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Citrus Heights Messenger

City Council Approves $12 Million Line of Credit

Dec 22, 2018 12:00AM ● By Story by Shaunna Boyd

CITRUS HEIGHTS, CA (MPG) - When Citrus Heights first incorporated as a city in 1977 they had to make a Revenue Neutrality agreement with Sacramento County that allows the county to keep Citrus Heights property tax revenue for 25 years. Under this agreement, Citrus Heights will receive the property taxes starting in January 2023.

The city is now entering the period when their expenditures outweigh incoming revenue, but this is not a surprise. At the time of incorporation, projections showed that this would happen well before the 25-year Revenue Neutrality agreement expired. Current projections suggest a $5 million deficit over the next three years.

Ronda Rivera, Citrus Heights finance director and assistant city manager, presented a budget proposal to the City Council that staff believes will offer the flexibility needed to meet the city’s needs on operations and capital improvements. The proposal addresses the city’s need for funding in order to maintain vital projects, such as the Auburn Blvd. expansion, which is an estimated $20 million project. In order to ensure funding from state and federal agencies, the city will need to show they have $4.5 million of matching funds by 2020.

Because the city does not want to incur long-term debt, staff looked at short-term solutions. The city asked the Sacramento County to extend the period of Revenue Neutrality beyond the 25-year agreement while allowing the city to collect half of the property taxes, but the county was not willing to modify the agreement.

The proposed budget solution is a revolving line of credit with Western Alliance Bank for $12 million. The Community Center building would be pledged as collateral for the line of credit, with the debt scheduled to be paid off by September 2024—less than two years after the end of Revenue Neutrality. The city would also have the ability to begin repayment as early as March 2021. Without this line of credit, the city is projected to have only $350,000 in the general fund reserve by fiscal year 2021-2022. If the Council adopts this proposal, the new model predicts $2.9 million in reserves.

After the presentation, Mayor Steve Miller opened the floor to public comments from local residents. David Warren expressed concern that the line of credit will be used to fund operating costs for the city instead of being used exclusively for capital improvements. He worries that a recession could reduce property tax revenue and then the debt wouldn’t be repaid on time.

Bill Van Duken said it was well-known that the cost of incorporating as a city would eventually lead to this point of revenue shortfall. “Through frugal management,” said Van Duken, “we’ve been able to kick the can down the road. But we knew this day was coming and I applaud the city for looking at all options.” He urged the Council to adopt the proposal.

Kelly Severin said she appreciates the hard work of keeping the city debt free and thinks the city should remain debt free: “We want all these things, but sometimes we need to wait. Maybe we can’t do the Auburn Blvd. project when we want to.” Severin said it’s more important to stay out of debt and she is opposed to the line of credit.

Kathilynn Carpenter, speaking on of behalf of Sunrise MarketPlace, said it’s very important to continue investing in the city’s business corridors. She stressed the importance of continuing the Auburn Blvd. improvements so the city can bring in revenue from new businesses. Carpenter supports the proposal and sees it as an investment in the city’s financial future.

Vice Mayor Jeannie Bruins and council member Al Fox both said they support the proposal because it allows the city to remain financially sound without imposing long-term debt.

Council member Bret Daniels stated that due to “the 25-year extortion payments to the county, the Council established the general reserve fund knowing someday we’d reach this day when the tax money coming in won’t meet our financial needs.” He said he reluctantly supports the proposal because he thinks it’s the only fair thing to do for the citizens because it’s so important to finish the Auburn Blvd. expansion.

Council member Jeff Slowey said that this proposal is not a typical line of credit, and this is one of the better deals he’s seen because the terms and conditions are in the city’s favor. “We have to have the money to show for Auburn. I’m disappointed we can’t say ‘debt free’ going forward, but we’re keeping all our options open.” Slowey said he reluctantly supports the proposal because the city needs to be able to pursue new economic opportunities.

Mayor Miller concurred with the statements of his fellow council members and called for the vote; the proposal passed unanimously. The city manager got approval to execute the necessary paperwork and the funding became available on November 29, 2018.

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