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<br /> <br />2 <br /> <br />The average rate of return on Construction Fund IQans for the years 1998 to 2000 (the <br />only years for which rate of return has been estimated) was 4.27 percent. Using the Erie <br />loan as an example, if the loan is discounted for 3(i years at 4.27 percent, the discounted <br />payoff would be $1,028,442, which is somewhat ItJore than the cost of the annuity at <br />current market rates. <br /> <br />. <br /> <br />On April 24, the Town paid about $939,000 to est.ablish the annuity comprised of U.S. <br />govel'l1ll1ent securities of varying maturities. The Qost was based upon the yield ofthe <br />notes and bonds on the date the annuity was purchased as well as transaction costs, which <br />were relatively minor. . <br /> <br />If we accept the concept of reinvesting the money in Construction Fund loans, the <br />Construction Fund rate of return is probably the appropriate loan discount rate but the <br />borrower might argue in favor of the market rate if that resulted in a lower payoff <br />amount. <br /> <br />Conclusion <br /> <br />It is theoretically correct to suggest that the payoff from discounting a low-interest loan <br />such as Erie could be reinvested at a higher rate i?f return. It involves, however, <br />accepting something less than the balance on the loan and only the discounted loan <br />amount could be reinvested. In other words, whil~ the rate of return is greater, the amount <br />invested will be less. . <br /> <br />. <br /> <br />The question remains as to whether the CWCB has the authority to discount a loan. Bob <br />Goodnough, the Department of Natural Resources Controller, answered the question in <br />the negative. An initial analysis from the Attorney General's Office indicates that the <br />statutes do not give the Board expressed or impli~d authority to discount a loan. <br /> <br />If it can be done with legislative authorization, 101m discounting or forgiveness should <br />probably be limited to hardship situations or a no~-perfonnjng loan that could be sold to <br />another lender. <br /> <br />Cc: Linda Bassi, AGO <br /> <br />. <br /> <br />2 <br />