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ATTACHMENT C Borrowing Methods Summary Direct Borrowing Methods Because the City is a highly-rated municipal entity in Oregon, there are several very flexible and inexpensive direct borrowing methods available directly to the City for funding capital projects. A summary of those methods is included below. General Obligation Bonds: General Obligation (or "GO") bonds, which are approved by the voters, are the least cost borrowing method for any construction project. This kind of bond is well understood by underwriters and investors, and as a result, the issuance costs are low. It is also the most secure kind of borrowing that a government can enter into, so the bond ratings are the highest and the interest rates demanded by investors are the lowest rates of any kind of borrowing. In addition to being the most cost effective method, this form of borrowing also comes with a revenue source to repay the bonds - the ability to levy a property tax. The City's debt policies limit GO Bonds to projects that will benefit the entire community, rather than a subset. Historically, the City has used GO bonds to borrow funds for construction of projects like City Hall, parks and open space projects and public safety facilities. Limited Tax Bonds: If the City has an identified revenue source to repay a borrowing, such as parking revenues, limited tax bonds may be issued to pay for the project. Limited tax bonds are rated one notch lower than the City's GO Bonds, and are slightly more complicated, so the costs are slightly more than for GO Bonds, but are still very low compared to other borrowing methods. The lower cost is due primarily to the security which is the "full faith and credit" of the City, usually interpreted as the General Fund resources, although the promise is a bit broader and covers all "legally available" funds. These bonds are authorized by resolution and are therefore not subject to citizen referral. There must be a specific authorization in the statutes for the type of project that is to be funded with the bonds. The amount that can be borrowed using this method will depend on the revenue stream available to repay the debt and the interest rates at the time of the borrowing. Historically, the City has used Limited Tax bonds to borrow funds for to pay off the unfunded accrued pension liability, parking garages and assessment projects within the City limits (also see Assessment Bonds) Certificates of Participation (COPs) or Lease-Purchase Financing: COPs or lease-purchase financing can be appropriate for certain kinds of real property projects. This financing method is more complicated and less secure than GO bonds, so the issuance costs and interest rates are higher. There are two types of COPs financings. Full Faith and Credit Obligations ("FF&C"): These are certificates of participation in a financing agreement. The "full faith and credit" of the City is provided as security. These securities are also rated one notch lower than the City's GO Bonds. This kind of L:\CMO\2004 Council Agendas\M040428\S040428A. doc