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current capacity to loan $6.8 million is the City's Retiree Medical Reserve Fund with a balance of approximately $20 million. However, staff are expecting to use the balance in that fund to help address the City's increased pension liabilities that will result from CaIPERS reducing the discount rate from 7.5% to 7.0% over the next three years, There are other funds with sufficient available balances such as the CIP Reserve fund but using those funds will reduce funding available for other projects that the City has planned over the next five to ten years. 3. Issuing Bonds or Securing a Bank Loan The City could issue a $6.8 million 25-year bond or bank loan which would mostly likely receive an "AA" rating. With that rating in today's market, the City would likely receive an interest rate of 3% for a 25-year bond. The City would have to pledge the City's General Fund for debt service payments. In addition, the City would incur issuance expenses equal to 3% of the loan principal such as underwriter fees, financial advisor fees, and rating agency fees that will not be required for the proposed sales tax sharing agreement with Costco. The total cost to the City to repay the principal, interest and cover the issuance costs would be approximately $10 million. A sales tax sharing agreement with Costco identified above is $2.2 million less expensive to the City than borrowing at current interest rates ($10 million for a conventional loan minus $7.8 million total estimated cost of the proposed sales tax sharing agreement = $2.2 million). Staff Recommendation — Sales Tax Sharing Agreement with Costco Staff is recommending using a sales tax sharing agreement since it (1) does not reduce the amount of other funds available for City projects and obligations, (2) does not require a pledge of the City's General Fund to debt service payments, and (3) would cost approximately the same as it would for the City to provide an inter-fund loan. Attachment 5 is a draft term sheet for the JDEDZ that outlines the deal points consistent with the staff recommendation. Depending on the outcome of the policy discussion, staff will submit a term sheet either in the same form as Attachment 5 or with changes based on public input and Council direction for consideration at a special City Council meeting on September 18, 2017. Right of Way Funding Funding the right of way required to construct the transportation improvements would be as follows: • Costco will donate any required right-of-way that it owns. • The City will seek contributions of any other required right of way that is subject to development in the near term. • The cost of all remaining right-of-way acquisitions will be shared equally between the City and Costco. However, Costco's portion will be covered through increasing the amount of the sales tax share above the $6,785,000. However, that amount will not be subject to the 1.5% interest rate. Proposed JDEDZ Transportation Fee Costco represents approximately 44% of the total estimated trips generated by the JDEDZ at build-out. The other hotel and retail land uses included in the JDEDZ comprise the Page 13 of 16