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Director Church said the final part of the proposed Budget deals with indebtedness. He said it included the request for "a loan from the City to the Redevelopment Agency that would establish a line of credit from the City to the Agency which would be at the interest rate the City gets on its use of funds, so there would be no net cost of funds to the City." Director Church said, "Redevelopment Agencies typically use this mechanism because a Redevelopment Agency can only get revenues when it has debt. It can only claim tax increment from the County when it has already established debt.... And the reason for it is, as you can see from the Fund balances using overheads)... the ending balance for June 30,1999... is going to be around $937,000 for the Housing Fund and $477,00 for the Agency General Fund. And we were at the time we put these figures together, projecting that we would have a slight deficit starting this year, about $65,000. I don't think that will probably come to pass. That was based on some very pessimistic expenditure assumptions. There was not a lot of money at the beginning of the year, and we are spending it about the rate we are getting it. We won't be accumulating anything seriously." Director Church said there were not a lot of funds for on-going programs, and the proposed Budget did not include funds for large expenditures such as the Downtown Theater Project, Director Church described Council objectives, such as the Whipple and Industrial Specific Plan, the Fourth Amendment to the Redevelopment Agency Project No.2, and said funds for those kinds of activities are not included in the proposed Budget and would need a loan from the City to go forward. In answer to Vice Mayor Ruskin's concerns and questions regarding proposed indebtedness and the line of credit from the City to the Agency, Director Church said, "The numbers were predicated on the current revenue to the Redevelopment Agency and the projected growth in the Redevelopment funding, but not factoring in the Theater project or the Franklin Street project. Simply our best estimate of what those projected future incomes from tax increment would be." Finance Director Ponty said, "Before we would actually implement a loan between the General Fund and the Agency, we would look at how would that loan be repaid based on the Projects in front of the Agency at the time and the projected changes in the assessed valuation. We have some flexibility in setting up the loan since the City Council sits as both the lender and the borrower. We would probably structure something very similar to what we've done between the City and the Parking Fund, and set up an interest-only loan initially for the first several years, so that the Agency wouldn't have to pay back both principal and interest which lessens the burden and makes it much more feasible to service the debt." BUDGET STUDY SESSION MINUTE BOOK NO. 57 JULY 6,1998 MINUTES Page No. 048 PAGE 5