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I <br /> 36 Construction Fund Loan Program Performance Audit-September 1998 <br /> Water Conservation Board Response: <br /> Agree. The CWCB staff will evaluate several options and present them for <br /> consideration by the Board and interested constituencies before presenting <br /> recommendations to the General Assembly. However,these options should <br /> be reviewed carefully with the appropriate constituencies, including the <br /> Colorado Municipal League,the Special Districts Association,the Colorado <br /> Water Congress, and Colorado Counties, Inc. The review of these options <br /> and development of recommendations for consideration by the Governor and <br /> General Assembly will be completed by January 1, 2000. <br /> I <br /> Statutes Require Borrowers To Collateralize Their <br /> Loans <br /> Collateralization is important to ensure the State has some recourse in the event that <br /> a borrower cannot repay its loan. Section 37-60-120 (1), C.R.S., states that: <br /> The State of Colorado shall have the ownership and control of such <br /> portion of said projects, or shall take a sufficient security interest in <br /> property or take such bonds, notes, or other securities evidencing an <br /> obligation, as will assure repayment of funds made available by(the <br /> Water Conservation Board). <br /> By way of implementing this section, the Board's loan policy states that project <br /> sponsors must provide adequate security to guarantee repayment of their loans. The <br /> security may be title to project property equal in value to the loan; a pledge of <br /> revenues or taxes; or bonds, notes, or other securities. <br /> In practice,the Board generally requires borrowers to secure their loans by pledging: <br /> • A certificate of deposit for one annual loan payment. <br /> And/or: I <br /> • Security interest in the borrower's revenue stream. This type of interest is <br /> equivalent to one or two annual loan payments if the borrower were to go out <br /> of business or declare bankruptcy. <br /> In the past it was common practice for the Board to take a deed of trust on the <br /> P P <br /> borrower's tangible property at the project site as collateral. Practices were changed <br />