Fresno City Hall may be close to settling on a way to pay the Granite Park and Fresno Metropolitan Museum loans.

Borrow from itself.

In 2004, the City Council guaranteed a $5.2 million Bank of the West loan to nonprofit Granite Park Kids Foundation. In 2007, the City Council guaranteed a $15 million United Security Bank loan to the Fresno Metropolitan Museum.

Both loans are in default. It's all but certain that the city very soon will have to come up with $20 million. For months, the question at City Hall has been: "Where do we get the money?"

The reserve has about $17 million. Mayor Ashley Swearengin has already said she doesn't want to touch that except for the most serious emergency.

City Manager Andy Souza in recent weeks has suggested short-term borrowing -- loans of a year or two at most. This would give city officials time to figure out a long-term solution. But he didn't identify sources for the money.

The task facing City Hall is not a simple one. The collateral for both loans is property -- about 18 acres of run-down ballfields and three major-league replica baseball-softball fields at Granite Park; a historic five-story building that recently went through a $28 million renovation and the entire city block on which it sits at The Met.

That's property of considerable public-policy value.

Granite Park's 18 acres sit in a part of east-central Fresno that needs green space and recreational opportunities. Council members in 2004 said that was one reason they were willing to take a risk on the loan guarantee. Once the 18 acres are in the city's possession, city officials must decide: Keep it all and turn it into a well-kept park? Sell all to a commercial developer? Some combination of the two?

The Met figures to be a bigger challenge. City Hall has long viewed The Met as an anchor in the growth of the cultural arts district and the overall revitalization of downtown. Once the property is in the city's hands, city officials must decide: Keep it all and rent the building to the museum? Sell the building and land to a developer? Sell just part of the property to a developer?

Arriving at these answers will take time: Staff proposals, public hearings, City Council discussion.

Swearengin's proposed 2009-10 budget includes $700,000 for interest payments on about $20 million in short-term borrowing.

On Tuesday, Souza identified the most likely source of these millions: "We would be borrowing from the city's internal treasury."

He said that probably will be his recommendation to Swearengin. She, in turn, will make a recommendation to the City Council.

The city's internal treasury doesn't get a lot of public discussion. Souza describes it as something like a checking account. A bunch of checking accounts is more like it.
Money comes in from many sources -- utility payments, parking fees, proceeds from the sale of bonds, to name just a few. And it goes out -- payroll, capital projects, gas for city vehicles.

Souza says the treasury"s balance sometimes exceeds $200 million. It's almost always at least $100 million, he says. The city earns interest on the money.

The city would borrow $20 million cash from itself for the Granite Park and Met loans for 12 to 18 months at an interest rate of 2% or 2.5%, Souza said.

Obviously, the $20 million would be money that no one at City Hall -- Public Works or payroll, for example -- needs for the next year or two.

Where does such money, funds not immediately needed, come from?

Souza said there are several sources. Proceeds from bond sales, for example. Another example: Utility payments earmarked for a capital project that won't be started for several years.

Souza said City Hall is not engaged in building a big treasury balance at the public's expense just so it can use the money as an easy or inexpensive source of internal financing.