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Item 7. <br /> Crty <br /> Elk <br /> River <br /> MEMORANDUM <br /> TO: Economic Development Authority <br /> iiFROM: Marc Nevinski, Assistant Director of Economic Development <br /> / <br /> DATE: August 13, 2001 <br /> SUBJECT: Conduit Bonding Policy <br /> Background <br /> Another development tool available to the EDA, in addition to TIF, tax abatement, <br /> and micro loans, is conduit bonding. Essentially, conduit bonding allows a developer <br /> or business to borrow larger sums of money at a lower interest rate. <br /> To utilize such financing, the city first authorizes the issuance of tax-exempt bonds, <br /> • which are sold on the open market. The proceeds are then "passed through" the city <br /> (the conduit) to the borrower for qualified project costs. Because the bonds are issued <br /> by the city, the interest earned on the bonds is tax free, which lowers the interest rate <br /> on the bonds and subsequently the borrower's debt service. <br /> The city's role in issuing conduit bonds is minimal. The majority of the work is done <br /> by the bond underwriters, who ensure that the project and the use of funds comply <br /> with the IRS tax code. This eliminates the need for the city to regulate and monitor <br /> the project financing. Additionally, the city bears no risk as it is not the bondholder <br /> and is not responsible for repaying the bonds. <br /> Action Requested <br /> Attached for your review is a draft of a policy for the issuance of conduit bonds. Both <br /> legal counsel and the HRA have reviewed the policy, and their comments have been <br /> incorporated into the document. No formal action is requested at this time. However, <br /> staff requests that the EDA review and comment on the policy, particularly sections A <br /> and B, before the policy is brought to the Council for review and adoption. <br /> • <br /> S:\EDA\AGENDA\Conduit Bond Memo.DOC <br />