BOARD01387 - Laserfiche WebLink

Home Browse Search

2. "~ When applicants first solicit information about our loan program during the year, one of their first questions is always "What is the interest rate?" Staffs response is to tell them what the interest rate was the previous November, however, we must speculate on what. the interest rate will be for the coming November. Staffs proposal is to establish the interest rate at the May Board meeting each year and make it applicable for the State's fiscal year, July 1 through June 30. The interest rate calculation would also be determined based on the previous 6 month average for the 30 year "A" rated municipal bond rather than the previous 12 month average. The interest rate would therefore be based on more current information. . 3. Finally, the Board established the Agricultural Rate last year at 3.5%. The rate was not tied to any of the other rates but rather fixed by a discretionary Board decision. Staff proposes that the Agricultural Lending Rate be established as 60% of the Baseline Rate. This would link the Agricultural Rate to the other borrower's rates and still provide agricultural water users the most favorable loan terms. CWCB Construction Fund and Severance Tax Trust Fund Loan Interest Rates . Borrower (2001 Rate) Commercial (6.5%) Baseline Rate Municipal High Income (6.0%) Municipal Middle Income (5.5%) Municipal Low Income (4.5%) Agricultural (3.5%) 20(12 Current Rate Structnre &.-9-%5.75% 2002 Proposed Rate Structure &.{)%5.75 % ~5.25% ~.75% ~4.25% 3.75% 3.25% g%5.25% *%4.75% 4-,Q.,%4. 25 % 3.5% Given the historic volume of loans in 'each category and Construction Fund and Severance Tax revenues, the Fund would continue to maintain an overall rate of return greater than the target growth rate for the Fund. For purposes of comparison, the following table presents the interest rates for other water project lending agencies. Ae:encv Water and Power Authority Rural Development Department of Local Affairs Comparable Proiect Interest Rates Direct Loan Revolving Funds 4.0% Market Rate 5.0% IntelTIlediate Rate 4.75% Poverty Rate 4.5% Energy Mineral Impact 5.0% (domestic water systems) Methods of rate determination varies greatly by the agencies. Rural Development uses a very complicated procedure using bond rate averages, the life of the facility, household income, and specific project circumstances. Water and power Authority sets their direct loan rates on a general consensus of their Board. The Department of Local Affairs interest rate is set by statute. . Recommendation Staff recommends the Board consider for approval the proposed changes to Financial Policy #7 as shown in the attached policy statements.