Sprucing up downtown often includes projects like streetscape improvements, or street work to improve circulation (and fix up the utilities while we’re at it), and improved parking, bike lanes, and other services. We are so used to using installment financing for municipal projects that when our financed property doesn’t have much collateral value, we feel stuck. You’re probably not going to have a bond referendum for any of this.
That’s where special obligation bonds can be a help. Special obligation bonds are an underused, flexible too that can be used to finance “downtown revitalization projects.” Your borrowing has to be for capital costs of buildings or facilities, but anything you might want to do in terms of streetscape, downtown utilities, parking, or related public buildings or improvements will likely be covered.
Special obligation bonds are a type of revenue bond, as to which the local government promises to repay the loan from specified sources that don’t include taxes set by that local government. So, for example, a city or a town could pledge sales tax receipts, because the city doesn’t establish that tax or set the rate. Governments that have used special obligation bonds have found multiple and disparate sources to make up the “package” of pledged revenues (rec department participation fees, anyone?). They don’t require a vote of the people, or even a public hearing..
These bonds have wide acceptance from lenders. They can just as easily be placed with a single bank as you could an installment financing. These bonds need LGC approval, but there’s no reason to think that would be any more difficult here than for any other borrowing.
Another limitation on these special obligation bonds is that they have to be for projects being carried out within a municipal service district. There is a process to establish such a district if you don’t have one already.
You can also think about special obligation bonds as a way to leverage a municipal service district tax. You can’t directly pledge that tax to the bonds, but you can decide how much to borrow based on how much debt your tax collections can support (or what half of your collections would support, or so on).
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