The Palm Coast City Council on Tuesday decided to borrow up to $15 million for a major land purchase to settle a lawsuit against a major land developer. Allete, a firm who owns 259 acres of land in Town Center, will sell to the city for $17 million. The first $1 million has already been paid.
A total of $15 million is the maximum amount Palm Coast is allowed to borrow against its general fund as written in the city charter. They will also inherit $1.9 million in debt and forgo any property tax revenue the land would accumulate for as long as it’s owned by the city.
For the time being, city staff will be searching for a bank to give them the line of credit they need to make the purchase. Once that transaction is complete, Allete is expected to withdraw their lawsuit, with the matter being effectively settled.
It also appears that as a result of the upcoming purchase, the City Council will likely not fund the nine new deputies requested by the Flagler County Sheriff’s Office. If they make a larger down payment on the purchase and secure a more friendly interest rate, it may buy the city some flexibility to fund at least part of the request.
The size of the down payment the city makes will largely depend on how much it’s willing to deplete its reserves. The city strives to maintain a reserve equal to 10% to 20% of its general fund. Right now it’s above that range, at 28%.
A decrease to 20% of the general fund in reserve money would enable a $5.7 million down payment on the land. Should the city more aggressively drain the reserve to 15% of the general fund, their down payment could be around $9 million.
The more the city pays up front, the less they’ll pay over the course of their loan. Draining the reserve by a greater amount in order to do so, however, would reduce their ability to react to unforeseen large expenditures.
Further complicating matters is the looming Amendment 3 that will go before voters in November. If the ballot measure achieves 60% approval, it will eliminate the vast majority of residential property taxes across the state. This would gut the revenue of municipal governments such as the City of Palm Coast, triggering significant cost-cutting in preparation.
Late in July, the Palm Coast city government cut several job positions to reduce expenditures. For better or worse, their act of fiscal conservatism was followed by one of the city’s largest land developers pulling the plug on an enormous plan that would expand Palm Coast westward. Further straining matters is the resignation of Community Development Director John Zobler on Monday effective immediately.
