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GAP STRATEGIES <br />N0.7 <br />Issue General Obli�ation and Revenue Bonds <br />General obligation or G.O. bonds are secured by all the real property in the City. <br />Revenue bonds are secured only by a specific source of revenue, tax increment for <br />example. <br />Either type of bond requires an extensive discussion and analysis of the risks <br />involved for any city issuing debt for redevelopment purposes. The use of general <br />obligation bonds are helpful to a proj ect because: <br />� the credit of a city is normally superior to the credit of the developer, <br />permitting borrowing at a lower interest rate; <br />. a city can obtain longer term financing at a fixed rate; and <br />. G.O. bonds may be issued earlier in the project and in greater amounts. <br />Below is a chart which shows the present value, at different interest rates, of the <br />projected tax increment of $5 �.99 million. The present value numbers assume the <br />issuance of several bonds 24 montlls prior to receipt of the tax increment (that is, <br />issuance would occur in the construction year of each phase). The bonds are <br />assumed to be issued on a tax exempt basis with coverage of 111%. The present <br />values shown at the bottom of column (e) on the attached schedules are as follows: <br />Interest Rate Present Value Gross Savin�s <br />7% $21.41 million $0.00 <br />6 23.95 million 2.54 million <br />5 26.91 million 5.50 million <br />The actual net savings of using tax exempt general obligation debt must be reduced <br />by the discount and issuance costs of selling the debt. When all fees and costs are <br />factored in, the gross savings should be reduced by approximately $500,000. <br />1 � �f �4 <br />