McAllen staff recommend HUD Section 108 loan to relocate Fire Station 4, commissioners seek clarity on CDBG impacts

City staff recommended using HUD's Section 108 loan guarantee program to finance relocation of Fire Station 4 and related equipment, saying the loan would allow McAllen to borrow against future CDBG allocations to accelerate a project the city has planned for years.

Julia, a city staff member presenting the financing option, told the commission the program "provides communities with access to low in low cost financing for community and economic development projects" and that entitlement communities like McAllen can request up to five times their annual CDBG allocation. "If we are to apply before August 31, we could get up to...$8,000,000," she said.

Fire Chief Gloria said the move would shift Station 4 from its current location on South 10th Street (the city's oldest station, built in 1978) nearer El Rancho and McCall to better serve a denser populated footprint and to improve response times to southern parts of the city. "This is the project that we're talking about," Gloria said, describing how the relocation would free the airport station to focus exclusively on airport fire response.

Why it matters: staff said the Section 108 option would allow McAllen to address capital needs now rather than waiting years to accumulate funds. Staff emphasized the loan's long-term, fixed-rate financing and a typical 20-year repayment structure. Julia said the most common repayment method is using a portion of current and future CDBG allocations and that HUD will work with the city to structure repayment. She added the city would pledge the land and the post-construction appraisal value as collateral.

Commissioners pressed staff for details about costs, collateral and program trade-offs. One commissioner asked whether using Section 108 would reduce funding available to existing CDBG-funded agencies; staff responded that the CDBG public-services cap (15%) would not be affected and that infrastructure allocations (the 65% construction set-aside) would supply the repayment source, acknowledging some reduction in funds available for other projects but not a complete elimination. "No," the mayor said when asked whether agencies would be affected, but staff explained the allocation available for construction would be used in part for repayment.

Staff also clarified fees and interest: Julia cited a loan fee shown on the slide as about "point 58%" and warned that fees may increase after Oct. 1; commissioners sought clarity on the $42,000 financing-cost figure in the packet and on how market rates would determine interest. Another commissioner estimated annual interest carry could be roughly "$320 to $350,000 a year" on an $8 million loan if those market assumptions hold.

Next steps and timeline: staff said the city has to conduct a 30-day public comment period with two public hearings to meet citizen-participation requirements, secure a resolution from the commission (an action item scheduled for the upcoming meeting), then submit the Section 108 application. Julia estimated underwriting would take a few months and said the city hopes to get a first-round approval "sometime end of next year," depending on HUD's review timeline.

What was not decided: the commission did not take a vote at the workshop. Staff framed the Section 108 loan as one financing tool and noted other projects could still be eligible under other funding sources. Property acquisition for the proposed station site was not yet complete; staff said that step remains to be resolved.

The commission moved on to other agenda items and staff said the Section 108 item will return for formal action after the public comment and hearing steps are complete.