Item A: Downtown Development Financial Tools

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of about 1.5 times and a debt service reserve to protect against fluctuations in tax increment revenues. A debt service reserve amount is limited by certain IRS requirements, if a tax-exempt borrowing is undertaken. The debt service reserve limits are generally either the maximum annual debt service amount or 10% of the borrowing amount. A debt coverage ratio is a ratio of revenues to the debt payments. For instance, the Downtown District has division of tax revenues of about $1.8 million per year. Using the current ?division of tax? revenues of $1.8 million and a 1.5 times debt coverage ratio, lenders would limit the amount of any debt repayment to about $1.2 million annually, which would leave a 50% margin for property tax revenue fluctuations. This 50% margin could be used for district administrative activities and/or for other district projects paid on a cash basis. The Downtown District is scheduled to terminate in FY24. If the district entered into a new debt obligation (after substantially amending the plan) in FY08, that would leave 16 years remaining for a debt obligation to be repaid. Assuming a 16 year repayment schedule, a 1.5 times debt coverage ratio, and a projected interest rate for next fiscal year, the Downtown District would have a debt capacity of approximately $13 million. When development occurs in an urban renewal district, additional debt capacity is created for future projects. Lenders are typically less willing to lend money based on incremental tax revenues that have not yet been received by a district. For instance, if a district enters into a development agree- ment for a large new project that is expected to take a couple of years to generated incremental property taxes, lenders would want to base borrowing capacity on the existing tax revenues only and not include a factor for the new incremental revenues until the district begins to receive those revenues. It might be possible to negotiate with lenders to include a small factor for future incre- mental property taxes in the debt capacity calculations, but because those revenues are considered more risky, the terms could be more conservative. They might, for instance, require a higher debt coverage ratio and/or a higher interest rate. Another approach to accessing those yet-to-be-received revenues is to have the City provide its full faith and credit guarantee to the borrowing. This approach places the City?s general resources at risk in the event that the new incremental property tax revenues are less than expected. The City provided its full faith and credit guarantee to the borrowing that was done for the new library, as described above. In that case, policy makers determined that the project had sufficient public benefit to warrant placing the City?s general resources at risk.The City has not had to use its general resources to make payments on the library debt, however, because urban renewal tax revenues have been sufficient to make the annual payments. Amounts Available for Development Projects in the Downtown District The creation of a development financing plan depends on a variety of factors, such as the timing, amount and nature of the specific development. In general, however, the Downtown District has the following resources available for development at the current time: