Partnership will use cash to pay for San Marcos DMV construction

SAN MARCOS — Less than a month after proposing a complex financing plan to pay for the construction of a DMV with its development partner, San Marcos officials reversed course and approved a plan in which each side will pay for its share of the construction costs in cash.

The San Marcos City Council on Tuesday approved the plan, which requires the city to use $6.5 million of its reserves to pay for the construction, paying it back over five years with lease revenue from the project and $700,000 in lease revenue from the former Lowe’s building, which is slated to house two tenants, WinCo and Hobby Lobby.

“I think this is a tremendous long-tem opportunity,” Vice Mayor Rebecca Jones said.  “I am pretty comfortable with the five-year payback on this opportunity. It is good that we have a plan to be slow and steady.”

City officials expect the DMV building, which is being built on land on Rancheros Drive and owned by a longstanding joint partnership between the city and Lusardi Construction, to be completed by May.

The city’s proposal would dip the reserve levels below the council’s longstanding policy of having reserves in place that amount to at least 50 percent of the general fund’s value. But that policy also allows for a temporary dip in reserves if there is a plan in place to replenish them above the threshold in five years.

City Manager Jack Griffin said the proposal would pay back the general fund in at least five years, and it could be even faster if the city receives money back from the state as reimbursement for its share of the cost of fighting May’s wildfires, as is expected.

“We believe the plan is more simple than the one previously proposed and within the spirit of the partnership,” Griffin said. “It is also the least expensive option in terms of financing.”

The original proposal called for the city to loan the partnership $10 million for construction costs, but several council members expressed concern that Lusardi, which is the minority partner in a 60-40 split with the city, was benefitting from the city’s low interest rate.

Lusardi representatives, Griffin told the council Tuesday, originally proposed a cash deal, but Griffin said he was hesitant because the reserve picture was not as robust as it currently is.

When the council balked on the original plan, Griffin said he returned to Lusardi to see if they were still interested in the cash plan, which they were.

The city anticipates reaping $17 million in revenue over the life of the DMV’s 20-year lease.

“I think this is a much cleaner deal than what was originally proposed,” said Councilman Chris Orlando, who was one of the council members critical of the first deal.

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