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have very different motives for operating, ways of measuring their success, and expectations about the kind of process needed to complete a project. Public projects that are completed in conjunction with the private sector can have significant complications around public bidding laws, prevailing wage laws, and tax laws. In addition, there is a prohibition around the "lending of credit" between a government and a private sector entity that can cause some approaches to not work well. These limitations can cause public/private projects to become extremely complex and, therefore, not very understandable for the average citizen. In addition, citizens can often perceive a public/private partnership to be an inappropriate subsidy to the private sector. Staff has discussed some of the options for public/private partnerships on capital project financing with the City's bond counsel and financial advisor a number of times over the past several years. The advice consistently given by both advisors is that these kinds of arrangements involving an additional private sector party for borrowing money are entered into for reasons other than to achieve the lowest cost financing. They are generally entered into because a there is not legal authority or political support to undertake a borrowing, or because the municipality is out of room under borrowing limits. The line between a borrowing method and construction method on some types of public/private partnerships can be fuzzy. Attachment E includes information about types of public/private partnerships on the construction management side. The public/private partnership methods set out below are methods of borrowing for the public sector partner. There are other types of public/private partnerships that are available for the private sector to borrow funds, but those are not discussed here. Conduit Financings: In some states (such as Washington), municipalities do not have the flexibility that Oregon gives to its municipalities in terms of tax-exempt borrowing methods. In order to enter into a lease type transaction, municipalities must engage a third party to implement the borrowing. This is sometimes called a "63-20" financing, which refers to a section of the tax code. 63-20 bonds are issued by the non-profit and the municipality's role is to make lease payments to the non-profit and the non-profit uses that money to pay the debt service. The main reasons to do this type of financing are to avoid debt limitations and public purchasing rules for the project construction and/or equipping. Because there are additional parties to the transaction, the fees and issuance costs are higher than if the municipality were able to borrow directly from the credit markets. In addition, the third- party conduit issuer may have a degree of control over the financing and the construction of the project. There may be times when this option is a good choice because there is a reason (other than to achieve the lowest cost) to package the financing of a facility with a private developer's participation in the construction of the facility. In this type of financing, the governing body gives up a significant amount of control over the project. L:\CMO\2004 Council Agendas\M040428\S040428A. doc