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e- e .e required as part of the trust agreement to set aside two years' worth of pay- ments. Mr. Wong said the 20th year payment has been put into reserve earning approximately 14-percent interest, adding that a substantial part of that reserve could serve as two years of debt. Mr. Gleason explained that part of that reserve had to be pledged to the trustee as part of the agreement. Technically, if the City is in default, the trustee owns the building. Mr. Gleason said the certificate of participation is marketable because of the 20th year payment and the building itself. He said the agreement does not fall within the legal definition of debt in the State of Oregon and the bond houses do not consider it part of the City's debt. He explained that revenue bonds are backed by full faith and credit of the City while leases are not. In response to a comment by Mr. Ball on 1I0ff-sheet financing,1I Mr. Wong said that Moody's is aware of the certificates and do not count the certificate toward the City's debt coverage. Mr. Ball explained that this type of financing is used when a municipality wants to circumvent overly restrictive bonding requirements, similar to what the City did with the parking structure. Mr. Gleason said there was no legal requirement within the State of Oregon that requires a vote for a debt. He said that revenue debt within the State is full faith and credit and that there is no way to circumvent that relationship. He said the City chose this project because it had made a commitment as part of its agreements in the development of the hotel and conference center. He said the City waited before issuing a debt, expecting the market to improve, but finally had to issue the debt. He said staff felt that this method is the best way to issue that debt. Mr. Ball stressed that the City at this time has $900,000 of tax increment financing being transferred to that lease and that General Fund money will be committed to make up the difference if the revenue stream is not present. Mayor Keller responded that it would take other action by the council. In response to a question, Mayor Keller stated that the revenues to the partici- pants will be tax-free in this arrangement. Mr. Wong stated that he expects to negotiate an interest rate of 9.5 to 10 percent for a 10-year period. Mr. Holmer stated his general agreement with the concerns raised by Mr. Ball and indicated his reluctance with the tax increment funding arrangements as a financing tool. He said he could be persuaded under certain circumstances. Mayor Keller commented that all economically viable jurisdictions in Oregon use this system of financing because it creates no hardship on the community. He said he does not feel uneasy with the system. Mr. Ball responded that one hardship would be the reduction of the effective tax base. Mr. Gleason felt the system of financing does not reduce the tax base; the condition of a tax incre- ment district is that the increment gained helps to create a base. He said the Hilton Hotel project could not have been realized without the Conference Center; therefore the City is serving the interests of the public. He said the income stream from the hotel will start accruing to the increment district next year, an important addition to the increment base. He said the system is virtually the one method of making those projects occur. Mr. Holmer said he did not come prepared to debate. He acknowledged that it is an important issue but would rather debate the issue in terms of a new project. MINUTES-Eugene City Council January 25, 1984 Page 9