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Staff is proposing that the City of Pleasanton (as lead agency) apply for a Section 108 loan in the amount of $1.25 million to provide funding for the improvement of the new clinic building acquired by Axis. Under the Section 108 guidelines, a jurisdiction can apply for up to five (5) times its most recent allocation of CDBG funds. The City was recently advised by HUD that its CDBG allocation for FY 2014-15 is $266,266. Hence, staff is proposing that the City apply for a loan in the amount of $1.25 million (which is slightly below our maximum "borrowing capacity"). As described earlier, the total budget for the clinic construction project is approximately $12 million. The primary financing tool will be tax-exempt bonds. The financial analyses and pro forma developed by Axis indicate that the agency can realistically support on-going debt service on $7 million in bond financing. This leaves a funding "gap" of approximately$4 million that Axis proposes to fill through the following means: • A major capital campaign (approximately$1.65 million; in progress) • Foundation grants and other sources ($1+ million; in progress) • The proposed Section 108 loan ($1.25 million) Of the three Tri-Valley jurisdictions, Pleasanton is the only one that is in a position to be the lead agency and primary borrower for a Section 108 loan because the City of Livermore has used its Section 108 capacity on several projects (Sojourner House, Hagemann Ranch, and the Tri-Valley Housing Opportunity Center)and the City of Dublin is not an entitlement agency (i.e., does not receive its HUD funding directly) and therefore is not yet eligible to apply directly for a Section 108 loan. With the City Council's authorization to proceed, staff would submit the Section 108 loan application to HUD immediately with the goal of receiving approval as soon as possible (see Attachment 2; Section 108 loan applications can be submitted at any time). Axis is trying to have as many funding commitments in place as possible when its application for bond financing is submitted within the coming months. Proposed Loan Structure The terms for Section 108 loans are flexible and subject to negotiation between the borrower and HUD. Staff is proposing that the City request a twenty (20) year loan. repayment term on the $1.25 million loan in order to maintain annual payments at a manageable level (approximately $62,500 per year). As the primary borrower, Pleasanton will be responsible for repaying the loan. The primary source would be the City's future annual allocation of CDBG funds (the City currently receives approximately $250,000 to $300,000 annually).. An alternative repayment:source would be local funds allocated for human services (i.e., through the $160,000 allocated annually toward the Housing and Human Services Grantor HHSG program). Although Pleasanton will be primarily responsible for ensuring repayment of the loan to HUD, staff is proposing that the City enter into a Public Participating Jurisdiction (PPJ) agreement that will apportion the repayment burden on a formula basis among the three Page 7 of 9