The following is a brief synopsis. Further information is available by contacting ACI Finance, Inc. which provides the experience and expertise to guide you through bond market decisions and grant application.
Competitive Sale
A competitive sale is a process by which you would authorize the issuance of bonds, produce an "Official Statement" describing the issue and obtain a rating (required if over $1,000,000), possibly obtain a rating and then sell the bonds by competitive bid on a particular day and time. The result of the competitive bid process is awarding the sale of the bonds to the purchaser who offers the lowest net interest cost. The potential purchasers are typically banks and brokerage firms. The number of bids and rates offered is a function of the issuer's credit, size of issue and bond structure as well as current market conditions. The bond issue is limited in duration to the anticipated life of the asset being acquired and also may be limited for marketability purposes.
Negotiated Sale
A negotiated sale means that a particular bank or broker is selected to purchase or "underwrite" the bonds. This is often used when there is some complexity to the bond issue such as a refunding bond or the issue is of a nominal or substantial size and may need special marketing attention. The same requirements apply regarding an Official Statement.
USDA Rural Development
Formally Farmers Home Administrator (FmHA), USDA Rural Development offers a grant/loan program. The unit of government must be 10,000 population or less. There are three categories of eligibility based on median household income and further refined by such factors as the resulting user rates. The most attractive category allows up to 75% grant and 25% loan at the lowest rate available [call for current interest rate levels]. However, often the community may only qualify for up to 45% grant and a 55% loan which is at the "intermediate" rate or the "open market" category for which no grant funding is provided and the rate is based on current open market levels. Even if no grant funds are received or may not be in the full amount for which the applicant is eligible, a forty-year loan is not something that can be readily duplicated in the open market. For further information visit USDA Rural Development. [www.rurdev.usda.gov/mi]
State Revolving Fund (SRF) and Drinking Water Revolving Fund (DWRF)
These are State programs that are administered by the Michigan Municipal Bond Authority (MMBA) in conjunction with the Michigan Department Environmental Quality (MDEQ) for sewer (SRF) and water (DWRF) projects. There is a defined process in obtaining funding that includes a project plan and public hearing. Although sometimes referred to as a grant program, the funds are offered as a low interest loan for 20 years. For further information visit DEQ Municipal Facilities Division. [www.michigan.gov/deq/]
Michigan Municipal Bond Authority (MMBA)
The MMBA Local Government Loan Program is an alternative to an open market sale. This program is particularly helpful when other grant/loan options are unavailable or impractical and the municipality has a credit that would make it difficult to sell a bond issue in the open market. An available tool when selling bonds through the Bond Authority is to pledge revenue sharing for the repayment of bonds. This does not mean revenue sharing dollars need to be actually used for payment of the bonds but rather it is "secondary security". The Bond Authority will calculate the limit of the amount of bonds that may be sold based on the level of revenue sharing dollars received annually. If there is a need to issue a financing greater than they can provide based on revenue sharing the applicant may qualify for an "insured pool". The insured pool provides for bond insurance, at additional cost, if they deem the credit of your community acceptable. For further information visit the MMBA. [www.michigan.gov/treasury/]
