At a recent City Council meeting, the subject of the sale of land to the North Peninsula Jewish Campus (NPJC) was discussed. The final documents were studied very diligently by Charlie Bronitsky and he felt confident that the paperwork was satisfactory enough to proceed with the sale. Thus, the Council, in a 4-1 vote, approved the sale.
The final details of that sale called for the City to carry back a $19 million note with a $1 million down payment. The terms are that the NPJC would pay the City monthly payments for 25 years totaling around $1.1 million per year with an interest rate of 3.25%. One of the concerns raised by members in the community was the loss of the discount for Foster City residents. We were pleased to hear at the Council meeting from Scott Maltz of the NPJC’s Board of Directors that their Board heard your pleas and have decided to voluntarily continue the discount to Foster City residents.
Whether you agree with the final terms or not, the deal was struck. Sometimes, that is the way negotiations are done, each side gives a little and takes a little. But I digress.
The reason I am writing about this agenda item is because there were additional discussions on what the City should do with the $1.1 million in total annual payments. Since it is a fully amortized loan, the annual payment consists of both interest and principal. In the first year the interest portion would be $459,000 and the balance of the payment goes towards the principal reduction.
The discussion on September 10 was about a Resolution that would require that the mortgage payment be placed in a new account called “Capital Asset Preservation Fund”. The fund will capture all payments, including interest, and use the monies sometime in the future for acquisition of real property or to fund a new or significant capital improvement project. The final definition as to the use of the monies is still to be determined.
There were discussions as to how much, if any, of the interest portion could be used for general fund purposes, rather than reserving it for Capital Assets. The General Fund is the operating account that the City uses to provide services to the community. The first option was that none of the interest should be used for general fund purposes. This would result in the availability of a maximum amount of monies at the end of 25 years. Another option was to use only the equivalent of the lost lease payments from the sale of the property, or about $128,000 for the remainder of this fiscal year and $178,000 starting in fiscal year 2013-2014. The City currently uses lease income from the site as operating revenue in its General Fund. Lease revenue will cease when the sale is final. A third option, which is a bit complicated, would be to use the equivalent of lost lease revenue plus the equivalent of lost in-kind revenue (membership discounts, etc.) or over $246,000 for the rest of this fiscal year and over $338,000 annually thereafter. The final option, which I favored, was to use the entire interest portion for General Fund purposes. That amount in the first year would be $459,000, but that amount would decrease annually as the interest payments go down.
One of my goals was to use my financial experience to explore and locate additional sources of revenue so that the structural deficit gap could be cured. Each year that gap is getting smaller and smaller and, I am confident, that in a few years with an already increasing property and sales tax revenue stream, that gap could be closed.
I felt that there was an opportunity to significantly close the budget gap by voting to use the entire interest portion, at least for a couple of years. This would have allowed us time to see the benefits of our forthcoming plans for economic development and other potential revenue sources or other expenditure reductions such that the General Fund would no longer require those revenues. I was the lone dissenter for the resolution which called for a modest $205,000 to be transferred to the general fund from the interest portion of the mortgage payment. Additionally, that transfer was for only three years.
The final vote for this resolution will be held at the next City Council meeting on Monday, September 24th. The meeting will start at 6:30 so if you have any strong feelings one way or another, please make an attempt to attend so your voices could be heard. In the meantime, if you would like to discuss your thoughts with me prior to the meeting please call me at 286-3501 or email me at email@example.com.
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