City pledges ‘limited’ full faith and credit to back loan

By: Kristyne E. Demske | St. Clair Shores Sentinel | Published May 25, 2016


ST. CLAIR SHORES — The city has pledged its full faith and credit to back the U.S. Housing and Urban Development (HUD) Section 108 loan the city will receive to expand and renovate the Senior Activities Center.

The city’s bond counsel, Pat McGow, explained to City Council May 2 that the program is administered through a special program that only buys bond notes through the federal HUD guaranteed system, which allows the city to receive a subsidized interest rate that can be repaid with St. Clair Shores’ Community Development Block Grant money each year.

“The grant money that you get from HUD are sized enough each year to allow you to pay back that note,” he said.

However, HUD asked for the city to either set aside money in a reserve fund to serve as collateral for the loan, or pledge the city’s limited full faith and credit to back the $1.7 million loan. 

The “limited” full faith and credit will not allow the city to turn to residents if it cannot repay the loan with CDBG money, he explained.

“The city pledges its funds to pay back the debt, but the city is not allowed to raise taxes any more than it is allowed,” he said. 

Publishing a notice of intent to issue notes and a resolution authorizing the issuance of notes for the project does not obligate the city to follow through with the loan if the terms are changed by HUD to something the city does not agree with, such as forcing the city to keep a reserve fund with more than $100,000 set aside, McGow said.

The actual financing documents will come back to the city later, he said, and do not have to come before City Council, but members said they want a chance to look over the documents before agreeing to the terms.

“I cannot vote for anything until I know what I’m voting for, and I don’t know what I’m voting for,” Councilman Peter Rubino said.

McGow said that putting language into the document stating that City Council wants to revote on the issue if a reserve is required would not impact the outcome of the loan.

City Council voted unanimously to approve the resolution authorizing the issuance of notes for the CDBG program Section 108 loan guarantee for the center, with the elimination of language calling for a reserve account and the addition of language stating that the measure will come back to council for a vote if that is not eliminated.

At the May 16 City Council meeting, Smith said plans were continuing to move along.

“We have signed off on the design,” he said. “We’re getting excited to see the plans come to fruition.”