City Council Study Session Agenda and Packet 2020 01 28

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Kelly PC 999 18th Street, Suite 1450, Denver, CO 80202 Mayor Stolzmann and Councilmembers City of Louisville January 23, 2020 Page 9 district bonds will be marketed only to investors having financial sophistication and resources appropriate for the risk level of the bonds (even though such assurances do not really provide support for the required statutory finding). Investor suitability requirements typically combine minimum bond denomination requirements with provisions limiting sales to institutional or accredited investors, with investment grade ratings and/or credit enhancement as an alternative. Concerns as to the marketing of the district’s bonds may also be addressed by requiring a City disclaimer in all offering materials. Early issues of bonds by metro districts are not typically sold to the general public. These bonds are considered “riskier” bonds as the development has typically not yet occurred and is not guaranteed. The bonds are sold at higher interest rates and to “accredited investors” who are individuals or organizations that are sophisticated investors and thus able to bear the risk of loss of their investment. Additionally, these bonds are typically sold in denominations of $500,000, so the purchasers of these bonds are financially able to purchase bonds in large denominations. In some instances, a district may want to issue bonds for the commencement of public infrastructure before they are able to be sold to investors, even accredited investors. In that case, a district may issue a bond to a developer, which would allow the district to start these improvements, and then the district would “refund” this obligation when the district has some assessed value and issues bonds. These obligations sometimes take the form of “cash flow bonds,” and are not repaid until the proposed district issues bonds to the public. Sometimes these bonds are structured in such a way that any unpaid amounts, principal and interest, continue to accrue interest on the interest, or “compound” interest. The City Council should consider whether it wants to prohibit or at least regulate the possible issuance of this type of financing in the service plan. Frequently districts enter into agreements pursuant to which a district agrees to reimburse a developer for up front costs of public infrastructure. This agreement may or may not take the form of an actual bond, and may or may not accrue interest. The City could restrict the repayment of developer “debt” by limiting the interest rate payable on developer debt or bonds, or putting similar restrictions on this issuance. C. Protection of taxpayers and tax base. Finally, service plans may be required to state a maximum mill levy in order to protect future owners of property within the special district from excessive property taxes (if the special district issues property-tax based debt and then does not develop as planned). Mill levy limits are typically subject to a “Gallagher adjustment” to compensate for changes in the legally prescribed ratio of assessed value to market value, providing that such adjustment does not, to the extent possible, enhance or diminish actual tax revenues. 12