Fiscal Note
The City has historically received relatively favorable interest rates on its borrowed funds because of a combination of many factors. These include the City's exceptionally strong "Aaa" bond rating, the tax exempt nature of most City capital expenditures, the fairly rapid (ten year) repayment schedule employed, the relatively low debt burden accumulated in the past, and the "general obligation" pledge that the City makes for each debt issue. This general obligation pledge is an irrevocable commitment to use the City's taxing power to repay all future debt service before other funding responsibilities are fulfilled.
Funds borrowed for a loan program as anticipated in this resolution would not qualify as tax exempt. Thus, the City's higher taxable borrowing rates would apply. To recover the transaction and holding costs associated with any funds borrowed, the City would have to demand an equally aggressive repayment schedule and charge a higher interest rate to loan recipients. Actual rates would be dependent of the size and repayment period of the City borrowing, and on the market rates obtained at the time of borrowing.
If any costs associated with such a loan program were not recovered from loan recipients, the City would be required to make up the shortfall with an appropriation from the General Fund. That General Fund expenditure would count against the City's eligibility under the State's Expenditure Restraint Program.
Current cash balances of $3,500,000 and $380,000 in the Affordable Housing Trust Fund and the Inclusionary Zoning Special Revenue Fund respectively could be made available for such loan programs by the Common Council without the need to borrow additional funds for these purposes and without impacting Expenditure Restraint Program eligibility.
Title
SUBSTITUTE - That the City of Madison should establish a capital borrowing program for affordable rental housing.
Body
WHEREAS, State of Wisconsin restrictions ...
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