Laserfiche WebLink
I <br /> Report of The Colorado State Auditor 35 <br /> of allowable costs (i.e.,90 percent of total costs instead of the standard 75 percent). <br /> These policies reflect the Board's statutory responsibility to be the lender of last <br /> resort for those entities that might have worthy projects but may have limited funding <br /> options because of their financial position. Although it is important that the Board <br /> be responsive to entities that have fewer funding options,there are additional factors <br /> Ithat should be recognized when making lending decisions. <br /> Being the lender of last resort is not, for example, the only statutory objective to <br /> which the Board must adhere. When making a loan, one of the most important <br /> considerations is evaluating credit risk (i.e., the borrower's ability and willingness <br /> to pay). Statutes clearly state that the Board shall participate in only those projects <br /> where the sponsor can repay its investment. Grants are not allowed unless <br /> specifically authorized by the General Assembly. The Board is not in the business <br /> of making loans to entities that have no intention or ability to repay the obligation. <br /> As a result,before making a funding decision,the Board has a duty to find a way to <br /> systematically balance a potential borrower's financing needs and options with its <br /> I creditworthiness. Such a system should identify various factors that can be used to <br /> judge the relative risk of a loan and assess a borrower's creditworthiness (e.g., the <br /> borrower's credit history, financial strength, and/or revenue generation abilities). <br /> This information should then be used to establish the key components of each <br /> individual loan agreement. <br /> The Board recently (November 1997) stated its intent to use measures of financial <br /> strength in its process for determining what percentage of total costs to pay for <br /> certain types of projects. We agree with this decision but believe the process should <br /> be expanded to include additional determinations such as interest rates, loan terms, <br /> overall loan amounts, and collateral requirements. By implementing a systematic <br /> methodology for assessing loan risk, the Board can reduce the possibility of <br /> delinquent and/or defaulted loans and can also maximize interest income which <br /> would then become available to fund additional projects. <br /> I <br /> Recommendation No. 8: <br /> The Water Conservation Board should develop and implement a systematic method <br /> for quantifying and weighing the relative creditworthiness and financial need of <br /> potential loan recipients. This should include identifying relative measures of a <br /> borrower's creditworthiness and then using them to set various components of a loan <br /> agreement. <br /> I <br /> V <br /> I <br />