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FINANCING OPTIONS Background This report (the "Financing Plan") presents the options available to the City for financing the Bernal Property Improvements as outlined in the Specific Plan (the "Program"). The Financing Plan encompasses seventeen years from 2007-08FY to and including the 2023/24FY. Introduction For any capital improvement project (i.e., sewer, water, streets, library, city hall, park land, etc.) there are two financing alternatives available to the City. The two alternatives are "pay-as-you- go" -which is to pay cash for the project or "pay-as-you-use" -which is to borrow the money (i.e., debt finance) for the project. The disadvantage of the "pay-as-you-go" alternative or paying cash for a capital project is the length of time it would take to save the necessary cash to pay for the project, and during the time costs of the project are escalating at a faster rate than you are able to save. Therefore, this results in the City being unable to undertake the project in a timely manner. The advantage to paying cash for a capital improvement project, of course, is the substantial savings to be realized from not incurring interest costs. Borrowing or debt financing ("pay-as-you-use") is the preferable way of financing capital improvement projects. This is mainly due to the fact that "pay-as-you-use" financing matches the benefit and cost of a project with the actual users of the project. As the number of beneficiaries increase, the cost per capita decreases. By definition, all capital improvement projects have a useful life of one year or longer (i.e., 30 years) and, therefore, benefit from the project is realized by both present residents as well as future residents of the community over the useful life of the project. Of course, the disadvantage of debt financing is the additional interest costs incurred from borrowing the money. However, debt repayment schedules (i.e., both principal and interest) can be developed to accommodate the community's ability to pay. Financing Plan Assumptions In order to develop the Financing Plan and the recommended solution for closing the gap between existing revenues on hand and the capital and operating cost of the Program, it was necessary for staff to look at every aspect of the Program including deferring implementation of some of the projects included in the Program. Appendix A includes a complete description of the projects included in the Program and the basis for the estimates of the capital cost of the projects and their respective annual operating and maintenance costs. Appendix B (Tables 2 through 5) presents the different alternatives that staff considered in the analysis. Appendix C (Tables 6) presents the general obligation bond tax rates based on the funding requirements of the Program. Finally, Appendix D presents the data regarding the assessed valuation of properties in the City for the 2006- 07FY as provided by California Municipal Statistics based on information provided to them by the Alameda County Assessor's office. Debt Service schedules and cash flow analyses were prepared for each financing alternative based on the following assumptions: 4