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• • WS -3 WORK SESSION MEMORANDUM To: City Council From: Al Rolek Date: December 4, 2006 Re: Interfund Loan — Recreation Facility Land — Dedicated Parks Fund cc: Background In 1999 the City purchased a 67 acre parcel of property on the east side of the city to be developed into a recreational facility. The purchase was financed through an interfund loan from the Area and Unit fund to the Dedicated Parks fund. The loan was to be repaid from the proceeds of a successful bond referendum for this project. The referendum was held in 2001 and failed. Since then, the Dedicated Parks_fund has had fund deficit. Our auditors have strongly recommended that the city cure this deficit through one of the following options: 1) Make the loan a permanent transfer of funds, 2) develop a repayment schedule for the loan, or 3) sell the property to repay the loan. The City Council has been holding the property for possible development, and the property is certainly worth more today than it was purchased for. However, Council seemed reticent to sell the property at this time. Staff Recommendation In light of the auditor's recommendation, and interpreting the will of the Council, staff recommends establishing a repayment plan for the interfund loan. An outright transfer of the funds would not be an appropriate use of the Area and Use funds, which were collected to implement trunk sewer and water facilities. The loan can be repaid in installments of $100,000 per year over a 12 year period with a moderate rate of interest of 3% per annum (a copy of the repayment schedule is attached). The source of the repayments would be 50% from park dedication fees and 50% from the General Fund. The General Fund has run a budget surplus over the last several years. Staff recommends that $50,000 of any budget surplus be dedicated to the repayment of the interfund loan until the loan is satisfied. In most years, should the budget contingency not be used during the year, a surplus would result. If in any year there is no budget surplus, the term of the payment plan would be extended accordingly. As a result of this plan, there may be an impact on the rate of park development over this repayment period; however, given Page 2