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<br />- 2- <br /> <br />fact that although certain municipalities own shares in the TWC, the water from those shares is actually <br />being leased back and used for agricultural purposes. The Board fowld upon review that the original <br />interest rate was properly set in accordance with the established Board Financial Policy #7. Further, <br />they could not change the interest rate since CRS 37-60-120 establishes that the CWCB may adjust the <br />terms of an existing loan only if the borrower has experienced an unexpected [mancial hardship. The <br />TWC could not demonstrate an unexpected financial hardship. <br /> <br />The Board subsequently instructed staff to evaluate paragraph 7 of the policy for clarity and <br />suggested the policy be revised to eliminate future confusion regarding blended interest rates. <br /> <br />Discussion <br /> <br />The confusion in paragraph 7 revolves around the option of blending the interest rates based <br />on "use" or on "ownership". Historically, staffhas calculated five often (104 total loans) blended <br />interest rate loans over the past eight years based on ownership. The five blended loans based on use <br />were approved from 1996-1998. The most recent blended loans were based on ownership. This has <br />occurred simply because determination of ownership changes can be established by reviewing the <br />borrower's annual financial statement or annual report, whereas, the determination of water use <br />changes can only be determined by reviewing water court proceedings. Basing the blended rate on <br />ownership therefore is more efficient to administer. <br /> <br />Also, the Board's interest rates are established based on the borrower's ability to pay. A <br />municipality is considered to have a higher ability to pay than an agricultural borrower and therefore <br />the municipality's rates are higher. Theoretically, a municipality could purchase a majority of ditch <br />company shares, lease the water back to agricultural interests, make water diversion and delivery <br />improvements through a company loan with the CWCB and take advantage of the Board's low <br />agricultural interest rates. <br /> <br />It is staff's opinion that the blended interest rate should be based on ownership and <br />that eliminating all references to "use" will clarifY the policy, eliminate future confusion by <br />borrowers, make the policy more efficient to administer, and help maintain intended interest rate <br />separation between lending categories. <br /> <br />Recommendation <br /> <br />Staff recommends the Board revise paragraph 7 of Financial Policy #7 to be written as follows: <br /> <br />7. For project borrowers that fall into more than one lending category, i.e. an agricultural <br />irrigation company with municipal shareholders, a weighted average lending rate will be <br />established based on the percent ownership of each lending category within the borrower's <br />organization._ <br /> <br />Flood Protection. Water Project Planning and Financing. Stream and Lake Protection <br />Water Supply Protection. Conservation Planning <br />