ITEM:            CONSENT CALENDAR

6.

## Committee Recommendation:The Administrative Committee considered this item on March 9, 2010 and voted 3-0 to recommend a one-year renewal of the line of credit with Bank of America in the amount of $1.5 million CEQA Compliance: N/A SUMMARY: Bank of America (BofA) originally proposed a fee of 1.0% ($25,000) fee to renew the District’s $2.5 million line of credit with an interest rate at the Bank’s prime rate plus 0.25%. After further negotiation, BofA has subsequently proposed to renew the line of credit with the following terms: • A credit line of either$1.5 million or $1.0 million with a fee of 0.5% ($7,500 for $1.5 million or$5,000 for $1.0 million). • Interest at the Bank’s prime rate plus 0.25% (current prime rate of 3.5% plus .25% equals 3.75%). • Additionally BofA would establish a new money market account for the District paying an initial rate of 0.65% and transfer funds from the District’s current money market account (currently paying 0.33%) • The District would transfer an additional$500,000 from the Local Agency Investment Fund (currently paying 0.60%) into the new money market account.

At the direction of the Chair and Vice-Chair, the District’s Chief Financial Office (CFO) requested a proposal from First National Bank (FNB) which was the other bank that responded to the District’s 2008 request for proposal for the line of credit.  While FNB has indicated it is willing to submit a proposal, it was unable to do so in time for this Board meeting.  District staff is in the process of contacting other banks and Fremont Bank has also indicated interest in submitting a proposal.

The Administrative Committee considered this item at its March 9, 2010 meeting.  Some of the issues discussed by the Committee were as follows:

·        Current economic conditions affecting banks

·        District need for a line of credit at this time

·        District’s long-time relationship with BofA

·        Solvency and reliability of BofA vs. other banks in case of further economic deterioration

·        Staff time and costs associated with transfer of District’s checking and money market accounts to a new bank

·        District’s ability to establish a line of credit at any time with another bank if economic conditions change (no prepayment penalty on BofA line of credit, it would just expire)

After considerable discussion, the Committee concurred that the best course of action would be to renew the line of credit with BofA in the amount of $1.5 million for a period of one year, and to monitor economic conditions and stability of banks to see if a change is warranted in the future. RECOMMENDATION: The Administrative Committee considered this item on March 9, 2010 and voted 3-0 to recommend a one-year renewal of the line of credit with Bank of America in the amount of$1.5 million with an interest rate of the bank’s prime rate plus 0.25% and a renewal fee of $7,500. BACKGROUND: In October 2008, the District entered into a Loan Agreement with BofA to establish a$2.5 million line of credit to fund development of water supply projects.  The interest rate was equal to the bank’s prime rate minus 0.75%.  The line of credit officially expired on January 31, 2010, but BofA has approved renewal and extended the expiration date pending negotiation of new terms.  The terms proposed by BofA for renewal of the $2.5 million line of credit is an increase in the interest rate from the Bank’s prime rate minus 0.75% to prime rate plus 0.25% and a renewal fee of 1% ($25,000) of the amount of the line of credit.  BofA indicated that the proposed increases were due to changing economic conditions and the fact that the District has utilized only a small portion of the line of credit while the bank had to reserve the total amount for our use.

This matter was discussed at the Chair/Vice-Chair meeting on February 26, 2010, and as directed by the Chair and Vice-Chair, the CFO began to gather information to get new proposals for the District’s line of credit.  Specifically, as suggested by the Vice-Chair, the CFO had a discussion with Roland Pascua of FNB.  During that discussion, the CFO indicated that the District might be looking to replace the District’s current line of credit with BofA because of an increased interest rate and renewal fee proposed by BofA.  After further discussion, Mr. Pascua indicated that FNB would also charge a similar fee in that situation and that he did not feel that the 1% was unreasonable.  While Mr. Pascua indicated FNB would likely be interested in providing a proposal for a line of credit, he said that he would need to review the District’s latest audited financial statements before doing so.

The CFO also contacted the BofA representative and told him of the direction from the Chair and Vice-Chair.  However, based on previous suggestions from him on how to lower the costs, the CFO asked him how the bank could reduce the renewal fee and/or interest rate if the amount of the credit line was reduced and the District deposited additional funds with BofA.  He has since offered to renew the line of credit as discussed in the summary section above.

Based on the proposals received for the current line of credit, if the District were to establish a new line of credit with a different bank, we could expect to pay up to \$5,000 in setup costs, and the new bank would almost certainly require that we transfer all of our operating and investment accounts from BofA, and possibly from the State of California Local Agency Investment Fund.  That would require a considerable effort from staff to set up new checking and money market accounts, direct deposits of employee’s paychecks, etc., and the District would incur additional costs for replacement check stock and other bank related supplies.  Also, as indicated by Mr. Pascua of FNB, we would likely be back in the same situation with the new bank if we did not substantially utilize the full amount of the line of credit in the upcoming year.

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