• Unfunded TRAN leaves City to borrow from itself: Other options explored

    By Marge Jameson

    Without sufficient reserves, Pacific Grove faces a cash-flow problem. In the long term, property tax revenues will enable the City to meet its financial obligations, but not until November. And the City has bills now, as it does every year.

    Normally, the City applies to a pool of similar communities for a “Tax Revenue Anticipation Note,” or TRAN, which is a short-term loan, funded by selling the note on the open market, and which bridges gaps in cash flow. But this year, the TRANs did not sell on the open market, partly due to California’s reputation for fiscal crisis. While they are expected to sell in about 30 days, Pacific Grove will reach deficit levels by the end of July without interim funding.

    Director of Management and Budget Jim Becklenberg presented options to the City Council at the July 15 meeting, and on a 4-2 vote the Council approved the option for internal borrowing – borrowing from other funds the City has on hand and which are not needed before tax revenue comes in.

    The point may become moot as Becklenberg stated that the TRAN may in fact sell in time to meet financial obligations, but the internal TRAN gives the City options.

    The City Council approved a list of conditions for internal borrowing which will allow Pacific Grove to meet its obligations and add a layer of transparency to the process.

    Conditions include:

    • City Council approval required for all loans
    • Loan term of less than 12 months with loan and repayment taking place within the same fiscal year
    • Fixed loan term (6 months and 10 months, depending on the source of the funds
    • Interest revenue must be sufficient to recover loss of interest to lending fund
    • Any revenue pledged must have a realistic expectation of being received
    • Lending funds must not be needed for operations during the period of the loan
    • No loans may be made from grant funds or other funds enabled by State or federal legislation.

    Loan repayment will come from property taxes that will be received in November 2009 and April 2010. Estimated property tax revenues for FY 2009/10 are estimated at $3,834,544. If the State of California makes a “property tax raid,” the City could lose $451,000 which would potentially not be repaid for three years, leaving $3,383,544 as the primary source to repay the inter-fund loans with interest. Becklenberg feels this is a sufficient buffer.

    Councilmembers Bennett and Garcia voted against the prevailing option.

    Another option available to the city is a loan from the County in the form of  a temporary transfer of County funds which would be repaid by deducting the amount of the loan and interest from property taxes. Such a loan would carry similar costs to the “internal TRAN” but would require the approval of the County Board of supervisors with a resultant delay to the end of August, 2009. The Monterey County treasurer has indicated a willingness to facilitate the loan, but Management and Budget staff preferred the “internal TRAN option” as it provides for a quicker resolution and does not rely on the decision of any outside agency.

    Many other cities are structuring their own “internal TRANs” to resolve their cash-flow problems. Pacific Grove, in fact, has lent money to itself in years past but without appropriate structure, documentation or City Council approval. The issue was uncovered by auditors over the past two years.

    posted to Cedar Street Times on July 18, 2009

    Topics: Current Edition, Front PG News, Marge Ann Jameson


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