City granted $5 million credit line from local bank

A local bank has stepped up with a $5 million line of credit to help the city of Chico avoid potential cash flow problems.

The city can begin drawing on the revolving credit line from Golden Valley Bank on Dec. 1. The credit will ensure that operating costs and employee salaries are paid in the event that revenues fall short.

Chico’s current bank, Bank of America, refused to extend a line of credit after evaluating the city’s financial position, said Chris Constantin the city’s administrative services director.

The city experiences its lowest level of revenues in December, and the next property tax distribution will not come in until January. It is possible the city won’t have to borrow money at all, but it has to safeguard against the possibility of a cash shortage.

“At this point our numbers look pretty good,” Constantin said. “We may not have to reach in at all. However, it is not a certainty — things could change between now and December.”

Initially, a form of short-term borrowing called a tax and revenue anticipation note, which is a debt rather than a credit line, was going to cover any cash shortfalls. Constantin estimated that this approach would cost the city about $150,000 in fees and interest.

Then Mark Francis the CEO and president of Golden Valley Bank, approached the city manager about setting up a credit line that would cost the city much less. Francis served as a city council member for four years in the early 1990s. He is aware of Chico’s current financial troubles and saw an opportunity to assist.

“Golden Valley Bank has the ability to help the city out, and in my opinion, as a local community bank, we have an obligation to help,” Francis said.

The credit line provided by the bank comes with a fee of $10,000 and a minimum interest payment of $5,000. The cost of borrowing will be one-tenth of what was expected with the revenue anticipation note.

“Mark Francis and their bank offered us a phenomenal opportunity to have a tool that is minimal in cost but provides a whole lot of security to ensure that the city is in a solid position,” Constantin said.

Francis doesn’t understand why Bank of America would not issue the line of credit. The city will pay back its obligation by the end of January 2014 and he does not see any risk involved, he said.

“The city has pledged to us $9 million in sales and property tax revenues that they’re going to receive in December and January,” Francis said. “That tax revenue is a sure thing — it’s coming in.”

The City Council voted unanimously on Oct. 15 to approve the temporary borrowing arrangement.

Before the vote, Vice Mayor Mark Sorensen took a moment to thank Francis and the board of directors of Golden Valley Bank, which prompted the crowd to applaud.

At the meeting, Constantin said that this situation definitely raises questions about his desire to stay with Bank of America, something he will be exploring in the future.

 

Bill Hall can be reached at [email protected] or @thebillhall on Twitter.