Approve a Loan Agreement with the Yolo Fire Protection District in an amount not-to-exceed $500,000 for a term of five years, and authorize the Chief Financial Officer or designee to execute the Loan Agreement. (No general fund impact) (Rinde)

The County has periodically provided loans to special districts and agencies within the County where there is a public interest and benefit in offering financing. The borrowing and lending of County funds is governed by the County Policy on Borrowing, Debts and Obligations and provides certain authorities to the County Chief Financial Officer (in role as County Treasurer). The Chief Financial Officer generally has authority when debt amounts do not exceed $500,000, obligations are less than $150,000 per annum and don't result in a significant change in the County's financial health. When these dollar thresholds are exceeded, the Chief Financial Officer would convene a Debt Committee to provide a recommendation to the Board for approval. In this instance, dollar thresholds were not large enough to require convening of the debt committee. However, all borrowing arrangements with other government agencies require approval by the Board of Supervisors. 

The Yolo Fire Protection District ("Yolo FPD") approached the County of Yolo in January 2023 about the possibility of borrowing monies in the amount of $500,000 for a property acquisition for the future expansion or renovation of the Yolo Fire Station. The requested loan is for property acquisition of an adjacent parcel (37693 Washington Street) north of the existing fire station which will allow additional space to meet the district's needs. The Chief Financial Officer met with Yolo Fire at their January 23, 2023 Board of Commissioners meeting. After that meeting, a term sheet was provided that contained what proposed loan terms from the County would be, subject to Board of Supervisors approval. This term sheet allowed the district to consider outside financing options. The district ultimately determined the County's proposed terms to be reasonable and requested preparation of a loan agreement. The Yolo FPD board expressed their interest in February 2023 to move forward with a loan from the County.023. 

The loan proceeds in the amount of $500,000 will be used exclusively by the district for the acquisition and improvement of the property. The acquisition cost was approximately $425,000 and the remaining $75,000 will be used for improvements necessary for district use of the property. The district's offer to acquire the property was accepted in February, 2023 and the District closed on the property in late March, 2023. The proposed loan contains a simple interest rate of 4.50% per annum with payments due quarterly from Yolo FPD to the County. The security for the loan, should a default on the loan occur, is that the Chief Financial Officer may withhold an equivalent amount of property taxes or direct charges to ensure repayment to the County. The District Board of Commissioners is expected to consider the loan agreement at their April 3, 2023 Board meeting. Should the Board not approve to proceed with this financing, the District will be required to finance the completed acquisition of property elsewhere, likely at a significantly higher rate and with added financing expenses. 

If approved, the loan agreement would be funded by the Demeter fund, which currently has an available balance of approximately $5.9 million. The Demeter fund is an endowment fund maintained by the County that accumulates funding each year from the de-allocation of Tobacco Settlement revenues, with the intent of providing the County with an annual stream of revenue beginning in 2043. As such, the Demeter fund does not currently fund any operating expenses, and has been used by the County to make similar loans in the past. Should the Board not proceed with lending, these monies would be invested in the markets to earn a rate of return for the endowment. Any lack of repayment should it occur may jeopardize the endowment strategy, however the County has required security through the revenue of the district to reduce that risk. The most recent loans (in the last five years) from County funds to special districts which have all been repaid include the following: 

Staff from the Department of Financial Services have collaborated with Yolo Fire Protection District on the proposed loan agreement. The Department of Financial Services also informed the County Administrator and District 5 at various stages in loan development.