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