News Column

Q&A: What's a COP and why did the city go that route?

July 12, 2014

Daily Times-Call, Longmont, Colo.



July 12--The Longmont City Council voted 6-1 on Friday morning to approve the financing method it will use for its portion of the public-private partnership it has with the owner of the Twin Peaks Mall property, NewMark Merrill Mountain States.

The city's share of the nearly $90 million redevelopment project is $27.5 million and it will finance its end through the issuance of "certificates of participation," a method that's used for the first time in Longmont but is not uncommon when public entities want to finance large capital projects, according to city finance director Jim Golden.

But some members of the public Friday said they were quite angry upon learn details of the financing mechanism, specifically the use of city buildings as collateral to raise the money to fund the redevelopment.

How does a certificate of participation -- or COP -- work?

According to Golden, a COP is similar to a lease agreement. In Longmont's case, four buildings -- the Civic Center, the Safety and Justice Center, the library and the Development Services Center -- will be put up as collateral in order for the city to finance its portion of the Twin Peaks Mall redevelopment.

Through a competitive process, Piper Jaffray was chosen to act as the underwriters for the city's COPs. On Tuesday, Golden said, Piper Jaffray will begin offering shares of the city's COPs for sale to investors, both individuals and institutional investors. Two weeks from now, titles to those four city buildings will be handed over to UMB Bank, which will serve as the trustee to the deeds. As each of the four COPs is paid back, the city reacquires the title to that individual building. Plans are for all four to be settled by 2037.

Does the city stand to lose any of these buildings? And why put up these four?

Golden said that there were two reasons these four buildings were chosen. First, they totaled in value to about $30 million, which was what the city needed to finance its share of the redevelopment and pay associated fees. Second, the buildings in question are so vital to the city's operations that there is virtually no chance the city would ever default on them. That fact, Golden said, will be of particular importance to the investors, ensuring them that their investment is safe and will, in fact, accrue in value.

Is this a bond sale without a vote?

The only other method the city considered for financing was to issue bonds through the Longmont Urban Renewal Authority, which also would not have required a vote.

The city didn't go that way, Golden said, because the LURA bonds, as opposed to City of Longmont bonds, would have been considered more risky and thus would have demanded a higher interest rate.

Also, unlike a bond, laws governing COPs require that every year, the entity issuing them -- in this case the city -- decides whether or not it will appropriate funds for paying off the debt for the coming year. With a bond sale you're more or less obligated to pay each year with no decision on appropriation.

How will the city pay off what it owes?

The city will draw from three pools to pay off the COPs: from the mill levy dollars that will be generated by the creation of a special metropolitan district on the mall property, and from the increase in property taxes and sales taxes over and above the base rates established in 2012.

Contact Times-Call staff writer Tony Kindelspire at 303-684-5291 or tkindelspire@times-call.com

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Source: Daily Times-Call (Longmont, CO)


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