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obligation is often chosen when there is no provision in the statutes to issue limited tax bonds for the project being financed. COPs: Prior to the mid 1990s when participations in financing agreements were authorized in the statutes, most COP borrowings were participations in a lease agreement and issued on a non-appropriation basis, meaning there was a "walk-away" clause which made it legal to terminate the financing prior to the final maturity, without this being a default. Even though the full faith and credit was often pledged as security, these types of financings were considerably more expensive. While this type of financing is still available, the significantly higher cost and the usual requirement to pledge the asset as collateral has made this type of financing virtually disappear in Oregon. 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 COPs or lease-purchase vehicles for the library, the acquisition of the Atrium and the Santa Clara Fire Station. Because COPs have gotten bad media attention due to failed projects in the past, the official names assigned to these borrowings are usually "Full Faith and Credit Obligations", rather than COPs or lease-purchase transactions. Revenue Bonds: If there is a reliable source of revenue available to pay debt service, revenue bonds may be an appropriate choice for borrowing. Often, revenue bond issues require additional security features, such as bond insurance, a debt service reserve fund, restrictions on issuing additional bonds paid from the same revenues and a debt service coverage ratio (i.e., projected revenues must exceed the debt service payment by a certain percentage). Most revenue bonds utilize the coverage ratio in a "rate covenant" which commits the issuer to raising its rates on the revenue sufficiently to cover all operating costs and debt service by this margin. Revenue bonds are subject to referral by the voters. Revenue bonds are more complicated and costly than either GO or Limited Tax Bonds. Revenue bonds are usually chosen when it is important that the users of an enterprise service should pay the costs of the borrowing, rather than general taxpayers. The amount that can be borrowed using this method will depend on the revenue stream available to repay the debt, the types of security required by the bondholders (i.e., the debt service coverage ratio and reserve requirements) and the interest rates at the time of the borrowing. The City has historically issued revenue bonds for the "non-public" areas of the airport and for EWEB. Assessment Bonds: For local improvement districts that levy assessments, the City can issue assessment bonds. Usually assessment projects are funded with Limited Tax Improvement Bonds (see Limited Tax Bonds) where the bonds are paid from assessments but secured by the City's full faith and credit, thereby obtaining the lowest interest cost. The payment on assessment bonds is guaranteed by liens placed on properties that benefit from the capital project. These bonds are very difficult and costly to market and have not been used often in Oregon. L:\CMO\2004 Council Agendas\M040428\S040428A. doc