Municipalities in the State of Kansas have the ability to finance capital expenditures through debt subject to certain laws and regulations. There are several debt finance tools that are available to cities, each of which has benefits when considered in context. When the City borrows money to finance a capital project or acquisition, the total amount of the debt issuance includes the principal, interest, and any applicable fees. These fees often include the cost of issuance and the fees associated with legal review of the debt transactions. It also includes the cost of consulting services from a financial advisor as may be required by the City. Depending upon the debt instrument used, the term of the debt may mature anywhere from one to twenty years.

Typical debt instruments that the City of Edgerton may consider using include:

Temporary Notes – Temporary notes are issued by a city to provide short-term financing until a project is completed and the long-term financing may be issued. Long-term financing is often attained through the sale of bonds.

The City has one outstanding temporary note issuance that is being used to provide short-term financing for Water and Sanitary Sewer Benefit Districts No. 1 and 2 associated with the proposed Sunflower Ridge Subdivision and other possible development. Once the two projects are completed, the City expects to issue long-term special assessment bonds in order to spread the costs of the debt over several years for the affected property owners.

Municipal Bonds – Long-term financing for most capital projects is done through the issuance of bonds. There are three main types of municipal bonds:  1) general obligation (G.O.) bonds; 2) revenue bonds; and 3) special obligation bonds.

• General Obligation Bonds are secured by the full faith and credit of the City, which means they are payable by an unlimited general tax levy upon all taxable property within the City if sufficient revenues are not available to pay the principal and interest on schedule. Special assessment bonds are a form of general obligation bonds that are typically used to finance infrastructure improvements associated with development.

• Revenue Bonds are secured by a pledge of the revenue from a specified facility that generates income for the City. A water or wastewater system often uses revenue bonds to finance system improvements because cities can pledge the revenue received from water and sewer fees to pay the debt service on the bonds. Revenue bonds are not secured, or guaranteed, by the full faith and credit of the City.

• Industrial Revenue Bonds are special revenue bonds that the City may issue to finance the acquisition, improvement, and equipping of an industrial property to be occupied by a private business. The revenue pledged for payment of bonds is the lease payments made by the private tenant of the facility to be constructed with the bond revenues. This is a financing tool that the City may use to promote economic development opportunities within the City, and is sometimes accompanied by a property tax abatement for the property owner. The City has no outstanding industrial revenue bonds requiring principal and interest payments.

• Special Obligation Bonds are non-secured debt instruments that the City may issue to finance capital projects or acquisitions. They are non-secured because the City does not pledge its full faith and credit or any specific revenue source. Instead, the Governing Body must annually appropriate funds to cover the cost of principal and interest. The City has no outstanding special obligation bonds requiring principal and interest payments.

• Lease-Purchase Agreements and Certificates of Participation are other forms of financing that cities may use, and are typically used for the purchase of vehicles, equipment, or facilities. These instruments are not considered multi-year debt since they are subject to an annual appropriation by the Governing Body. The City is currently using a lease-purchase agreement to finance a sewer jet-vac trailer for the sewer utility.