR By: Mel Shannon, Director of Finance |
| SUBJECT: | APPROVE EXTENSION OF PROMISSORY NOTE BETWEEN THE CITY OF LA HABRA AND THE LA HABRA UTILITY AUTHORITY |
RECOMMENDATION:
That the City Council and Utility Authority:
A. Approve modification of terms for the $2 million promissory note between the City of La Habra (City) and the La Habra Utility Authority (Utility Authority) by extending the repayment term of the note from November 1, 2020 to November 1, 2024.
A. Approve modification of terms for the $2 million promissory note between the City of La Habra (City) and the La Habra Utility Authority (Utility Authority) by extending the repayment term of the note from November 1, 2020 to November 1, 2024.
B. Approve and authorize the City Manager/Executive Director to execute a modified and extended promissory note loan agreement between the City and the Utility Authority.
DISCUSSION:
On October 19, 2015, the City Council authorized the City Manager to execute a $2 million promissory note between the City and the Utility Authority in connection with the Civic Center Improvement Project. The promissory note provides for a five-year loan to the City from existing Utility Authority reserves in exchange for repayment of the note and interest at a rate of 1.5 percent per year. The note is set to expire on November 1, 2020. As of June 30, 2020, the promissory note had a remaining principal balance of $1 million and interest owed of $113,661.
Due to this year's unanticipated economic downturn resulting from the Coronavirus pandemic, and subsequent impacts on City General Fund revenues and operations, staff recommends that the City Council/Utility Authority approve a modification to the original terms of the promissory note to extend its final maturity to November 1, 2024, while keeping the interest rate set at 1.5 percent.
Due to this year's unanticipated economic downturn resulting from the Coronavirus pandemic, and subsequent impacts on City General Fund revenues and operations, staff recommends that the City Council/Utility Authority approve a modification to the original terms of the promissory note to extend its final maturity to November 1, 2024, while keeping the interest rate set at 1.5 percent.
FISCAL IMPACT/SOURCE OF FUNDING:
Over the past five years the City has repaid $1 million owed from this note, with a principal balance of $1 million remaining outstanding. Additionally, as of 6/30/20, the City owes the Authority $113,661 in accumulated interest on the note. As the Utility Authority has already advanced these funds to the City; there is no new fiscal impact associated with extending the term of the loan; however, the Authority will benefit by earning approximately $37,600 in additional interest earnings payable from the note if the final maturity date is extended. The Utility Authority has sufficient cash liquidity to extend the terms of this loan as they currently have an unrestricted fund balance in excess of $10 million.
GENERAL PLAN RELEVANCE:
ED 9.1 - Balanced Fiscal Practices