Title
Briefing on Tax Exempt Financing and Debt Limit
Recommended Action
City Manager Recommendation:
Briefing and discussion.
Report
Issue:
Discussion of municipal debt issuance and debt limits
Staff Contact:
Jane Kirkemo, Administrative Services Director, 360.753.8499
Presenter(s):
Jane Kirkemo, Administrative Services Director
Background and Analysis:
Tax exempt financing is used by state and local governments to raise funds to finance public capital improvements that are important to sustained economic growth. Debt financing is accomplished by issuing bonds to pay for specific projects or services. The goal of Olympia's debt policy is to maintain the ability to provide high quality, essential services in a cost effective manner. Unlike corporate debt issues, the interest received by holders of state and local governments is generally exempt from federal taxes and most state and local taxes. Consequently, investors will accept a lower interest rate on tax exempt issues; reflecting their reduced tax burden. This lower rate reduces borrowing costs for most governments by approximately 25%.
There are two types of tax exempt bonds: general obligation bonds and revenue bonds. General obligation bonds are backed by the "full faith and credit" of the city. This means the City pledges to guarantee the repayment of the debt. In Washington state there are two types of general obligation bonds: councilmanic and voter approved. Councilmanic bonds are authorized (within state limits) by a simple majority of the City Council; whereas voter approved bonds must be authorized by the voters. Voter approved debt (e.g. 4th Fire Station) requires a 60% approval from the voters to increase their property taxes to repay the debt. Councilmanic debt is repaid within the general operating budget.
Revenue bonds are issued for a specific project, such as constructing a sewer pipe line, and are paid from the revenues (rates) received from the utility. Be...
Click here for full text