SUPREME COURT OF THE STATE OF IDAHO  

GREATER BOISE AUDITORIUM DISTRICT, Petitioner-Appellant,

vs. DAVID R. FRAZIER, Respondent

Filed: October 15, 2015

Idaho Constitution Debt Limitation Article VIII, § 3

"Limitations on county and municipal indebtedness. — No county, city, town, township, board of education, or school district, or other subdivision of the state, shall incur any indebtedness, or liability, in any manner, or for any purpose, exceeding in that year, the income and revenue provided for it for such year, without the assent of two-thirds of the qualified electors thereof voting at an election to be held for that purpose…Any indebtedness or liability incurred contrary to this provision shall be void; provided, that this section shall not be construed to apply to the ordinary and necessary expenses authorized by the general laws of the state * * *." (emphasis added)

Par%es  

•  Greater Boise Auditorium District - an Idaho governmental subdivision under Idaho Code section 67-4901 and owner of the Boise Centre convention center in downtown Boise.

•  KC Gardner Company, LLC - a Developer •  Urban Renewal Agency of Boise City (aka

Capital City Development Corporation) - an urban renewal agency under Idaho Code Title 50, chapters 20 and 29.

•  Wells Fargo Bank, N.A. - commercial lender

Boise  Centre  Expansion  Gardener’s  planned  of.ice  building  (“Centre  Building”)  is  left  of  the  existing  U.S.  Bank  tower  in  this  rendering.    The  proposed  meeting/convention  building  (“Clearwater  Building”)  is  right  of  the  tower.        

A view of the two proposed buildings (Centre Building and Clearwater Building). The empty space is where the U.S.

Bank tower sits.

Leasing  Intermediary  

•  Renewal Agency of Boise City (aka the Capital City Development Corporation) (the “Agency”): –  is not a governmental subdivision, –  lacks the power to levy and collect taxes –  is not an alter ego of the City of Boise

•  As such, the Agency is not subject to Article VIII, Section 3 of the Idaho Constitution and could therefore obtain financing from Wells Fargo without voter approval.

Financing  Agreements  •  District and Gardner enters into (1) an Amended and Restated

Master Development Agreement and (2) Purchase and Sale Agreement for the construction and sale of the new facilities

•  District enters into an Amended and Restated Development Agreement with the Agency in which District assigns all of its rights and interest in the new facilities, including the right to purchase new building from Gardner to the Agency and Agency agrees to obtain financing from a commercial Lender

•  Agency issues a promissory note and deed of trust in favor of Wells Fargo in exchange for Wells Fargo’s advance of purchase price

•  District and Agency enter into the Centre Lease under which the Agency leases the Centre Building to the District and grants the District an option to purchase it at nominal price, utilizing the annual lease payments from the District to pay the principal and interest due on the Agency’s promissory note

Transac%on  Diagram  

Considera%ons  for  Idaho  Annual  Appropria%on  Leases  

•  Limited (if any) indemnity obligations (contingency fund or limited to appropriated funds)

•  Lease term must be “initial” term that ends when current fiscal year ends followed by successive one-year renewal terms in the sole discretion of the lessee –  cannot be 10-year term subject to automatic annual renewal,

unless governing body acts to renew –  no indirect constraints on lessee’s right not to appropriate, such

as a non-substitution provision or similar provision –  remedy on event of default must be limited to recovery for

current fiscal year •  Nominal purchase price (not automatic transfer), with option

exercisable in lessee’s sole discretion •  Lessee may prepay purchase price of equipment, not prepay lease

payments

Considera%ons  for  Idaho  Annual  Appropria%on  Leases  

•  Unlike the real property lease in the GBAD case, in customary muni equipment lease: –  lessor/lender is the counterparty (not subject to debt constraints) rather

than a separate agency –  Query: Would use of intermediary agency be advisable?

•  Lessor/lender has a security interest in the leased/financed asset that is to be returned upon non-appropriation or event of default (the Court had no legal issue with the lender’s rights in the property under the note/trust deed between the non-constitutionally limited Agency and the lender) –  recourse to the lessee must be limited to any remaining lease payment

during fiscal year in effect when default or non-appropriation occurs and not thereafter; and

–  any surplus proceeds realized upon liquidation of the equipment must be returned to the lessee

Considera%ons  for  Idaho  Annual  Appropria%on  Leases  

•  In GBAD case, the District agreed to lease the Centre Facility upon its completion –  in muni equipment lease, title transfers to the lessee up-front and the

lease of the equipment becomes effective before actual completion of installation and acceptance by the lessee

–  so long as the lessee has sufficient funds on hand during the initial fiscal year to pay any lease payment during that term and has sole discretion whether or not to extend lease term, does up-front title transfer and lease matter?

–  Query: should lessor hold bare legal title? •  Recommend use of “Idaho-specific” muni equipment lease, not general

annual appropriation form. •  Need test case involving judicial confirmation for Idaho annual appropriation

muni equipment lease

August  2015  Clearwater  Building,  Ninth  floor  and  roof