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PUBLIC HEARINGS AND OTHER MATTERS 11. Consideration of an agreement with Pleasanton Unified School District for a Revolving Line of Credit in an amount not to exceed $1.2 million Councilmember Sullivan recused himself from participating in the item due to a conflict of interest and left the Council Chamber. City Manager Fialho said the matter has been discussed over the last few months between the School District and City and the focus at the District Liaison Committee which Councilmember Thorne and Vice Mayor Cook-Kallio are members. The agreement is a way for the City to assist in bridging the gap. Fiscal Officer Emily Wagner said the amount of the revolving line of credit is no more than $1.2 million at any one time and would be repaid over a four year period; however, the agreement extends the credit over a period of ten years in order to fully recover advancements. She noted the interest rate is equal to the Bank of America prime rate which is currently at 3.5%, repayment will be allowed without restrictions or penalties. She discussed use of the funds to pay annual lease payments on the District’s outstanding $20 million in COP’s that the District entered into in 2002 and 2003, which is $1.2 million a year. She said advances will be repaid through the school development impact fees collected on homes and commercial properties in the City. Because of the slowdown in the economy and residential development, the District is projecting to only receive $600,000 and they currently have only collected $300,000. City staff met with the District and reviewed cash flow statements on the receipt of Development Impact Fees, and assuming the economy improves by 2013, the District should be able to repay the City soon after the fourth year. There are approximately 2,000 homes remaining to be built in the City prior to reaching build-out, and staff recommends the Council approve the request. Mr. Fialho noted that in a normal year, staff would have directed the funds to a capital project; however, activity has been reduced due to the economy. He said in normal circumstances, the other option would have been to place the money into the temporary recession reserve fund and not use the money to fund the City’s on-going operating expenses. Councilmember Thorne said the City has already made significant cuts in its operating budget, slowed down or postponed a number of capital projects and froze hiring for some positions. He spent time visiting with state representatives who have identified another $8 billion shortfall in revenues. He understands there is a lot of controversy over whether or not the school district has cut the right things out of the budget or the parcel tax is actually necessary. Mr. Fialho agreed and felt things may get worse. He said since 1992/93 local government has transferred money to the State to fund its education obligation, and said $100 million has transferred from the City of Pleasanton’s budget to the State to help fund this obligation as ERAF transfers. And, even with these transfers, the State has still not been able to sustain funding education obligations. If the parcel tax does not pass, the District will need to regroup and determine how to weather the storm. In addition, there is a provision in law that allows the State to borrow again from local government to fund its obligation for education; or Proposition 1A. This would create a two-year impact of $4 million from the City and money has been put aside for this. He believed the City has very conservative budgeting factors, do not use one-time revenues to fund on-going expenses, and these are idle funds that would have been used for capital projects or to further augment temporary recession reserves. In lieu of doing either of these things and knowing City Council Minutes Page 3 of 20 April 21, 2009