How Cities Can Finance Public Amenities Over the Short and Long Term

By Andrew Pratt | Public Finance

It may be a little awkward to discuss swimming pools as winter’s icy grip closes in, but cities are increasingly constructing and upgrading these recreational facilities to draw in visitors and residents alike. Indoor and outdoor municipal pools, along with associated water slides, diving boards, and playground equipment, do not come on the cheap. There are a few ways cities may finance these amenities over the short- and long-term:

  • Revenue Bonds. The gross revenues of the facility shall go to pay the principal and interest on the bonds. A general obligation bond (backed by a tax levy) to fund a swimming pool must be approved by voter referendum.
  • Tax Abatement Bonds. These bonds may be general obligations of the city, and principal and interest are payable through abatements of the city’s portion of the taxes on selected properties. A public hearing must be held to authorize the abatement, and bond proceeds may pay for “public improvements” that benefit the underlying property.
  • Equipment Certificates. A piece of equipment that is used to enhance a pool (such as a new water slide) may be financed through these certificates. The certificates may not have a term longer than 10 years and the useful life of the equipment must be at least as long as the term. Other debt service restrictions apply as well to this type of financing.
  • Lease-Revenue Financing. If a city has an economic development authority (EDA), the city may lease the underlying land to the EDA, which the EDA will turn around and lease right back to the city. The EDA may use this mechanism to issue a lease-revenue bond, and the city pays “rent” to the EDA, which the EDA uses to pay the principal and interest on the bond. The city must make an appropriation every year through its budgeting process to pay the “rent.” If the lease is under $1,000,000, it is not considered debt of the city.
  • City Charter. Sometimes city charters have their own financing methods, which can work independently of state law. For example, a city charter may provide the legal authority to issue a general obligation bond for swimming pools; state law doesn’t allow for that unless the voters approve the proposal.

QUESTIONS ABOUT THIS TOPIC?

If you have any questions about the content of this article please contact Public Finance attorney Andrew Pratt at 651-351-2125, or email at apratt@eckberglammers.com.

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