15 ATTACHMENT - Laserfiche WebLink

General Obligation Bonds. Since the passage of Proposition 46 on the June 3, 1986 ballot, cities have been able to issue general obligation bonds to acquire, construct, or improve real property. General obligation bond issues are the most efficient form of long-term debt financing because the issues do not require a reserve fund nor funded interest (i.e., capitalized interest) during construction or acquisition of the project financed with the proceeds of the bonds. Therefore, general obligation bond issues are smaller in size and annual total debt is correspondingly lower than that of any other form of long term debt financing. The major disadvantage of a general obligation bond is the required 2/3rds-majority voter approval and the inequities created by Proposition XIII in the assessed valuations amongst property owners/homeowners. Another issue one must consider when issuing general obligation bonds is the time necessary to educate the voters about the need for the financing program, to hold the election, and then to structure the issue and sell the bonds. An election for the issuance of general obligation bonds can only occur on certain dates every year. The dates for a general obligation bond election in 2008 are February 5th, June 3`d, and November 4th. Also, it should be noted that there are long lead times for these elections. For example, the cutoff date for information to the Alameda County Registrar's Office for the February 5, 2008 election is October 31, 2007. Finally it should be noted that these elections can be costly. Estimates can be as high as $150,000 depending on printing costs and if there are any other items on the ballot to share in the cost. Therefore, it is important that the ballot initiative is well planned, organized, supported by the community and therefore, successful at the polls. Certi tcates of Participation. Certificates of Participation are a subset of the general financing technique known as lease/purchase financing. Within the tax-exempt realm a lease/purchase or installment sale obligation is an arrangement whereupon a municipality in consideration for the use of equipment and/or real property contracts to make lease payments over a specified period of time. At the conclusion of this contract, the lessee (municipality) has the right to purchase the leased capital items at a nominal amount (usually $1) or ownership may have already transferred by reason of an installment sale contract. If the financing is structured correctly to meet the requirements established by the federal government, the lease payments to the lessor are exempt from federal and state income taxation. The lessor, therefore, requires a lower rate of return from the financial contract (lease); lowering the interest costs to the lessee. The City has now, through this financial instrument, accessed the tax-exempt debt market. The major advantage of a certificate of participation financing mechanism is that it does not require voter approval. In California in a city (such as Pleasanton), the legislative body (i.e., City Council) is empowered to enter into lease/purchase financings. The major disadvantage of a certificate of participation is "where is the revenue going to come from in order to make the annual lease payment?" In the case of a general obligation bond (and the reason why voter approval is required) the annual debt service is paid through the levying of an ad valorem tax. In the case of certificates of participation, the annual lease payment is typically paid with excess City funds and/or excess revenues over expenditures. Therefore, no new tax is generated and the basis for why voter approval is not required for this type of financing. Parcel Tax and Benefit Assessment. Super majority (67%) voter approval would be required in order to levy a parcel tax and simple majority (50%+1) would be required to levy a benefit assessment. This type of tax or assessment has been used throughout California to finance emergency and paramedic services and improvements. The advantage of this type of a tax is that the actual amount of the tax per household, business, etc. can be structured in such a way that it is reflective of the benefit derived from the improvement or service. This is, as opposed to, the general obligation bond tax that can only be based on assessed valuation. In the case of the parcel tax or benefit assessment, the tax can be based on anything except assessed valuation. Benefit assessments