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. . . . Senate Agriculture, Natural Resources & Energy Committee/ Capital Development Committee April 23, 1986 Page four actual annual debt service on the bonds because of the requirement that a margin of safety (or "coverage factor") be maintained. Revenue bonds issued by the Authority would likely be "A" rated, requiring a 35 percent coverage factor, while bonds based upon stable tax receipts would likely be double "A" rated and require a coverage factor of only about 15 percen~ The key issues to be addressed in deve 1 opi ng a tax as a source of reve- nues are: (1) have collections of the tax been stable historically?; (2) are there constitutional or statutory barriers to the levy and collection of the tax for the purpose intended?; and (3) are there constitutional or statutory barriers to pledging the tax for the payment of bonds? Additional Policy Issues The Authority is continuing to analyze and explore the following policy questions. In our debates and inquiries we are guided by our authorizing legislation and subsequent resolutions from the General Assembly. None of these, as I am sure you are aware, affords an easy answer. The list of questions includes: What are the State's specific objectives in participating in water re- sources development? What is the ability of the Water and Power Authority to develop a revenue stream when competing with other interests in the bond market? As a political subdivision of the State, to what extent should the Au- thority create its own cash flow by entrepreneurially participating in water and power projects? Beyond arranging bonding capability for marginal applicants, is there any role for the Authority to subsidize water resource projects in specifiC cases? How can the Authority best advance the development of the State's water resources while not interfering in the decisions of individual water users and the private market? Conclusion Given the need for future funding, the Authority Board urges the General Assembly to plan for a sound financing base for reasonable water project expenditures over the next 10 year perio~ The Directors and staff of the Authority will continue to discuss these important issues and will advise you of our progress. Please feel free to call on us for any additional information.