To help lure development, cities call in the COPs

The city of Longmont’s $27.5 million contribution to the redevelopment of the former Twin Peaks Mall site is something citizens continue to watch with a keen eye, with four key city buildings put up as collateral to back the public portion of the financing package for the private development.

The city raised $30.7 million through the sale of certificates of participation in July to cover the money pledged to developer NewMark Merrill Mountain States as well as capitalized interest and payments for the next couple of years before the $90 million Village at the Peaks project begins generating the full tax revenue streams expected to pay off the debt.

Through the COP financing mechanism, Longmont’s Civic Center, the library, the Safety and Justice Center and the Development Services Center were put up as collateral. As the building-backed loans are paid off over the next 23 years, the city will get the titles back one by one. City finance director Jim Golden said the city will get the title for the Development Services Center back first, followed by the Safety and Justice Center, the Civic Center and the library, respectively.

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The use of city buildings as collateral drew fire from some members of the public when the financing plan was given final approval by the city council in July, and still rankles some. But the city council had directed staff to pursue the idea about 18 months earlier.

Longmont hopes for return on Twin Peaks investment

The city also had considered issuing Urban Renewal Authority bonds as well as having the Metro District set up by NewMark issue bonds. But the city got better financing terms on the COPs — 3.8 percent — than either of the other methods, Golden said. The COP route also is a way for municipalities to issue debt without putting a bond sale before the voters.

The public buildings put up as collateral were chosen largely because there were few in town that were cumulatively worth $30.7 million. Plus, the payments made on COPs are subject to annual appropriation by the city council, meaning the council could decide to not make those payments in any given year if finances got tight. Investors, Golden said, want to see buildings that are essential to the city so that they know the city won’t choose to walk away from the payments.

“If it isn’t important, then you don’t get a very strong sense that the government will make that appropriation each year,” Golden said.

Other cities in Colorado have used certificates of participation for major projects in recent years. Grand Junction put its city hall up as collateral to help pay for $8.3 million in improvements to Suplizio Field, the site of the Junior College World Series each year. But that baseball stadium is city owned, not a private development like Village at the Peaks.

Colorado Springs in 2009 issued $31.5 million in COPs to pay for construction of a new downtown headquarters for the U.S. Olympic Committee as well as improvements to the Olympic Training Center. Unlike Longmont, which is expecting to be paid back by future tax revenues, Colorado Springs is making its COP payments from its general fund.

Sanjai Bhagat, a finance professor at the University of Colorado, said certificates of participation are an OK financing tool in principle provided that municipalities get a good deal from investors, which Longmont officials believe they were able to accomplish with a double-A bond rating on the sale of the COPs. But Bhagat questioned their use in general given that residents aren’t given a vote as they’re entitled to in Colorado on any bonded debt.

Longmont officials believe the additional tax revenue generated by the redevelopment will not only pay off the COP debt but also provide a large windfall for city coffers.

If cities have such confidence in their projections, though, Bhagat questioned why they would go the COP route and put public buildings at risk rather than letting citizens vote to issue bonded debt or raise taxes to boost redevelopment.

The big risk, Bhagat said, is that if the city’s revenue projections are too optimistic, the city is stuck paying the tab either out of its general fund or by raising taxes anyway.