Recently the Longmont City Council voted recently to use a financing tool called certificates of participation (COP) to help fund the redevelopment of the Twin Peaks Mall. But in spite of claims made by some critics, the decision was discussed and analyzed over a year before the vote. The initial decision was made by the City Council in January of 2013 as a way to raise $27.5 million that the City had committed to the project.
At that time it was agreed that the COP would be authorized once the developer submitted its development and financing plan; that happened on June 24, 2014. This timeline is important because the Times Call story implied that opposition to the COP was timely because the decision was under consideration. In effect, the decision was made months ago after the Council discussed financing options. Possibly those who opposed the use of COP weren’t paying attention back in 2013.
The Council had to choose between two options: the COP or the issuance of bonds by LURA or the Twin Peaks metro district. Staff and City financial advisors recommended the COP because it had a higher chance of success. They said that the issuance of bonds by either LURA or the Twin Peaks metro district would require the City to make a moral obligation pledge which would require the City to replenish any reserve funds if pledged revenue from the URA TIF and District property taxes were insufficient to cover the annual debt service on the bonds. Since 2008, the prospect of completing a financing through a URA with a moral obligation is not as certain and is not considered attractive by investors.
The COP agreement involves the sale of four city properties (the Safety & Justice Center; the Civic Center Complex; the Library; and the Development Services Center) to a trustee to be held as collateral on the financing. The underwriter, Piper Jaffray, will purchase the COP from the City in return for the COP proceeds to be used for the redevelopment project and associated costs. The underwriter then markets the COP’s in individual denominations of $5,000 or greater as with a traditional municipal bond. The City will repay the financing over a period of twenty-three years through 2037 through base rental payments that are subject to annual appropriation by the City Council. After final repayment of the COP’s in 2037, title to the properties returns to the City.
Note: The City used a similar approach to fund the construction of the new Fire Station #1 in 2008. It has also been used to fund the construction of projects across Colorado: in 2005 for example, about $197 million in COPs were issued to construct new buildings on the Health Sciences Center and Fitzsimmons campus as well as about $130 million for the construction of a new correctional facility.