PROJ01856

• Contract/PO #: C153668
• Contractor Name: Erie, Town of
• Contract Type: Loan
• Water District: 6
• County: Weld
• Bill Number: SB 90-41
• Loan Projects - Doc Type: Contract Documents

Agenda Item lO.b: Town of Erie Request for Parity

Issues the Town may bring up and suggested responses to those issues:

ISSUE: CWCB parity test isn't in Town's contract; Town shouldn't be bound by it.

RESPONSE: Because the contract does not establish conditions for a consent to parity, the
CWCB'is not required to give such consent, but may elect to apply its current parity debt policy
to the Town's request.

ISSUE: Other lenders allow a borrower to include tap fees in its financial analysis in a request
for consent to additional parity debt.

RESPONSE: Other lenders may be able to incur more risks in managing their loans. The
CWCB has a statutory duty to obtain sufficient security interests to assure repayment of
construction fund loans. The Colorado Water Resources and Power Development Authority
excludes connection fees in the parity test it uses for loanslbonds in its Small Water Resource
Project program, which is similar to the Construction Fund loan program.

ISSUE: CWCB should change its parity debt policy to allow inclusion of tap fees in financial
analysis. Towns that are growing depend on tap fees to finance building infrastructure. The
current CWCB policy results in a burden on existing residents rather than making growth pay its
own way. .

RESPONSE: The CWCB will revisit its parity debt policy to see ifit can address the Town's
concerns. Must keep in mind that statute requires CWCB to assure repayment of loan funds;
consequently, CWCB must be financially prudent in managing loans. CWCB does not want to
base a consent to parity debt on a fluctuating source of income like tap fees.

ISSUE: The CWCB should revise S37-60-120(1) (amended in 1996) to delete the provision that
CWCB may perfect and enforce security interests under Article 9 ofthe UCC notwithstanding
any provision of S4-9-104, C.R.S. (effect of this provision is to allow CWCB to apply UCC to
governmental borrowers, usually excepted from UCC provisions). This creates a super priority
security interest b/c other lenders to governmental borrowers can't file a UCC statement to
perfect their security interests.

RESPONSE: The CWCB will look at this issue. CWCB requested the legislature to amend
937-60-120(1) in 1996 to enable CWCB to obtain sufficient security interests in property to
assure repayment of construction fund loans. Without the statutory revision, CWCB was unable
to perfect its security interests in governmental borrower's water revenues and establish its
position as a secured creditor. CWCB did not intend to create a super priority lien but did intend
to establish its place in line ahead of subsequent lenders.