Officials considering Whetstone financing

Housing Authority likely to play a major role…

[  By Mark Reaman  ]

Gunnison County’s proposed Whetstone affordable housing project south of Crested Butte comes with a big price tag. How to pay for it has not yet been determined, but several ideas are being contemplated. Current estimates put the project at $130 million and that doesn’t include the $10 million roundabout and pedestrian underpass near Brush Creek Road and Highway 135 which the county has pledged to be built in conjunction with the development.

The county has actively been soliciting state and federal funding to help pay for the project. Thus far, $11.5 million in grants have been obtained. An application for a federal grant was submitted for $9.8 million to fund all but 10% of the roundabout, underpass and associated trail work. The expectation is to hear back about that grant by the end of the month. The Crested Butte town council has started initial conversations about coming up with a “significant financial contribution” to the project and the county is expected to approach the town of Mt. Crested Butte and the Valley Housing Fund for financial assistance.

County manager Matthew Birnie said the county is considering several options to pay for the 252-unit development.

“Currently, our preferred approach will be for the Gunnison Valley Regional Housing Authority to issue revenue bonds secured by the rental revenue of the project,” he explained. “In lieu of pledging the property as collateral, Gunnison County would provide a ‘moral obligation’ backing any shortfall if rents are insufficient to cover the debt payment. We will have a debt service reserve fund which will provide the initial layer of security for bondholders. That fund will be equal to an entire year’s debt obligations so will provide a good safety factor for the bondholders as well as the County. We are not concerned that we would have no rental revenue to cover debt service, so in practice the debt service reserve fund will provide more than a year’s worth of security. The county will be required to refill the debt service reserve fund if it is used.”

Birnie said the reason to use the Housing Authority as the vehicle for financing the project is that housing authorities have more flexibility in the type of debt they are able to issue, including the revenue bond scenario.

“Another option would be to have the county Housing Authority issue revenue bonds or take a loan secured by a mortgage on the Whetstone property which would mean the development itself would secure the debt,” Birnie said. “This is another financing vehicle available to housing authorities, but not to counties. A third option would be for the County to issue Certificates of Participation (COPs) secured by the Whetstone property and capital assets.”

COPs have been used by the county to finance the building of the county courthouse, the county’s public safety center (jail), and even the purchase of the Whetstone property. “COPs are actually complex lease purchase arrangements,” explained Birnie. “In this scenario, investors are secured by a leasehold interest in the property and project. This is not actually a long-term debt issue, so annually the County would need to appropriate funds to pay the lease payments. If the County didn’t make that appropriation, the County would lose its rights to the property and the leaseholders would own the project. We have focused on the first approach as we feel it offers the best combination of terms and risk management, both for the County and the housing project itself.”

In order to get the financing in place before the end of this year’s construction season, a lot has to fall into place. “Once we have settled on the financing strategy it will take about two-and-a-half to three months to issue the debt,” he said. “It could happen by this fall, but that would require clarity on all cost elements soon and having all permits and agreements in place.”

Interest rates are currently running high and the hope is that the Federal Reserve will start to lower them sooner rather than later. The county would structure the financing so that it could be refinanced within 10 years.

Birnie said that none of these financing scenarios require voter approval.