7.0. HRSR 07-23-2001 - Laserfiche WebLink

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City of Item # 7 Elk -�-� River MEMORANDUM TO: Housing Redevelopment Authority FROM: Marc Nevinski, Assistant Director of Economic Development DATE: July 23, 2001 SUBJECT: Conduit Bonding Policy Background Another development tool available to the HRA, 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 financing, the city first 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 subsequently 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. Action Requested Attached for your review is a draft of a policy for the issuance of conduit bonds. The policy has undergone legal review and those comments have been incorporated into the document. No formal action is requested at this time. However, staff requests that the HRA review and comment on the policy, particularly sections A and B, before the policy is brought to the Council for review and adoption. •