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File Number: 18-390 <br />the City’s contract for the Section 108 Loan were missing from HUD’s files since the inception of <br />the loan. Additionally, HUD stated that since HUD did not have these required documents, San <br />Leandro was considered in noncompliance with the terms of the Section 108 Loan and at risk of <br />default. Among other things, HUD requested the City provide certain required collateral for the <br />Section 108 Loan. Under the terms of the Section 108 Loan, the City was required to record a <br />deed of trust on the Senior Center property to secure the Section 108 Loan. However, California <br />law prevents the City from recording a lien on publically owned property. The City Attorney’s <br />Office and HUD’s legal counsel met in June 2018 to discuss alternate means to comply with this <br />contractual requirement. <br />After discussions between HUD’s counsel and the City Attorney’s Office, staff determined that the <br />best option to provide the collateral requested by HUD is for the City to restrict $190,635.20 of <br />the General Fund Reserve (the “Restricted Amount”), an amount equal to one annual Section 108 <br />Loan debt service payment. The funds must be restricted within the General Fund Reserve until <br />the Section 108 Loan is fully repaid, which is currently anticipated to occur in August 2029. <br />Analysis <br />Under the terms of the City’s Section 108 Loan, the City was required to record a deed of trust on <br />the Senior Center Property to secure the Section 108 Loan. However, California law prevents the <br />City from recording a lien on publically owned property. The City needs to provide substitute <br />collateral for the Section 108 Loan, or else HUD may declare the City of San Leandro in default <br />under the note for this Section 108 Loan. City staff, in consultation with the City Attorney’s Office <br />and HUD, determined that the best option to provide the required collateral is for the City to <br />restrict $190,635.20 of the General Fund Reserve, an amount equal to one annual Section 108 <br />Loan debt service payment. Such funds would be restricted within the General Fund Reserve until <br />the Section 108 Loan is fully repaid. As long as the City continues to make its annual Section 108 <br />Loan debt service payments, these funds will remain in the City’s General Fund Restricted <br />Reserves. In the unlikely event that the City does not receive CDBG funds, or is unable to <br />otherwise meet its repayment obligations during the term of the Section 108 Loan, the General <br />Fund Restricted Reserve Amount would be utilized to cover the deficiency. <br />Additionally, the City will need to execute amendments to various documents related to the <br />Section 108 Loan to allow the City to satisfy its obligation to provide collateral for the loan in the <br />manner described above. <br />Previous Actions <br />·HUD Section 108 Loan approved April 20, 2009 by City Council Resolution No. 2009-054. <br />Fiscal Impacts <br />This proposed resolution will restrict $190,635.20 of the City’s General Fund Reserve until the <br />Section 108 Loan has been fully repaid, which is currently anticipated to occur in August 2029. By <br />restricting this portion of the General Fund Reserve, the City will not be able to use these funds to <br />meet other needs until the Section 108 Loan has been fully repaid. However, the City’s loan <br />repayment (principal plus interest) amount is reduced annually due to declining interest payments. <br />Page 2 City of San Leandro Printed on 8/28/2018 <br />185