2016-05-09-minutes-public-works-study-session

Home Browse Search

hearing). If there is a challenge and an unsatisfactory ruling is made at the hearing, the property owner could take the challenge through legal appeals. Bonds often cannot be sold while assessments are on appeal, forcing a delay in the repayment of the constr4ction financing. Also, the council or commission in its efforts to be fair and impartial could extend the hearing, causing a repayment delay, These and other factors contribute to the lack of predictability for the term of the interim financing. The ter.►n of the construction funding should be set long enough to take into account reasonable extensions of the period for closing the assessment roil. The loan sheuid also be callable at any time, with as little a penalty as possible, to provide the flexibility to pay off the loan at the earliest available date. Further complicating the issue forthe construction lender isthe lack of security forthefinancing. Since the lien on the property is not perfected until the completion of the final assessment hearing and the filing of the roll for collection, the construction lender has only the guaranty fund and the goodwill of the municipality as securityforthe financing unless some other arrangement is made. Consequently, it is very important to the lender that the long-term financing for the project be viable at completion of the project. Often it is a requirement of the construction lender that a "takeout letter" be available from a qualified financial institution or underwriter, committing to the purchase of the long-term debt, when issued, before the lander will provide financing for ,the construction. Since no assessment revenue is received during the construction period, intereston the loan that comes due during the construction period will have to be capitalized and paid from the proceeds of the construction loan. This is an important factor in the proper sizing of the LID construction loan. Often, if the lender consents, interest is paid only at the maturity of the loan. Some projects however, have construction periods that are too Zang for lenders to accept a delayed interest payment. NotA11 LID Projects Can or Should Be Financed It should not be assumed that a project can be financed through LID assessment bonds. Some projects may provide infrastructure improvements for properties that lack the value to support LID debt. There may also be legal or tax problems which will doom financing. Determination of risk to your municipality as well as the lender and the investor is an important part of the LID process and may determine the inadvisability of supporting a project. Use your financing team to help you make those determinations prior to formation of the assessment district. Understand the financial Risks Takers to fund LIDs A lender or underwriter risks capital, investors risk capital and investment return, and the municipality risks its own funds when embarking on and funding an LID project. As a municipality, work to minimize risk by helping to make sure the LID or ULID issue is of good credit quality, is well secured and that information regarding the project and its financing are fully disclosed to all interested parties. Since there are a limited number of investors willing to purchase LID issues, it is rnportartto understand their needs and if possible, properly balance the municipal and investor risk, Municipalities who ignore the needs of the investor, risk a higher cost financing at the least and at the worst, an inability to finance at project completion. 50 Local and Road Improvement Districts Manual for Washington State Sixth Edition