To: Honorable Mayor and Members of Town Council
Through: David L. Corliss, Town Manager
From: Trish Muller, CPA, Finance Director
Title
Ordinance Approving a One Million Dollar Line of Credit with FirstBank on Behalf of the Castle Rock Downtown Development Authority and in Conjunction Therewith Approving a Revolving Line of Credit Promissory Note, Sales and Property Tax Pledge Agreement, and Account Pledge Agreement (Second Reading - Approved on First Reading October 20, 2020 by a vote of 6-0)
Body
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Executive Summary
The purpose of this memo is to request approval to renew the revolving line of credit (LOC) with FirstBank on behalf of the Downtown Development Authority (DDA). The proceeds from this line of credit will be used for projects under the DDA’s development plan as approved by Council.
On May 5, 2015, Council approved an Ordinance (Attachment A) to obtain a line of credit to allow for the payment of DDA projects. The provisions for the line of credit are as follows:
• Up to $1,000,000 line of credit
• Variable interest rate, WSJ prime rate + 1 percent
• Interest rate floor of 5.25 percent, ceiling of 7 percent
• No closing fees
• Amount drawn to be paid off within one year
• Downtown Development Authority Tax Increment Financing (TIF) cash account held at FirstBank
• Amount drawn on the line is limited to amount of cash available in the special fund, and any other LOC draws outstanding
• Pledge of property and sales tax TIF
The line of credit expires on December 31, 2020. Staff seeks approval of this Ordinance to renew the line of credit with FirstBank for the DDA special fund.
Creation of the DDA and use of the TIF
The Downtown Development Authority was established in November 2008 via voter approval and created through Ordinance No. 2008-39. As stated in Section 8 of the Ordinance, “The Town may issue debt for the Authority up to $30,000,000 with a maximum repayment cost of $45,000,000 for approved plans of development as a voter approved revenue change. Such debt may be issued for the Authority by the Town for the purpose of paying the costs of creating and implementing any plan of development …” The Ordinance also specifies a maximum net effective interest rate of 7 percent per annum.
In August 2014, the Downtown Development Authority Board held a work session with Town Council to affirm their recommendations to revitalize and redevelop Downtown Castle Rock. This strategic approach included a recommendation by the DDA to activate the TIF mechanism through the Town’s issuance of debt on behalf of the DDA. This debt would provide the leverage needed to jump start the growth and development within the core of Castle Rock.
Council further directed staff to work to implement the proposed Downtown Tax Increment Program at the January 6, 2015 Council meeting and also noted the Downtown TIF program as a strategic priority for long term planning purposes at the January 27, 2015 meeting.
On May 5, 2015, Council approved the initial line of credit and has approved the renewal each subsequent year. The purpose of this memo is to seek Council approval of the Ordinance to renew the line of credit for 2021.
Details of the revolving line of credit
An arrangement between FirstBank and the Town establishes a loan amount that the bank will permit the Town to borrow. This amount would be up to $1,000,000. The Town can draw down on the line of credit at any time, as long it does not exceed the cash balance in the special fund. The amount of 2021 TIF revenue expected to be placed in the special fund is expected to be over $1,200,000. The advantage of a line of credit over an installment loan is that interest is not charged on the part of the line of credit that is unused, and the Town can draw on the line of credit at any time that the Town would need.
Based on the sales tax trending for the DDA TIF and the potential for future sales and property tax TIF, FirstBank has authorized a line of credit to the Town up to $1,000,000 secured by cash on account. The Town would then be able to use the funds for strategic downtown priorities.
Promissory Note (Exhibit 1)
The line of credit can be drawn upon up to one million dollars ($1,000,000) with zero fees for each advance on the line of credit. The amount of the draw is limited to the cash balance in the special fund. The rate on the line of credit would be variable based on the Wall Street Journal Prime Rate plus 1 percent with a rate floor of 5.25 percent and a ceiling of 7 percent. For example, if the WSJ prime rate is 4.25 percent, the interest rate the Town would pay on the drawn upon amount would be 5.25 percent.
The terms specified in the Promissory Note are in accordance with the debt issuance requirements established in Ordinance 2008-39, which created and established the Downtown Development Authority.
Sales and Property Tax Pledge Agreement (Exhibit 2)
This agreement states the Town and DDA are pledging future sales and property tax TIF revenues to pay back the any draw on the LOC.
Once the Town has incurred debt on behalf of the DDA, any TIF generated through property tax is deposited directly into the special fund. Sales tax TIF is required to be deposited into the special fund in order to supplement any amount needed to meet the account pledge requirement. Any additional sales tax TIF deposited into the special fund is done at the discretion of Town Council.
Account Pledge Agreement (Exhibit 3)
This agreement states the Town will keep the special fund cash account at FirstBank. The Town may draw on the line an amount no greater than the cash balance in the special fund.
Budget Considerations
The proceeds from the line of credit with FirstBank and the distribution of the funding will be reflected in the Town’s special fund, the Downtown Development Authority TIF Fund. Future property and sales tax TIF will be deposited into the special fund. However, the amount of sales tax TIF deposited into the fund is at the discretion of Town Council.
Staff Recommendation
Staff recommends that Town Council approve the Ordinance as written.
Proposed Motion
I move to approve the Ordinance as introduced by title, on second reading.
Attachments
Attachment A: Ordinance
Exhibit 1: Promissory Note
Exhibit 2: Sales and Property Tax Pledge Agreement
Exhibit 3: Account Pledge Agreement