HomeMy WebLinkAbout0534.093c
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October 71 1993
THE HONORABLE CITY COUNCIL
Palo Alto, Califo~nia
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'tMQ nTO CQMMUJqTY CHILD CUE -BtmGn MI!)1DKEl!fT ORDINANCE'
Members of the Ccunc i 1 :
BpOIlT III 9R1 EF
This report requests Council approval of an ordinance a~ending the
budget for Fiscal Year 199J-94 in order that the Palo Alt:
community Child Care (PACCC) may receive a $75,000 loan from the
citYa The loan will permit PACCC to address itt: ilDIllediate negative
cash flow position and bring its outstanding ac~ounts payable up to
date and assist in meeting its near term pa}Toll requirements for
the agBncy's 130 employees.
staft recommends that Council approve the r~~irement that PACCC
execute a promissory note in favor of the City in the amount of a
$75,000 loan, bearing no interest; to be repaid on or before June
30, 1994~ The loan will be funded out of the Budget Stabilizat:on
Reserve.
Background
The City has been assisting PACCC in addressing its financial
problems since August 2.6, 19~J "When Ccuncil approved a '$50,000
emerqency advance on PACCC's subsidy contract in order for PACCC to
Dee.t its Auqust/sep'teNber payroll. At that. time, council also
authorized the City Manager to provide PACCC with up to S50,000 in
additional resources through the city's Finance Department to
asaist PACCC in managing the agency's financial operations.
After working closely with PACCC durinq september 1993, city staff
now has i!t; better understandinq of PACCC's s.hor-t and long-term
financial ne.ed.F. staff has estimated that PACCC's immediate
negative cash flow situation will necessitate an infusion of
$75,.000 in order that PACCC may of.fset its outstanding accounts
payable to date and to meet ita current payroll.
staff will return to Council on November 15 , 1993 with a
reco~endeQ nine-month work plan which will address PACCC's interim
financial and program administration needs through June 30, ~994.
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The City'6 main objective in assisting PACCC is to ~aintain the
provision of uninterrupted child care services at each of PACCC's
~4 9ites~ A substantial public purpose has been served by
permittin9" PACCC to remain a successful provider of cOnurlunitY-Dased
child care services in Palo Alto. ~pproxirnately 700 families send
theh: children to PACCC centers for child care services:. A..,y
interruption in th~se servicas ~ould significantly impact the Palo
Alto community.
While PACCC continues to provide quality child care services, City
staff bas concluded that the organi,ation has operated without the
expertise necessary to manage its financial affairs. For this
reason, the City ha~ temporarily committed its staff res~urces to
address the problem.
For the past month, members of the City's Finance OepaLtment have
been working closely with PACCC to bring litability to PACCC's
financial operations, and begin to address the lack of effective
accounting procedures.
At a meeting held on Septemb~r 30, 1993 and attended by City staff
and PACCC Board. and staff members, the City's Finance Director
identified PACCC's negative cabh flow situation as a major problem~
In addition to its payroll, PACCC has several large outstanding
accounts payable. Because of seriouG administrative pLoblems
datinq from Fiscal 'tears 1991-92 and 1992-93. and continuing
through Fiscal Year 1993-94, PACCC has been operating with very Iow
bank ba~a"ces. PACCC's l~west ba~~ balances are typica~ly
experienced durinq the summer months due to the lower school age
program enrollment.. The cOmDined effects of poor cash flow
manaqement and administrative problems has resulted in the
inability of PACe<: to 1fIeet its payroll for the agency's 130
employees.
The $50,000 cash advance has been insuffioient to meet the backlog
of a.ccounts payable and the impending payrOll. Finance. Depart-mel""lt
staff has proje~ted that the $75,000 loan would enable PACCC to pay
its creditors, provided these funds are used for such purposes.
This will allov PACCC ~o address the imminent need to restructure
and restaff its central administrative office to effectively
support its 14 child care centers. PACCC's financial condition
prompts the staft recommendation that PACCC be granted the loan
bearing no interest. A significant public purpose is served by the
makinq of this loan to PACCC pursuant to city Policy and Procedure
1-14 on an interest-free basis. It is important to note that the
previous advance of $50,000 will be repaid in full to the City when
PACCC submits its September 1993 subsidy invoice.
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l1~1 Operation considerations
The current staffing arrangement for city staff and PACCC clerical
support is as follows~
Salary & Be~efits (3 m~s.)
Finance Director*
Accounting Mqr.*
Financial Analyst.
cont net Acet. (2 )
TOTAL
$4 I 900
$6,OJ1
$H,479
S18,750
$4';,160
.. Indicates city Finance Department .staff
Time commitment
15\
25%
100l
It is apparent to City statf that existing Finance staff
commitments compel consideration of alternetives to the current
staffinq arrangement. Staff'& active and onqoing involvement with
PACCCJs daily operations ~ould cause the city to exceed the $50,000
in City F-taff resources approved for this purpose by December 31,
1993.
PACCC needs to immecliately address the following problems: Ca)
PACCC's identification of a long-term financial manager~ (b) the
development and adoption of a 1993-94 bUQget~ (c) the development
of a process to acc~rately project =onthly tuition revenues, and
Cd) further develop!t\ent of administrative procedures for management
of the City subsidy contract.
To enSU!'e proper financial management and ove.r-siqht of PACCC's
financial operations through 3une 30, 1994. City staff estimates
that additional funds in ~~e range of $75 1 000 -$~OO.OOO will be
necessary for PACCC to either contract with a professional child
care organization to provide these services or for PACCC to hire
staff directly.
FUture Course of Action
staff is developinq a nine-month workplan to address and recti.fy
the financial management problems at PACCC thr~ugh the end of thg
1993"'94 fiscal year and will return to Council on Noveml:ler 15,
1993, to recommend a course of action to stabilize FACCC's
financial and administrative operations. At that time, staff ~ill
present a detailed workplan outlining tasks to be accomplisned~ a
timeline for implementation, and a projection of the costs to
iJfIplement the 'Workplen. The proposed workplan 'Will include a
transition phase so that City staff may resume their full-time
duties with the city by December 31, 19S;3.
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I At the November lS, 1993 Council m~etin9, staff will also respond
to the rindinq& and recommendations of the City Auditor as stated
in his report issup.d on Auqust 13, 1993 regardinq city staff's
mcnitorinq of the Cityts 199?-93 subsidy contrac~ with PACCC.
RICUlQllHPUXONB
staff recommends that Council:
L Approve the funding re:;:uest for a $75, 000 loan to PACCC and
the rorm of the attached promissory note, which PACCC is
required to repay on or before June 30, 1994.
2. Approve the attached Budget Amendment ordinance for the
Fiscal Year 199)-94 to proviue an additional appropriation
to Palo Alto Commurdty Child Care.
J. Direct that the matter involviP.q PACCC which is scheduled
to be heard by the Policy and services Committee at their
November 16, 1993 meetinq be heard by the City Council on
November 15, 1993.
Respectfully submitted,
ILENE HERTZ
Child Care coordinator
f!W.L ~'''y
PAUL THI~'I'G~"
Director of co~nity services
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, Z«cJl
FLEMIJ"
Manaqer
cc: Mr. Steve Lytle, PACCC
Attachments: Promissory Note
Budget Amendment Ordinance
Letter from Steve B. Lytle r PACCC
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PROMISSORY NOn:
$75,000,00 Date: October , 1993
Palo ~ta. California
POR VALUE RECEIVED, the undersigned, Palo ~to ComwJnity
Child Care. Inc. ~ a california nonprofit public benefit corpora.tion
(the -Borrower n ). he~eby promises to pay to the order of the City
of Palo Alto~ a charter city and a municipal corporation. 250
Hamilton Avenue. Palo Alto, California 94301 {the "Holder") • the
principal BULl of Seventy Five Thousand Dollars ($75.000) pursuant
to the terms and conriitions set forth in this Note. The Holder
shall be entitled to make demand for payment hereunder only in
accordance with the provisions of this Note.
1) Bgrrower....'....e... Obi igation. 'I'his Note Eyidences the
obligation of the Borrower for the full repayment to the Holder. on
or before June 30, 1994~ of the funds loaned hereunder to the
Borrower hy the Holder4 Such funds are to be used solely by the
Borrower in support of the Borrower's community-based child care
services in the City of Palo Alto.
2) NQ Interest. The principa.l amount of this Note
shall bear 00 interest .
. 3} ~Jlt~ Any amounts under this Nete shall, at the
option of the Ho~der, become immediately due and payable upon the
occurrence of any of the followio'3"= Ca) the failure of the
Borrower to provide comnunity-based child care services in the City
of Palo Alto; Cb) the failure of the Borrower to remain in good
standing as a nonprofit public benefit corporation while this Note
remains l~paid; te) the voluntary or involuntary aBsignment~ sale,
transfer, vr other disposition by the Bo~rower of its assets or its
obligations undez: this Note under the bankruptcy. insol,,~ency.
receivership, or other creditors' rights laws; and (d) the failure
of t.he Borrower to observe and comply wi th any other term,
condition or provision of this Note~ If none of the foregoing
occurs, no payments of the principal sum loaned hereunder shall be
due until June 30, 1994. nowever, as of June 30, 1994, the sum
loaned to the Borrower hereunder shall be due and payable in full~
4) Place and ~..anner pf PalJMilt.. The full amount due
and payable under this Note is payable at the office of Revenue
CollectioLB of the Holder~ at the address of the Holder set forth
above, or at such other place or places as the Hold~r may designate
to the Borrower in writing from time to time~ in legal tender for
the payment of public and private debts and which on the respective
date on which such payment is due and paid shall be immediately
available funds.
S) .E.:reoayment. The Borrower may prepay to the Holder ~
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a~ any time prior to the date such obligation
hereunder ~ all or any part of the principal SUITt
without the payment of per~lties or premiums.
becomes
of this
due
Note
6) Borrgwer"s Waive.!"_ The Borrower hereby waives! (a)
notice of default. or delinquency; (b) notice of acceleration; (el
notice of nonpayment; (d) notice of costs, expenses, losses and
late charges; (e) diligence in taking any action to collect any
sums owing under this Note; {f} presentment for payment, demand,
protest, and notices of dishonor and of protest; (g) the benefits
of all waiva..l)le exemptions; and (h) all defenses of time of payment
or of any due date under ~his Note, in whole or in part, whether
before or after maturity and with or without notice, except
extensions in writing. The pleading of any statute of limitations
as a defense to any demand against the Borrower is also expressly
waived by the Borrower.
7} Attornevs' pee.§.. If any d~fault is made hereunder,
the Bor~ower promises to pay reaso~able attorneys' fees and costs
and expenses incurred by the Holder in connection with any such
default or any other action 0= other proceeding brought to enforce
any of the pro'!isicns of this Note+ The Holder's right to such
tees shall not be limited to its representation by staff attorneys
of the Holder's Office of the Ci ty Attorney, and such
representation shall be va~ued at the customary and reasonable
rates for private sector legal services+
a) Default Unde~te and AcceleratiQn4 The Borrower
agrees tbat the unpaid balance of the principal amount of this Note
shall, at the option of the Holde.r. become ittll'lediately due and
payable upon the failure of the Borrower to mak.e any payment
hereunder as and when due or upon the failure of the Borrower to
perform or observe any other term or prOVision of thie Note+ If
the balance of this Note is not paid within thirty (30) days of
demand therefor, the Borrower shall pay to the Holder a late cre.rge
of one percent {l%} per calendar month, or fraction thereof, or the
highest rate permitted by law~ whichever is less, on the amount
past due and remaining u.npaid. If this Note be reduced to
judgment, such judgment shall bear the statutory interest rate on
judgments~
9) ~~. Except as may be otherwise specifically
provided herein, any approval, notic~, direction; consent, request
or other action by the Holder shall be in writing and may be
communicated to the Borrower at the principal office of the
Borrower~ located at 3990 Ventura CQurt, Palo Alto. California,
94306.
lO} ~Qyerning Law. This Note &nall be construed in
accordance with and be governed by the laws of the Scate of
California.
11.) SeverahilitY4 If any provision of this Note shall
be invalid, illegal or unenforceable~ the validity. legality and
enforceability of the remaining provisions hereof shall not in any
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way be affected or impuired thereby.
12) ~. Time is of the essence of this Note.
13) No Waiver by the HQld~~. No waiver of any breach,
default or failure of condition under the terrr~ of the Note shall
be implied from any failure of the Holder to cake. or any delay by
the Holder in taking, action with respect to such breach, default
or failure or from any previous waiver of any similar or unrelated
breach, default or failure; ~~ a waiver of any term of the Note
must be made in writing and shall ve limited to the express written
terms of such waiver~
14) Assignment. All
personal to the Borrower and are
absent prior written consent by
assignment thereof shall be void.
rights granted hereunder are
not assignable or transferable
the Holder, and the attempted
15) No Partnership. The terms of this Note shall in no
way he construed to create a partneLship, joint venture or any
other joint relationship or agency agreement between the Holder and
the Borrower. Rather, the relationShip of the Holder and the
Borrower evidenced by this Note shall be deemed to be one of
creditor and debtor, respectively.
16) Note 8ind~ng. The terms, covelli~ts and conditions
of this Note shall apply to~ and shall bind, the heirs, successors,
executors, administrators and assigns of both parties.
17) AmemjmencB. This N01:e may not be modified or
amended except by an instrument in writing which expresses such
intention of the parties Bought to be bound thereby, and such
writing shall be firmly attached to this Note and made a part
hereof.
IN WITNESS WHEREOF, this Note has been duly executed at
Palo Alto, California. The effective date of this Note is October
l393.
Holder:
CITY OF PALO ALTO
BY:~~~ _______________ __
Mayor
APPROVED AS TO FORM:
Senior Aset~ City Attorney
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Bor:r'ower:
PALO ALTO COMMUNITY CHILD
CAREr INC.
By: ________________ __
Title: ___________ _
Title:
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-... :: J-:::1'>-<~:.~~''''
APPROVED:
Assistant City Manager
Director of Finance
Di~ector of Co~ity services
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ORDINANCE NO.
ORDINANCE OF THE COUNCIL OF THE CIT~ OF PALO ALTO
AMElIIJING THE BUDGET FOR THE FISCAL YEAR 1993-94
TO PROVIDE AN ADDITIONAL APPROPRIATION FOR
A LOAN TO PALO ALTO COI!MUNITY CHILO CARE
WHEREAS, pursuant to the provisions of Section 12 of Article
III of the Charter of the City cf Palo Alto, the Council on June
21, 1993 did adopt a budget for fiscal year 1993-94; and
WHEREAS, the City has a commitment to community-based child
care; and
WHEREAS, Palo Alto CODllDunity Child care (PACCC) providf!s child
care for over 700 children; ~nd
WHEREAS, it is the city Council's intent not to disrupt the
care of these children While PAOCC is ~esolvinq ite £inancial and
management problems; and
WHEREAS, PACCC is facinq a cash flow probleJII, making it
iRpossible to pay its operating expenses in a timely mann~r; and
WHEREAS, the City Council and staff are working closely with
the PACOC Board of Directors to develop a lonq-range plan Which
will allow for continuation of community-based childcare; and
WHEREAS, it is anticipated that it viII take several months to
coaplete and implement such a lonq-ranqe plan, during 'Which time it
is important to the cOJIIZunity that PACCC continue to fUnction
effectively, and
WHEREAS, the City of Palo Alto propose.s to make a loan to
PACCC in the amount of $75,000; and
WHEREAS, the loan is beinq accompanied by CI. promissory note,
that loan will be paid back to the city on or before June 30, 1994;
NOW, THEREFORE, the Council of the City of Palo Alto does
ORDArN as follOWS:
SECTION 1. The sum of Seventy Five Thousand Dollars ($75,OOOJ
is hereby authorized to be disbursed to Palo Alto community Child
Care~ The Budget Stabilization Reserve is correspondingly reduced,
and the Reserve for Notes Receivable is correspondingly increased~
SECTION 2. This t~ansaction will decrease the
Stabilization Reserve from $10,935,865 to $10,860,865
September 30, 1993, and will increae;.e the Reserve for
Receivab1e from $0 to $75,000 as of september 30, 1993.
Budget
as of
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S~!QN 1. The Co~ncil of the City ~t Palo Alto hereby finds
that tha enactment of this ordinance is not a project under the
Ca.lifornia Environmental Quality Act and, therefore,. no environmen
tal i~act ~ssess.ent is necessa~z.
SECTION· .
r.a.~1cipal Code,
adoption.
As provided in Section 2.04.375 of the Palo Alto
this ordinance shall become effective upon
INTRODUCED AND Pl'.SSEO:
AVES:
NOES:
ABSTENTIONS:
ABSENT:
A'l"l'EST: APPROVED:
Clty Clerk Mayor
APPROVED AS TO FORM:
Sr. Asst. city Attorney
APPROVED:
city Manager
Director of F~nance
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Palo Alto tommuniW Child Care
u,mprehensive Child Care Services
3990 Ventura Ct. Palo Al,a. CA 94306 14151 4932361
October 4, 1993
Dear Council Member Fazzino,
PACCC is coming to you to request a loan from the Palo Alto City
Council not tc exceed $75 r 000. A:3 yOll kno .... PACCC and the City
Finance Department staffs have been working closely with each other
to clean up PACCCra financial systems. This process is not complete
and we are expecting initial reporting by The City within the month
of October.
Enrollment figures and receivables appear to be sufficient to cover
payroll and current fixe.,] monthly expenses, but they are nec
sufficient at this time to clear past due payables in a single
payoff. (See attached schedule of payables). The requested loan
would bring all of PACCCrs payables to a current status. We are
also reviewing enrollment and staffing at specific centers. Should
we find a misalignment of revenue and expenses, we will devise a
course of corrective action which is both meaningful and timely.
Council Member Fazzino~ we are nmking this request with the clear
objective of moving forward with a renewed sense of delivering
fiscally sound child care se=vices to the children and parents of
Palo Alto. For your information r our previous advance of $SO,aOC
will be repaid in its entirety with the subsidy billing to the city
on October 5, 1993. We are requesting a repayment plan for this
$7S. DOD extending over a flix to nine month period, and we will
accelerate payment if possible.
Thank you for your assistance and if you have any questions, please
feel free to give me a call.
Sincerely,
jL_. .; i.-1~
A/ffiN--b_ 1f.]):A.J
,;' Ste ...... e Lytle
!nterim President of the Board of Directors
Palo .~to Corr~unity Child Care