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<br />, <br /> <br />. <br /> <br />. <br /> <br />June 3, 1988 <br />Page two <br /> <br />Several provisions in the contract can be anticipated and <br />warrant early consideration by your entity. First, your <br />ability to repay a CWCB loan must be demonstrated. This can be <br />based upon a record of previous satisfactory repayments to <br />Reclamation. We will require documentation that your entity <br />has made timely, full payments in the past. <br /> <br />Second, the Board must have formal assurance that a <br />borrower has lawfully obligated itself to repayment. Each <br />entity, according to its own governing procedures, must take <br />formal action achieving that obligation. The CWCB will require <br />documentation that a borrower has the authority to commit <br />itself to the provisions of a loan contract, and that it has in <br />fact done so. <br /> <br />Third, by statute the CWCB must ....take a sufficient <br />security interest in property or take such bonds, notes, or <br />other securities evidencing an obligation, as will assure <br />repayment of funds made available by.... (37-60-120(1), CRS). <br />We are prepared to discuss with each of you an appropriate form <br />of security according to your circumstances. You should begin <br />considering your alternatives in this regard. <br /> <br />Reclamation has informed us that the source of our loan <br />funds, a state cash fund, falls under the taxable category of <br />proceeds. That provides a more favorable discount rate, but <br />may result in your having a federal tax liability. While we <br />are led to believe that most of the Colorado entities involved <br />are presently exempt from federal taxation, we urge you to seek <br />advice from your accountant or legal counsel concerning any <br />potential impact of receiving a loan from the CWCB on your tax <br />exempt status. That suggestion is also found in the letter <br />which you received from the Department of the Interior. <br /> <br />If you have not already informed us before by letter about <br />your interest in a loan from us, please do-so immediately in <br />writing. <br /> <br />Sincerely, <br /> <br />JWM/bj <br />Enclosure: as stated <br /> <br />J. William McDonald <br />Director <br />