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City of Mounds View, Minnesota February 28, 1996 Page 3 S applicable to the purchase of real or personal property. For purposes of the bid requirements contained in Section 471.345, "the amount of the contract" shall include the total of all lease payments for the entire term of the lease under a lease/purchase agreement. The obligation created by a lease/purchase agreement shall not be included in the calculation of net debt for purposes of Section 475.53, and shall not constitute debt under any other statutory provision. No election shall be required in connection with the execution of a lease/purchase agreement authorized by this section. The city, county, town, or school district must have the right to terminate a lease/purchase agreement at the end of any fiscal year during its term. The basic form of this type of lease is an annual appropriation lease. The name is derived from underlying security. While a general obligation bond is backed by a long-term and binding pledge to pay debt service, an annual appropriation lease is secured by a commitment to annually budget funds to make lease payments. This pledge is not binding beyond the current fiscal year. Without a binding long-term pledge, the annual appropriation lease does not fit into the statutory definition of "debt." As a non-debt form of borrowing, the annual appropriation lease avoids many of the statutory requirements of traditional financing. A lease can be undertaken without voter approval, regardless of the project to be financed. Lease financing can be sold at either competitive or negotiated sale. Tha ` 'oical lease/purchase financing will be issued in the form of"certificates of participation" or Just as a bond represents a right to receive debt service payments, the certificates 111) !zi,.:::,ent the right to receive payments pursuant to a lease/purchase agreement. In terms of the financing process, a certificate functions in the same manner as a bond. Lease Revenue Bonds/Certificates of Participation The use of lease revenue bonds is based on four elements: 1. State law authorizes housing and redevelopment authorities (HRA's) and economic development authorities (EDA's) to issue bonds for their respective corporate purposes. Under certain circumstances, these corporate purposes may include the construction of public facilities. 2. Both HRA's and EDA's are statutorily designated as political subdivisions of the State. 3. Minnesota Statutes, Section 275.50, Subdivision 5(e), states that tax levies made "to provide for the bonded indebtedness portion of payments made to another political subdivision of the State of Minnesota" are exempt from levy limitations. 4. The Minnesota Department of Revenue has taken the position that property tax levies by a city for'the purpose of making payments under a lease/purchase agreement qualify as a special levy when those payments are used by another political subdivision to pay principal and interest on revenue bonds. It is important to obtain a letter of interpretation from the Department of Revenue for each project. The process for using lease revenue bonds is somewhat more complicated than the traditional • debt issuing process, particularly when an . is involved. To gain the authority to undertake the financing, the HRA must adopt a redevelopment plan and establish a redevelopment project. Pursuant to Minnesota Statutes, Section 469.027, the HRA must submit the redevelopment plan to the planning commission and request its written opinion within 30 days. The