City Hall

Citrus Heights City Council approves first-ever $12M line of credit

Credit, Citrus Heights
Citrus Heights Councilman Bret Daniels speaks prior to a 5-0 vote to approve a $12 million line of credit for the city. // Image credit: Metro Cable 14

Updated 7:23 a.m., Nov. 18–
Sentinel staff report–  Citrus Heights City Council members on Thursday night unanimously voted to approve a $12 million revolving line of credit, making it the first time the city has ever authorized incurring debt in its 21-year history.

City Manager Christopher Boyd, who in 2016 assured that the city would “never go into debt,” said access to the new line of credit will put the city in a position “to invest in our community for return” and also allow “a nimble and flexible way” to get by until the city receives a long-anticipated boost from property tax revenue in four years. Assistant City Manager Ronda Rivera said the funds will be drawn on for both “unanticipated operating or known operating deficits that we have and capital needs as they come up.”

According to a 10-year projection presented to the council, without the line of credit, the city’s current reserves of $5.3 million were projected to dwindle to about $350,000 by fiscal year 2021-22, before increasing to more than $4 million beginning the following fiscal year when the city begins receiving its property tax revenue. An updated projection, accounting for the line of credit being used, showed reserves only dropping to $2.9 million before rising to almost $5 million the following year.

The city’s share of property taxes is currently about $5.6 million, but as part of a 25-year “revenue neutrality” agreement with Sacramento County, Citrus Heights has reluctantly had to fork those funds over to the county each year — a condition imposed to allow the city to incorporate in 1997. After an unsuccessful attempt to strike a deal with the county to get early access to the funds, the city pursued a line of credit as the most “cost effective” alternative.

The revolving line of credit with Western Alliance Bank is structured as a site lease with the Community Center pledged as collateral and comes with an interest rate of 4.4% on $4.5 million, and 6.09% on the remaining $7.5 million. An interest rate of 0.25% will be charged for any undrawn amount.

“Good faith estimates” included in the council’s Nov. 15 agenda packet state that if funds borrowed are paid in full at the end of the 20-year sublease, the city would pay about $9 million in interest, although that amount will be less if prepayments are made by the city. The city plans to pay any debt off by September of 2024.

The line of credit will enable the city to fund two “big ticket” expenses — purchasing the old Sylvan Middle School property and helping fund the second phase of improvements on Auburn Boulevard, according to Mayor Steve Miller. The city recently announced around $16 million in outside funding is available for the Auburn Boulevard project, which will extend roadway improvements from Rusch Park to the Roseville border, but the city needs to put forward about $4.5 million in matching funds.

The mayor has said the city’s intention with the old Sylvan school property is to buy it from the San Juan Unified School District and then sell it to a private party, in order to “have a full say in what happens there.”

In comments made during the meeting, councilmembers Bret Daniels and Jeff Slowey both said they “reluctantly” were voting for the line of credit, in light of the city’s long tradition of operating without debt. Four members of the public also addressed the council during the meeting to express their general support or opposition to the proposal.

Resident David Warren spoke during public comment and warned that another economic recession could hinder the ability of the city to repay the debt and said the council should specifically limit the use of credit for capital improvements, rather than operating expenses, arguing that “operating expense should never be something you use a line of credit for.”

“If the city borrows money and goes into debt and it has a compensating asset, then the city’s books remain in balance,” said Warren. “If instead we are spending it for operating expenses, the city’s books go out of balance because we will have a debt without a corresponding asset.”

The final wording of the agreement allows for the line of credit to be used for both “operating and capital funding needs.”

Bill Van Duker, sometimes called the city “Godfather” for his role in helping with the incorporation process, also spoke during public comment and told the City Council that it was known “from day one” that there would come a time when the city would reach a “crossover point” before the end of the 25-year agreement with the county, where expenses would exceed revenues. He said if former City Manager Henry Tingle were here today, “we would still be in exactly the same position.”

EDITORIAL: Council should re-watch tribute to ‘Tightwad Tingle’ before $12M vote

Several other council members and the assistant city manager also referenced the “crossover point,” which was initially projected to be reached in 2010, according Councilman Jeff Slowey. However, with frugal management under Tingle’s leadership, the city steered away from debt and amassed $33 million in reserves by 2012 — enabling the city to spend $21 million in reserves on the new city hall in 2016.

That move to purchase the new city hall was criticized by Councilman Bret Daniels, who has frequently voiced his opposition to the city draining its reserves on the new hall.

“We’re having [this] discussion today because of the decision to build this building and spend the general fund reserve to do that,” said Daniels. “If that had not occurred, we wouldn’t be having this meeting tonight. We would have a nice healthy reserve and we would be able to make it over those next five years or so.”

In the end, Daniels said he would “very reluctantly” support the line of credit in order to “return back to taking care of some of our different needs,” primarily referencing roads.

Related: Henry Tingle reflects on 17 years as Citrus Heights city manager

Vice Mayor Jeannie Bruins, who co-chaired the cityhood effort in 1996 and has served on the council since 2002, called the city’s move to incur debt for the first time a “very big paradigm shift” and said “we all hoped that this day would never come.” She said she was supporting the proposal due to its “very limited scope” and the goal “to get debt-free again as soon as we can.”

Councilman Slowey said in comments before the vote that future council members could make different decisions about how the line of credit is spent, noting governmental misuse in funding is common across the country. As he will be retiring from the council in two years, he said voters will need to keep council members “on their toes to make sure that they’re held accountable for how that money is spent.”

“I’m reluctantly going to support this, just because, again, it’s always nice to go everywhere and say your debt free,” said Slowey. “But, I think that fiscal frugality will continue to play on our part so that we will use that money wisely and only when we need to.”

Related: Middleton set to join Miller, Bruins on Citrus Heights City Council

Porsche Middleton, who won election to the City Council on Nov. 6 did not vote on the matter, as she will not officially replace Councilman Al Fox on the council until next month. Both Fox and Mayor Miller supported the $12 million line of credit.

Two other members of the public also spoke during the meeting, Sunrise MarketPlace Executive Director Kathilynn Carpenter and resident Kelly Severin. Carpenter focused her comments in support of the city investing in capital projects on Auburn Boulevard and Sylvan Corners, while Severin cautioned about taking on debt and said the city would be better off continuing its “pay-as-you-go” approach to projects, even if it would mean waiting four years for the city to receive its property tax revenue.

Funding from the line of credit is expected to be available by the end of this month, on Nov. 29, according to the city manager’s office.

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