Item A: Downtown Development Financial Tools

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Current Debt Obligations: The URA does not currently have bonds outstanding. The Downtown District has an obligation through an Intergovernmental Agreement to pay the City an amount equal to the principal and interest payments on the debt issued to fund the new library construction project. Future Debt Obligations: Once the Downtown District plan is amended, it would be possible for the district to enter into obligations of greater than the $4.6 million allowed under the current “maximum indebtedness” figure. As tax increment revenues are less predictable than the City’s general property tax revenues, urban renewal borrowings are considered more risky than general City borrowings. Because of this, lenders typically require a “debt coverage” ratio of about 1.5 times and a debt service reserve to protect against fluctuations in tax increment revenues. A debt service reserve fund is generally required in an amount that is equal to either the maximum annual debt service amount or 10% of the borrowing amount. Adebt coverage ratio is the ratio of revenues to 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 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. Future Revenue – 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 agreement for a large new project that is expected to take several years to generate incremental property taxes, lenders would want to base the borrowing capacity on the existing tax revenues only. The lenders do 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 incremental property taxes in the debt capacity calculations. The future revenues are considered more risky and would lead to more conservative terms. Lenders might, for instance, require a higher debt coverage ratio, lend at a higher interest rate, or require additional security such as a full faith and credit guarantee of the City. Example: Eugene Public Library The Urban Renewal Agency and the City entered into an Intergovernmental Agreement that committed the Agency to make the debt service payments on $18.5 million of City debt obligations for the library and to provide additional cash contributions to the project, if excess urban renewal revenues are available in future years. The resolution authorizing the City Manager to sign the Intergovernmental Agreement was approved by the Council and the Agency on February 28, 2000, along with the resolution authorizing issuance of the debt obligations. On April 27, 2000, the City issued $18.5 million of debt that was to be repaid from Agency resources. The debt was to be repaid in annual amounts of about $2.5 million and the final maturity is on December 1, 2009. The City pledged its full faith and credit to repay these bonds, but that pledge has not been used because tax increment revenues have been sufficient to make the debt payments. Page 4 of 13