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BACKGROUND In 2015, the City executed a U.S. Department of Housing and Urban Development Section 108 Loan Guarantee Program loan agreement for $1 .25 million in order to assist Axis Community Health in completing necessary improvements to its newly acquired clinic building. HUD's Section 108 loan program allows jurisdictions to borrow against their future allocations of CDBG funds to obtain a larger infusion of funds for major projects. Under the Section 108 guidelines, a jurisdiction can apply for up to five (5) times its most recent allocation of CDBG funds. Of the three Tri-Valley jurisdictions, Pleasanton was the only one that was 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. Consequently, the City of Pleasanton as the lead agency, along with the cities of Dublin and Livermore, applied for and was eventually awarded $1.25 million, which back in FY 2014-2015, was slightly below the city's "borrowing capacity." Although Pleasanton will be primarily responsible for ensuring repayment of the loan to HUD, the City entered into a Public Participating Jurisdiction (PPJ) agreement with the cities of Dublin and Livermore that apportioned the repayment burden on a formula basis among the three Tri-Valley cities (Pleasanton, Livermore, and Dublin) and the County of Alameda. DISCUSSION All three Tri-Valley cities have contributed a portion of its CDBG annual allocations the last four years to ensure compliance with the HUD's 20-year repayment schedule. However, interest payments have varied due to the loan's variable interest rate. While, the loan has generally low variable interest rates, loan repayments of interest costs have unpredictably increased. An example is the four interest hikes authorized by the Federal Reserve in 2018. In late February 2019, HUD informed the City of Pleasanton that it would be undertaking a new public offering that would allow the City to convert from an interim financing (i.e. variable interest rate) to permanent, fixed rate financing. This public offering is scheduled for March 28, 2019. HUD is requiring all related documents to be submitted to them by March 11, 2019 in order participate in the public offering. Staff anticipates that participation in the public offering will be beneficial for the City because converting to a fixed interest rate would 1) make the interest rate repayment predictable thus making budgeting easier; and 2) minimize the impact of increasing interest rates on the City's interest payments. While the actual rate will be dependent on market conditions at the time the public offering is held on March 28, 2019, per HUD's estimation, the City would be converting to a projected 3.549% interest rate. The Page 2 of 3