Council hears financing options to accelerate Santa Paula's pavement program; staff recommends pay-go but offers blended loan scenario

City financial advisors presented three alternatives for accelerating Santa Paula's pavement-management program using Measure R receipts: (1) pay-as-you-go (PAYGO) expanded investment to $4 million per year for five years; (2) a blended approach with an $8 million financing and $12 million PAYGO that would accelerate the program to roughly 2—2— years; and (3) a financing-only approach.

Christian Sprunger of NHA Advisors summarized the tradeoffs: option 1 minimizes interest cost but exposes the program to a longer construction horizon and therefore greater inflation risk; option 2 incurs interest costs (NHA modeled roughly $1.6 million cash-flow interest on an $8 million, 8—10-year structure) but shortens exposure to inflation and lets the city avoid the price increases that accompany multi-year construction windows. NHA's sensitivity scenarios showed that under moderate inflation (3'4%) shorter construction schedules could materially reduce total purchasing-power loss on construction budgets.

Why it matters: Council must weigh the near-term costs of carrying debt against the risk that asphalt, labor and material price inflation will raise project costs on a longer schedule. The city also must coordinate paving with anticipated water, sewer and storm-drain projects to avoid re-trenching recently paved streets and minimize rework.

Key discussion points and staff guidance: - NHA framed option 2 as a realistic compromise: a short-term (8—10-year) financing, structured likely as a lease revenue bond or a private placement, with interest fixed for the term and the possibility of drawdown financing (a line of credit) to match actual construction draws. - NHA estimated the blended option would increase nominal cash-flow cost by about $1.6 million versus PAYGO but reduce present-value purchasing-power loss compared with a longer five-year construction window, depending on inflation assumptions. - Council and staff repeatedly raised the need to coordinate paving with water and sewer master-plan work and upcoming utility rate studies; Public Works emphasized the high cost of water/sewer replacements and advised caution to avoid paving then digging later. - A number of councilmembers favored the five-year PAYGO approach to allow time for water/sewer planning and to avoid debt-service pressure on future Measure R receipts; other councilmembers and staff saw benefit in partial financing to avoid inflation and finish the work sooner.

Outcome and next steps: Council did not select a final financing path at the meeting. Staff and NHA will return with additional analysis if Council wants to pursue a partial financing (including indicative bank bids for a drawdown structure), and staff will also prepare pavement-prioritization plans that explicitly account for needed underground utility work so paving is sequenced to minimize rework.