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October 16, 2000 <br />Board of Commissioners <br />Marion County, Oregon <br />Salem, Oregon <br />Dear Board Members: <br />At the County's request, we have reviewed the options available to the County for use of <br />funds remaining from the Courthouse Square Project. <br />Background: <br />In December 1998, the County issued $22,000,000 in Certificates of Participation for <br />construction of the Courthouse Square Project. Additionally, the County has deposited the <br />proceeds from the sale of land to the Salem Area Mass Transit District into the capital projects <br />fund for the project. The County is nearing completion of the project and expects to have over <br />$2 million dollars of surplus funds remaining in the capital projects fund. Under the terms of the <br />debt agreement, surplus funds from the Certificates of Participation must be transferred to the <br />1998 Debt Service Account to be applied to the prepayment of principal on the Certificates of <br />Participation. The County has the right to select the maturities of the Certificates of Participation <br />to be prepaid. We understand from the County that there are no legal restrictions regarding the <br />use of the proceeds from the sale of land. <br />Funds Remaining from Land Sale: <br />In evaluating whether the County should use part of the land sale proceeds to pay for <br />costs of the Courthouse Square Project, or whether the County should use the Certificates of <br />Participation proceeds, we considered the following: <br />• According to the County Treasurer during the month of September 2000, the County <br />earned an average rate of approximately 6.3% on its investments. The Certificates of <br />Participation bear interest rates of 3.75% to 5% per annum. <br />• Surplus Certificate of Participation Funds must be used to prepay principal on the <br />Certificates of Participation. Since the land sale proceeds are not legally restricted, the <br />Board of Commissioners has flexibility to decide the use of the funds. <br />We recommend that the County pay all eligible costs of the project from the Certificates <br />of Participation proceeds in order to retain as much of the land sale proceeds as possible. The <br />County should also calculate the arbitrage rebate liability (if any) for the Certificates of <br />Participation and provide for it out of the Certificates of Participation funds. The remaining land <br />