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;CITY OF SOUTH BEND I OFFICE OF THE CLERK
<br /> Committeemember Voorde followed up, So a municipal bond would pay to the investor two-point
<br /> two eight percent (2.28%)?
<br /> Mr. Parker replied, That was the interest rate we got on the capital lease, whether we could issue
<br /> a bond on that or not, it would depend on the bond market at that time. It's pretty low,two to three
<br /> percent(2% - 3%). I'd say that's probably pretty standard. It's pretty low. Which bring us into, it's
<br /> a great segway, thank you, to debt! So again, when we look at our financial analysis, debt is an
<br /> extremely important component. It's worth the other side of the balance sheet,we'll put down how
<br /> much assets we have on hand. Debt is extremely important because it is the obligation we have
<br /> going forward as a City. So, it's important, I think, and what I want to spend a little bit of time
<br /> looking at is what kinds of debt the City actually get involved in? Basically, there's five (5) types;
<br /> three (3) types of bonds and then two (2)kinds of loans that we receive from banks.
<br /> He continued,The types of bonds that we look at are general obligation bonds,revenue bonds, and
<br /> mortgage bonds. The real difference between these three (3), and there's several differences, but
<br /> the real difference between the three(3) is the type of revenue or asset these bonds are secured by.
<br /> So, when you look at general obligation bonds, basically what that means is that those bonds are
<br /> secured by the full faith and credit of the government. General obligation bonds are secured by the
<br /> full faith and credit of the government. Generally, if a bond is secured by property taxes as the
<br /> municipality, that's considered to be a general obligation bond because property taxes are such an
<br /> important component to our overall operation. And when I say secured by, that means what the
<br /> government is required to repay. And,when is the government required to repay?What the general
<br /> obligation bond is secured by the full faith and credit in the government,the government is required
<br /> to repay it, regardless of how much revenue it brings in.
<br /> He went on, That's different than a revenue bond. Legally on a revenue bond, the revenue bonds
<br /> are secured by a specific revenue stream. If that revenue stream is not sufficient to cover the cost
<br /> of that bond,the government is not legally required to repay that bond. So, for instance, a revenue
<br /> bond could be secured on our economic development income tax revenue. So, if we get sufficient
<br /> economic development income tax revenue, you pay for that bond, then we are legally required to
<br /> pay that bond, but if we don't, then we would not be legally required. Now, in most cases, and
<br /> barring some extreme unforeseen emergency, we would still repay it, because we want to make
<br /> sure that we retain our high bond rating, and if we didn't repay our bond, that would really
<br /> jeopardize our bond rating. So, we still would repay it, but legally the revenue that is secured in
<br /> that bond is only that particular revenue stream. Mortgage bonds are similar, but instead of a
<br /> revenue stream, it is secured by an asset. Just like you get a mortgage on your house, secured by
<br /> that particular asset, if you don't repay those bonds, the bond holders have the ability to seize that
<br /> asset. So those are the three (3)types of bonds. In terms of which bonds, we generally issue,most
<br /> of our bonds are revenue bonds. We have very few general obligation bonds and mortgage bonds.
<br /> For different reasons, general obligation bonds are pretty strictly limited by the law, which we'll
<br /> get into in a second, and we can't issue very many of those, and mortgage bonds are generally a
<br /> difficult type to issue. From a project perspective, revenue bonds are a little bit easier to issue.
<br /> Committeemember Voorde asked, So, where would an enterprise fund bond be?
<br /> Mr. Parker replied, So enterprise bonds are generally revenue bonds. So, they're going to be
<br /> secured by the revenue. So, if we're issuing a sewer bond, they're going to be secured by the
<br /> EXCELLENCE ACCOUNTABILITY I INNOVATION INCLUSION EMPOWERMENT
<br /> 455 County-City Building 227 W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 TTD 574.235.5567 www.southbendin.gov
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