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Mayor Gamec expressed interest in ways of financing for a community center. <br /> <br />Councilmember Haas Steffen asked what kind of bonds the City can sell. <br /> <br />Mr. O'Neill stated that some basic financial questions are - what do I want to buy, how <br />much will it cost, can I afford this item, ifI borrow, who will I borrow from, what are the <br />financing terms, what is my source of repayment and what collateral may I pledge as <br />security. Some decision points for Council would be how should the item be financed - <br />cash or debt, are the financing structure and repayment sources meeting our jurisdiction's <br />long-term financial objectives, what is the most appropriate method of sale for this <br />financing - competitive or negotiated, should my jurisdiction award the bid on interest <br />rates and terms of sale to the underwriter. Mr. O'Neill described pay methods - pay-as- <br />you-go (cash) and pay-as-you-use (debt). Factors to consider are as follows: Equity - are <br />the beneficiaries of the project or service paying for it? Effectiveness - will the funding <br />be sufficient and received in a timely fashion? Efficiency - what financing method is <br />most cost-effective? Things to be considered are the sources of revenue - taxes - Ad <br />Valorem, special assessments, tax increment, utility user fees, sales, etc. Key revenue <br />pledge considerations are amount, stability, ability to increase and ability to legally <br />pledge. Mr. O'Neill described Municipal Bonds as an obligation to pay a stated amount <br />of money at a fixed future date made for the purpose of incurring debt. He pointed out <br />the types of municipal obligations as follows: general obligation bonds or notes, revenue <br />bonds, general obligation revenue bonds and annual appropriation obligations. He then <br />expanded on each type of bond. General obligation bonds or notes (unlimited tax) pledge <br />the full faith and credit and unlimited taxing power to pay debt service. Source of <br />payment is property taxes. The purpose of this would be for projects that benefit the <br />whole community. Risk or cost - highest security, lowest cost. Credit rating impact - full <br />impact. Revenue Bonds pledge the revenues of a specified funding source to pay debt <br />service. Additional assurances are covenanted within the bond documents. The source of <br />payment is specified revenues, purposes are projects that benefit specific users. The risk <br />or cost is higher than general obligations because of limited revenue stream. The degree <br />of risk depends on the individual financing package. Investors require coverage usually <br />in the range of 125% to 200%. The credit rating depends on the security of the finance <br />package. The credit rating for a revenue bond is independent of an issuer's general <br />obligation rating. Mr. O'Neill continued with general obligation revenue bonds which <br />pledge specified revenues and the issuer's full faith and credit and unlimited taxing <br />powers. The source of payment is specified revenues and property taxes and the purposes <br />of the project are for the whole community and/or specific areas. The risk is the same as <br />general obligations and is usually a full impact on the credit rating. It may be mitigated <br />depending on the revenue stream. The annual appropriation obligations is when a <br />government agency enters into an agreement with another party to lease an asset. Lease <br />payments are sufficient to pay the purchase price and associated interest cost of acquiring <br />the asset. Examples of annual appropriation obligations include certificates of <br />participation, lease purchase financing, and installment purchase contracts. The source of <br />payment is revenues subject to annual appropriations (budget process) and the risk or cost <br /> <br /> Council Work Session/May 19, 1998 <br /> Page 9 of 10 <br /> <br /> <br />