BOARD01009

• Board Meeting Date: 5/21/2001
• Description: CF Section - Changes in Existing Construction Fund Loans - Authority of CWCB to Discount Loans
• Board Meetings - Doc Type: Memo

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Colorado Water Conservation Board
Department of Natural Resources
i 313 Sherman Street. Room 721
Denyer, Colorndo 80203
Phone: [phone]
FAX: [phone]
www,ONcb.state.co.tJs

STATE OF COLORADO

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2

Sil/Owens
Governor

MEMORANDUM

TO:

. Greg E. Walcher
Executive Dlre(:tor
Rod Kuharich
eWeB Oirer;:tor
Colorado Water Conservation Board Members 0," McA~l;(i.
Deputy Drrecror

Bill Green, P.E., Water Supply Planning and Fin~ce Section ~G-
Mike Serlet, P.E., Chief, Water Supply Planning and Finance secti01l/f'

May 9,2001

FROM:

DATE:

RE:

Agenda Item No.8 a. - May 21-22,2001 Board Meeting-Water Supply
PlannIng and Finance - Changes in Existing Construction Fund
Loans - Authority of CWCB to Discount Loans

Backl!round

At the March 26, 2001 Board meeting, the staff presented a recommendation to allow the
Town of Erie to defease an existing Construction Fund loan through a 30-year annuity to
be established by the Town. Please see March Board meeting agenda item no. 8a. for
details.

While the Board approved the staff recommendation, there was a question as to whether
the Board should consider accepting a discounted payofffor the loan as opposed to the
annuity arrangement since the annuity payments result in a 2.00 percent rate ofretum on
the loan. (The payoff, however, will be about five years ahead ofthe repayment schedule
in the existing loan contract.) The Board asked the staff to look into the concept ofloan
discountirtg.

Discussion

Discounting a loan means that the Board would be willing to accept a payoff for an
amount less than the principal balance on the loan. This would likely only be done for
loans made at very low rates of interest and/or for non-perfonning loans where the Board
might be willing to discount a loan in order to sell it to another lender. (Forgiving all or a
portion of a loan is basically the same idea.)

There is the question as 10 what interest rate to use in discounting a loan. The suggestion
made at the March Board meeting was based on the idea that the Board could reinvest the
money in new Construction Fund loans or at the State Treasurer's Office and earn more
than 2.00 percent.

Flood Protection. Water Project Planning and Financing. Slream and lake Protectlol'l
Wate( Supply Protection. Conservation Planning