The City of Gulf Breeze, Florida initially began actively operating its first financing program in 1985. The city's initial program of loans to local governments and public entities was funded by a $500 million publicly offered bond issue. The favorable below-market floating or fixed rates on the bonds was passed along to hundreds of local governments, as diverse as the Cities of Arcadia and Pahokee (located near Lake Okeechobee) to the Cities of Miami Beach and Orlando to Hillsborough and Escambia County. Each financing from this program contained a combination of innovative financing features that enabled the Program to underwrite loans at below-market interest rates for up to 100% of the project costs. The Program further assisted the participating local government by subsidizing the loans program with the investment earnings from the City's reserve funds. These subsidies, in addition to the beneficial interest rates, greatly reduced the true borrowing costs for the loans funded by the Program.
Notably, the 1985 Program funded substantial loans for urban redevelopment projects, including the renowned Mizner Park project in Boca Raton, and Halifax Harbor at Daytona Beach. It also funded loans for a major redevelopment project in Homestead, Florida, after that city's economy was destroyed by Hurricane Andrew in 1992. In total, through 2014 more than 91 loans, valued at more than $870,000,000 have been made from the 1985 program.
The City of Gulf Breeze correctly anticipated that the 1985 Program would result in a large number of loans being originated, requiring significant managerial and administrative resources. At the time the 1985 Program was funded, the City of Gulf Breeze engaged in a professional investment banking firm (the “1985 Contractor”) to process, administer and monitor the Loans. Because the loan program was an innovative and untested undertaking, it quickly became obvious that the officials of the City would have to become involved in the day-to-day administration of the 1985 program. Working closely with its 1985 Contractor and with SunTrust Bank, as the 1985 Program's trustee, the City's Mayor at the time, Ed Gray III, spent extensive amounts of time assisting in the presentation of the benefits of the 1985 Bond Program to potential borrowers, coordinating Loan applications, setting up accounting and monitoring features and computer reporting standards, and presenting loans for approval by the bonds insurer. Eventually, Mr. Gray voluntarily chose not to seek another term as mayor in 1992. Over the next 10 years he continued to assist the city with management of the financing programs as needed. In 2002, the City engaged him to manage and expand the financing programs full time.
Based upon its success in developing and administering the 1985 loan program, the City of Gulf Breeze was able to create a second loan program in 1995 that offered small loans at below market rates to smaller cities, counties and other public entities. These loans offered 100% financing of the costs of a project, and had extremely low borrowing costs compared to the borrowing costs such borrowers would have incurred if they had done individual bonds. The economy of scale, and the floating interest rates in the Loans generated some of the lowest cost of funds available anywhere in Florida up to that time. The 1995 Program was developed in association with Barnett Banks of Florida, one of the largest state-wide banking institutions at the time. The Bank's contacts with local governments through its many branch offices helped the City gain access and credibility with many Florida local governments.
The Greater Orlando Aviation Authority (GOAA), operator of the principle airport in Orlando, Florida, was an early participant in the 1985 Program. Demands from a rapid-growing new theme-park tourism industry in Orlando placed huge strains upon the facilities at the Orlando airport. GOAA realized the advantages of Gulf Breeze's 1985 Program and borrowed significant sums to finance a first-class airport hotel at its new terminal. Because of changes in the new tax law, GOAA would have been unable to finance the hotel had it not been for the foresight of Gulf Breeze in establishing the 1985 Program before the tax laws were changed. Because of its favorable experience with the GOAA on that project, GOAA soon turned to Gulf Breeze to develop another financing vehicle for GOAA's airport expansions.
In 1997, the City of Gulf Breeze developed an extremely beneficial bond program for the Greater Orlando International Airport that allowed the Airport to receive the advantages of a synthetic floating interest rate borrowing, on a Loan of $81,000,000, without actually having to incur the risks associated with interest rate swap. In 1997, interest rate swaps for Florida public entities was still rather novel. GOAA had reservations about executing the swap directly. By working with Gulf Breeze, GOAA was able to realize the benefits of an interest rate swap without actually undertaking the swap. This was achieved by having the Program, rather than GOAA, enter into the swap agreement for a series of Bonds issued by Gulf Breeze. By having Gulf Breeze then lend the bond proceeds to the Airport, the savings and benefits of the transaction were passed along to GOAA, making an Airport Loan that resulted in a floating rate on funds borrowed by GOAA being lower than similar floating rates paid by other airport credits.
Around the same time, the City of Gulf Breeze created a highly advantageous loan program for general availability to other public agencies. For a short period of time, the investment banking industry was able to market a hedge instrument that allowed its purchasers to offset their risk of inflation. Gulf Breeze realized that this hedge product could be useful in the tax-exempt market as well. Accordingly, it quickly developed a loan program involving a novel swap of the bond interest rate to a “consumer price index” based rate using the new inflation hedge product. Under this “CPI” Program, loans were being offered at the unheard of rate of BMA plus 34 basis points. In addition, the City was been able to offer to pay up to 20 basis points of the loan amount to help offset the Borrower's costs of its transaction and to borrow money from the Program. More than 14 Loans totaling more than $119,562,000 were made from this CPI Program.