Citrus Heights Sentinel Logo

Citrus Heights is considering a whopping $12 million line of credit. Here’s why.

Sentinel staff report–
Citrus Heights leaders have long-touted the city’s history of being debt-free. But that could soon change.

An agenda posted online Friday afternoon for a Nov. 15 City Council meeting shows councilmembers will consider a recommendation from the assistant city manager to approve a plan for a $12 million revolving line of credit in order to finance “certain capital improvements and operating expenditures,” using the Community Center building as pledged collateral. A staff report says the need has arisen due to anticipated financial needs over the next four years until the city’s property tax revenues become available in 2022.

Citrus Heights will soon get an extra $5-6M per year. How should it be used?

The city’s share of property taxes is currently about $5.6 million, but as part of a 25-year “revenue neutrality” agreement with Sacramento County, Citrus Heights has reluctantly had to fork those funds over to the county each year — a condition imposed to allow the city to incorporate in 1997. The revenue is a significant portion of the city’s $36.6 million general fund and the city’s reserve funding is projected to dwindle to less than $500,000 before the additional property tax revenue is able to be used by the city.

Although the staff report does not specify what capital improvements the funds are anticipated to be used for, Mayor Steve Miller told The Sentinel on Friday that the line of credit is planned for two “big ticket items” — purchasing the old Sylvan Middle School property and helping fund the second phase of improvements on Auburn Boulevard, which will cost an estimated $20 million and will extend roadway improvements from Rusch Park to the Roseville border.

City leaders have previously shown interest in the 13-acre property at Sylvan Corners ever since the aging school was demolished last year, expressing a goal to purchase the land and sell it to a private party in order to have more say in what the future use will be. The mayor said those plans remain the same, saying the goal would be to break even financially and have “a full say in what happens there.”

He said retail would not be on the table as a future use, unless involving mixed-use, but said a specific preferred use has not been set in stone.

From 2017: City makes formal step toward buying old Sylvan property

Miller, who sits on the city’s finance committee, said the committee first attempted to make an offer to Sacramento County in an effort to tap into some of the city’s property tax revenue in advance. Although the offer was intended to be one “they couldn’t refuse,” he said the county turned down the offer and the committee then began looking into a line of credit “as the most cost-effective” alternative.

According to the proposed agreement with Western Alliance Bank, the revolving line of credit would be structured as a site lease with the Community Center pledged as collateral and would come with an interest rate of 4.4% on $4.5 million, and 6.09% on the remaining $7.5 million. An interest rate of 0.25% would be charged for any undrawn amount.

Good faith estimates included in the Nov. 15 agenda packet state that if funds borrowed are paid in full at the end of the 20-year sublease, the city would pay back a total of just over $21 million, although that amount would be less if prepayments were made by the city. According to Miller, the city’s plan would be to pay off the debt quickly to return the city’s status to being debt-free.

“We will pay some interest and we will pay it all off then and be done with it,” he said. “But it kind of ticks me off because I won’t be able to say we’re not in debt any more.”

Councilman Bret Daniels, who is often a “no” vote on the council when it comes to increases in spending, told The Sentinel on Friday that he would “probably support” the proposed revolving line of credit, but said he hadn’t seen the proposal yet.

“It would certainly not be something that I would normally support,” Daniels said. However, he noted the proposal could be a way to “make right” the city’s decision to spend a large chunk of its reserves on a new $21 million city hall several years ago — a decision he had criticized while running for City Council in 2016 as something he argued would “impede the city’s ability to fund infrastructure and road repairs for many years to come.”

He said funding from the line of credit should go towards “unmet needs” in the city, with a priority on roads.

The City Council will take up the matter for a vote at 6 p.m. this Thursday at city hall. Although the council doesn’t usually meet on the third Thursday of the month, the Nov. 8 council meeting concluded with a motion to recess for one week in order to allow staff more time to prepare the item. The council will also discuss two closed session items at the meeting, including an employee evaluation and a conference with labor negotiators dealing with police and other employees.

See full agenda packet: click here.

*Note: This story was first published on Nov. 11 as a premium article accessible only by paid subscribers. It has since been made available to all Sentinel readers. To get access to all of The Sentinel’s coverage as soon as stories are published, click here to subscribe for just $3/mo.

Like local news? Sign up for The Sentinel’s free email edition and get two emails a week with all local news and no spam, ever. (Click here)