Are you leveraging all your financial tools?

The most common tools for financing new projects are general obligation and revenue bonds.  But cities have many more financing options available to them.  A few of the lesser-known vehicles include:

1. Local sales tax. 
   Many Minnesota cities discount this financial tool because it requires special legislation.  But numerous cities have been successful at gaining authorization to impose this tax for extraordinary capital projects.  Examples include civic centers in New Ulm and Proctor, riverfront revitalization in Mankato, lake dredging in Winona and a hospital in Cook County. Two things to note about the process, however:
   
   
   1. Before seeking legislative approval, your governing body must adopt a resolution in support of the tax.
      
      
   2. And if authorized, the question must be put to a vote at a general (not special) election.
      
   
   
2. Special district tax. 
   These are most commonly associated with schools, hospitals, fire service areas and watershed districts. But they can be used to cover improvements in select areas such as downtowns or historic districts and even rural areas outside the city limits.
   
   
3. Lease revenue bonds. 
   With this financing, a separate nonprofit entity or government agency (such as an Economic Development Agency or Park Board) issues the revenue bonds, uses the bond proceeds to acquire the capital assets, then leases the assets to the city via a lease-purchase agreement.  The lease serves as collateral for securing the bonds.  For Federal income tax purposes, the lease agreement is deemed a conditional sale agreement, so the interest component of the “rental” payments made by the city are generally exempt from federal income taxes.  Another benefit is that this type of bond does not require voter approval.

For more information on the financial tools available, contact one of our government experts.