5.5. SR 08-20-2001 - Laserfiche WebLink

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R3ver TO: ROM: DATE: SUBJECT: Item I 5.5. MEMORANDUM Mayor & City Council Catherine Mehelich, Director of Economic Development August 20, 2001 Conduit Bonding Policy Background Another development tool available to the City, in addition to TIF, tax abatement, and micro loans, is conduit bonding. Essentially, conduit bonding allows a developer or business to borrow larger sums of money at a lower interest rate. To utilize such fmancing, the city f~rst authorizes the issuance of tax-exempt bonds, which are sold on the open market. The proceeds are then passed through the city (the conduit) to the borrower for qualified project costs. Because the bonds are issued by the city, the interest earned is tax free, which lowers the interest rate on the bonds and subsequendy the borrower's debt service. The city's role in issuing conduit bonds is minimal. The majority of the work is done by the bond underwriters, who ensure that the project and the use of funds comply with the IRS tax code. This eliminates the need for the city to regulate and monitor the project financing. Additionally, the city bears no risk as it is not the bondholder and is not responsible for repaying the bonds. The city has utilized conduit bonding in the past, most recently for the private acquisition and rehabilitation of the Oak Crest Apartments in 1999. At that time the Council directed staff to draft a policy for the application process of conduit bonds. Since that time staff has received informal requests for the city's issuance of conduit bonds for housing development, as well as interest in industrial development bonds. Thus, staff has drafted the attached policy for the city's application process of conduit bonding. Action Requested The policy has undergone legal, HRA, and EDA review and those comments have been incorporated into the document. Staff recommends the City Council adopt the Conduit Bonding Policy. Attachment · City of Elk River Conduit Bonding Policy August 2001