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MEMORANDUM <br /> <br />TO: <br /> <br />FROM: <br /> <br />DATE: <br /> <br />SUBJECT: <br /> <br />Mayor and City Council <br /> <br />Lori Johnson, Finance Director ~'~ <br /> <br />January 14, 2002 <br /> <br />I. Bonding Dollars Versus Construction Dollars <br />2. Tax Impacts <br /> <br />Attached is information on financing the public safety building project. The information <br />provides a comparison of lease revenue and general obligation bonds as well as tax impacts <br />for six bond issues, three different amounts for both lease revenue and general obligation. <br /> <br />In an earlier memo the main differences between the two types of bonds were discussed. I <br />have again provided a summary of the differences in the General Comparison of Bond <br />Options on the attached sheet. One of the items discussed recently is the requirement for a <br />debt service reserve for lease revenue bonds. This reserve is required because the structure <br />of lease revenue bonds is that the payments are subject to annual appropriation by the <br />leasing authority. In other words, the City must annually appropriate funds to pay the lease <br />(debt) on the bonds. This is not the case for general obligation bonds because they require <br />an annual levy. Therefore, the reserve serves as a safety net for the bondholders in the very <br />unlikely event that the City would not appropriate funds for the lease. The reserve is the <br />City's money that is held by the paying agent. It earns interest during the life of the bond, <br />and this interest is used to reduce the annual debt payments. At maturity, the reserve may be <br />used to make the final year's debt payments or the reserve may be returned to the City. <br /> <br />The tax analysis attached shows tax impacts on residential homestead and <br />commercial/industrial properties for six, seven, and eight million dollar bond issues. The tax <br />impacts are different for the two types of bonds because a lease revenue levy is based on tax <br />capacity and a general obligation levy is based on market value. Also, because of the debt <br />service reserve requirement for a lease revenue bond, the issue size for a lease revenue bond <br />will be higher than a general obligation bond to yield the same net proceeds available for <br />construction. <br /> <br /> <br />