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Cloverdale staff weigh borrowing against pay-as-you-go use of new sales tax revenue
Summary
City staff and outside advisors presented options for using Cloverdale's new sales tax revenue either to borrow up front for capital projects or to fund projects over time, with discussion focused on size of borrowing, repayment structure and trade-offs including interest and fees.
Cloverdale City officials and outside advisers discussed whether to borrow now against the city's newly approved sales tax or to wait and pay for projects as revenue arrives.
Advisers told the finance director and council subcommittee that dedicating a portion of the city's sales tax could produce roughly $7 million in project proceeds if the city dedicates 0.25 percentage points and about $14 million if it dedicates 0.5 percentage points. The presentation modeled a 20-year borrowing term and projected average annual debt service in a range from about $500,000 to $1.1 million depending on the loan size.
The consultants cautioned the subcommittee about a legal and practical constraint: "this will still have to be a general fund loan. Even if you dedicate your sales tax, to repayment of the loan, let's just say, you know, just for, you know, argument and purposes, if the sales tax suddenly went away tomorrow and the loan was still there, you would have to still pay it off with your general fund," the presenter said. That nuance means the city would remain ultimately responsible for the debt if pledged sales-tax revenue fell short.
Council members asked for more detail on projected sales-tax receipts and on the fees and third-party costs that are added to bond issuances. The advisers said professional costs (bond counsel, underwriter/bank fees, rating agency fees and other issuance costs) are typically included in bond proceeds and estimated those fees at roughly $200,000 on the smaller borrowing scenarios presented. They also noted the city's projected interest expense over 20 years could amount to about half of the principal in the scenario shown.
Council members and staff raised political and practical questions about the timing and size of borrowing. One councilmember said they would prefer to see actual revenue flow for several months before committing to borrowing, and another cautioned that paying bond interest over two decades may not outpace inflation or material-cost increases. Staff said they will run additional scenarios (including 5-, 10- and 20-year terms), check prepayment penalties, and coordinate more detailed cost estimates if the council wants additional analysis before a formal council presentation.
The presentation also included an initial review of construction-inflation assumptions: advisers reported contractors they consulted see annual material-cost inflation in single-digit percentages, with uncertainty from tariffs and broader market shifts.
No formal action was taken. Staff and the advisers agreed to refine the financial scenarios, provide more detailed assumptions on projected sales-tax receipts and costs, and return to the council with numbers the council can vet publicly before any borrowing decision.
