The third time’s a charm when it comes to the City’s effort to purchase two fire stations it needs to provide service for Morgan Hill residents, according to City staff.
The Morgan Hill City Council unanimously approved a financing deal with Capital One Public Funding at Wednesday’s Council meeting.
That bank will loan the City about $3 million to purchase the fire stations from the Santa Clara County Central Fire District, at an interest rate of 3.77 percent, City staff said. The City will pay back the loan over 15 years, in annual payments of about $$261,000.
“We’re finally here with a provider who can deliver on long-term financing,” Morgan Hill Finance Director Kevin Riper said at the Council meeting.
The City’s first attempt to finance the nearly $3-million purchase of the fire stations – one on Old Monterey Road and one at the corner of Hill and Dunne avenues – derailed in January when the City’s regular bank, Bank of the West, backed out of the deal due to pending litigation with the state over the ownership of properties in downtown Morgan Hill.
Then in March, the Council approved a deal with Pinnacle Bank, but that institution backed out because its directors “were unable to get comfortable” with the structure of the loan, which is unlike a traditional mortgage, Riper said.
Because state law prohibits the City from entering a traditional mortgage arrangement, Capital One will lease the properties from the City after providing the full loan amount to local officials to purchase the stations, Riper said. Then the bank will lease the fire stations back to the City until the loan is paid back.
The City will be in ownership of the stations as of next week, when City staff expect to close on the purchase, Riper said.
The deal with Capital One will cost the City about $300,000 more than the initial deal offered by Bank of the West in January. The Bank of the West agreement was for 12 years at 2.65 percent interest, with annual payments of about $300,000.
The two fire stations will be staffed and operated by CalFire, with whom the City entered into a contract for fire services that started in January.
The City is required to purchase the stations from the County by the terms of the contract with the Central Fire District, which provided fire services for Morgan Hill from 1995 to 2012.
In an effort to cut fire services costs without sacrificing service, the Council in July 2012 approved a $19 million, five-year contract with CalFire.
