Types of Projects

Community centers have traditionally been financed through lease financing secured by general fund revenues. However, voter support for increased taxes for community centers is generally not strong enough to pass such bond measures. Another option is to secure a general purpose tax increase for a key general fund revenue, such as sales tax or utility users tax, by a simple majority (50%+) vote.

Relevant Case Studies: Berkeley Affordable Housing General Obligation Bond Authorization

Most parks and recreation facilities are financed through general fund lease financing. However, depending on the nature of the facilities, assessments approved under Proposition 218 can be used to finance certain parks and recreation facilities. Eligible facilities for assessment finance need to have a clear specific benefit to the parcels being assessed. This does not mean that the entire project needs to have specific benefit to assessed parcels, but that a portion of the project does have specific benefit to assessed parcels and that the amount assessed is in proportion to the specific benefit.

In addition, some public golf courses have been financed with security provided solely through golf course revenue. Such financings are rare and not always successful.

Relevant Case Studies: Palmdale Citywide Assessment for Park & Recreation Projects

In general, legal experts in California are comfortable with financing roads through lease financing. However, investors are not always comfortable with the use of roadways as security for a lease financing. Asset transfer lease financing, where another real estate asset owned by the issuer is used in place of the roadway to be built or improved, is the more common form of lease financing for roadways. Assessment financing is also commonly used for roadway improvements; but again, the amount assessed to each parcel must be in proportion to the specific benefit received by the assessed parcel. NHA has also worked with clients to finance street/road improvements by leveraging dedicated transportation sales tax revenues, like those received by many agencies in Los Angeles County (see Lancaster case study below).

Relevant Case Studies: Yuba County/YCWA Road Project Financing Using Unique Revenue Source (SB 1 Funds) and Lancaster Street Project Financing (Dedicated County Transportation Revenues)

Facilities for water, sewer, solid waste, and other municipal utilities are typically financed through debt secured by a direct pledge of net revenues of the utility. Where utility revenues are weak, general fund lease financing can be used as well, or the financing can be done as a “double-barreled” bond with both utility revenues and general fund revenues pledged. Such debt can include a provision where the general fund pledge drops away when utility revenues meet certain tests.

Relevant Case Studies: Farmersville Wastewater Treatment Plant Upgrades (Multi-Funding Sources), CCSD Emergency Water Supply Project Financing and Napa Solid Waste Project/Green Bond Designation

Public safety, city halls, community centers, recreation and other public facilities historically have been funded with cash or reserves, a number have been financed through special tax or general obligation bonds or a lease-lease back financing structure. While special tax and general obligation bonds require either property owner or registered voter approval, the lease-lease back structure can be used without any voter approval. As with city halls, community centers and parks and recreation facilities, a general purpose tax (typically a transaction and use tax) can be approved by simple majority and used to make debt service payments on a lease financing.

Relevant Case Studies: Newark Civic Center Project Financing (Sales Tax Revenue Pledge) and Selma Police Station Project/General Obligation Bond Authorization 

While parking facilities are typically financed through general fund backed lease financing, these financings are oftentimes self-supporting from parking revenues. From our experience, investors are more likely to get comfortable with general fund support than a direct pledge of parking revenues. Nevertheless, a well run parking garage can generate sufficient revenue to not only pay for operating costs, but to support debt service. The public agency owning the parking facility can operate the facility as a utility through an enterprise fund, and solely support the debt through parking revenues (see Berkeley case study below) or use the general fund to help support the debt through a formal security pledge.

Relevant Case Studies: Berkeley New Downtown Parking Garage – Parking Revenue Bond

Historically, convention centers have operated at best with little revenue support.  Rental income can cover a majority of the operating costs but some dedicated supplemental revenue source is recommended.  In some cases a transient occupancy tax is implemented (approved by voters) to generate additional revenues that can support a convention center financing.  This tax is considered a general tax and captured through a public agency’s general fud thereby providing the flexibility to allocate it towards the convention center costs (including bond payments). The boundary for any transient occupancy tax can be developed around a geographic area exceeding a city’s jurisdiction if it is directly benefitted by the convention center.

Relevant Case Studies: TDVA Tahoe South Events Center

Some libraries get an allocation of the basic ad valorem property tax. However, our experience indicates these funds are typically used solely to support operations and are not pledged to debt service. Although libraries can be financed in other ways, they are typically financed through general fund backed lease financing.

Relevant Case Studies: Newark Civic Center Project Financing (Sales Tax Revenue Pledge)