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Because policy makers did not want to pledge the City's assets to pay debt for projects outside the City limits, the City issued assessment bonds for sewer projects outside City limits in the Santa Clara area. While the debt service on those assessment bonds are paid through assessments to private property owners, the City has improved the credit rating of those bonds by pledging sewer system revenues as additional backing. Tax Increment Bonds: For projects located within an urban renewal district, it is possible to borrow against the incremental property taxes generated within the district. Because the issuer has no ability to increase the taxes in case of a shortfall, this kind of borrowing is considered more risky than the other types mentioned so far and treated like revenue bonds, so the costs are higher. Bondholders will usually require additional security features similar to revenue bonds, such as bond insurance, debt service reserves, additional bonds restrictions and debt coverage ratios. Here the coverage ratios are often expressed as "collection covenants" where the issuer commits to levying taxes higher than the debt service by the margin, provided there is sufficient room within the allowable tax increment. The project must be located within the district boundaries and be included in the plan. There must be sufficient incremental property tax available at the time of borrowing (not dependant upon future development) to repay the debt. 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. Historically, the City has used tax increment bonds for the community conference center. Section 108 Loans: Section 108 is the loan guarantee provision of the Community Development Block Grant (CDBG) program. It allows local governments to transform borrow up to five times their annual CDBG entitlement. Local governments borrowing funds under the Section 108 program must pledge their current and future CDBG allocations to cover the loan amount as security for the loan, but other revenues may be used to actually repay the debt. For Eugene, the maximum Section 108 borrowing capacity would currently be approximately $8 million. Proceeds of a Section 108 borrowing must be used in a CDBG eligible project. A good candi- date for this type of financing would have other revenues available to repay the debt, so that the community does not have to lose the ability to use CDBG funds for other high-priority community needs such as affordable housing and human services. The City has not used this borrowing method in the past. Borrowing Methods Involving the Private Sector as a Third Party "Public/private partnership" is a term that can mean many different things. It can include privatization of services, direct investment of public funds in private enterprises, joint development of projects, and other approaches to providing on-going services or funding capital projects. There are a number of factors that should be taken into consideration when choosing to employ a public/private partnership for a construction project. For instance, the public and private sectors L:\CMO\2004 Council Agendas\M040428\S040428A. doc