Dec 2, 2007

Troutdale Urban Renewal Cash Flow

Troutdale's urban renewal district behind the Columbia Gorge outlet mall is still on this side of landlocked, and stagnant in any property value increase. Granted, we successfully negotiated an option to purchase a portion of the outlet mall (it was a "friendly" condemnation) in order to punch a road through, giving eventual access to the urban renewal site.

The problem with our urban renewal district right now is this: No urban renewal district property value increase means no tax increment finance revenue, which means no real income for the urban renewal district. However, there are urban renewal district expenses that will need to be paid in the short term. Expenses that may run into six figures. The urban renewal district doesn't have that kind of money yet, so where will it come up with the cash?

City staff has presented the city council with two scenarios:
1) The city council could loan the cash to the urban renewal district directly from the city's general fund.
PRO: simple transaction.
CON: a six-figure dip into the city's general fund reserves may backfire if city revenue and expense estimates don't pan out.

2) The city council could arrange for a line of credit with a bank, and loan the urban renewal district money from the line of credit.

PRO: Line of credit would maintain existing reserves in city general fund.
CON: Line of credit would mean interest expense.

It's important to keep in mind that although the Troutdale city council also serves as the Troutdale urban renewal agency, the city council and urban renewal agency are two separate legal entities.

When city staff presented the two options I mentioned above, a majority of the city council leaned in favor of a straight cash loan from the city to the urban renewal agency.

Personally, I think it would be a terrible mistake to loan $100-200 thousand dollars in city general fund cash directly to the urban renewal district. City revenues are dependent on highly volatile building permit fees and property tax revenues. City expenses could change with the next significant weather event, broken city well, or unexpected legal fees. We pay the City of Gresham for fire service. What if Gresham's costs to provide fire service increase dramatically? Contractually, they can force us to pay more for significantly higher fire protection costs.

What if the city loaned several hundred dollars in cash to the urban renewal district, only to have a city general fund shortfall due to unforeseen circumstances? Is it fair to Troutdale taxpayers to be on the hook for this money, when we assured them the urban renewal district would pay for itself? What about the worst case scenario- no developer comes forward to purchase and develop the urban renewal property? The city would be stuck with the loss, and the urban renewal district would never have sufficient revenues to repay the city. And Troutdale's taxpayers would be left holding the bag. The city would still have to repay a line of credit, but we could probably do this over a period of years.

It seems to me that the safest choice would be to use the line of credit and pay the extra interest expense. The urban renewal district's need for short term cash will disappear the second a developer buys the urban renewal district property. It makes sense to me to keep the city and the urban renewal district at arms length when it comes to money transfers from the city. It would mean less risk for Troutdale's taxpayers, although at a slightly higher cost.

Perhaps a solution would be a mixture of cash loan and line of credit. Minor expenses such as urban renewal district marketing, and consultant fees may be small enough to justify a smaller cash loan from the city's general fund.

No decision has been made yet regarding how to finance the urban renewal district's short term cash flow needs. City staff will be giving us more information and more options at a future meeting.

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