The Roles of. for School District Public Financing

Transcription

1 The Roles of Finance Team Members for School District Public Financing presented by Adam Bauer, Principal i Fieldman, Rolapp & Associates (949) (949) [email protected] FRA127653

2 Presenter: Adam Bauer, CIPFA Principal, Fieldman, Rolapp & Associates Manager of School District Division of Fieldman, Rolapp & Associates Expertise in general obligation bonds, certificates of participation, p community facilities districts, tax and revenue anticipation notes, developer negotiations and school facilities Former Co-chair of the CASH Fiscal Management Strand, member of CSBA and CASBO Regular contributor to CDIAC Debt Line newsletter and CDIAC speaker on School District finance issues Roles of Finance Team Members for School District Public Financing 2

3 Why School Districts Use Financing Acquire land Construct / improve buildings Install improvements and facilities Acquire equipment Fund working capital Refinance existing obligations / leases Cash flow Roles of Finance Team Members for School District Public Financing 3

4 Finance Mechanisms & Tools General Obligation Bonds (GO Bonds Bond Anticipation Notes (BANs) Certificates of Participation (COPs) Community Facilities Districts (CFDs) Tax and Revenue Anticipation Notes (TRANs) Roles of Finance Team Members for School District Public Financing 4

5 General Obligation Bonds (GO Bonds) Secured by an ad valorem tax on all taxable property within the School District s boundary Ad valorem taxes create a new revenue stream for the School District Requires voter approval of tax Unlimited ability to raise taxes provides investors with greatest security and lowest borrowing cost School Facilities Improvement District (SFID) can be formed by School Districts to tax only a portion of their territory Proposition 46 Proposition 39 Separate Account/Annual Report No maximum tax rate Separate Account/Annual Report List of specific school facility projects to be funded Citizens Oversight Committee (COC) Performance and Financial Audits Tax rate as a result of any single election must be projected to be no more than (per $100,000 of assessed value): $30 for elementary and high school districts $60 for unified school districts $25 for community college districts Roles of Finance Team Members for School District Public Financing 5

6 Annual K-12 GO Bond Volume Annual California K 12 GO Issuance $8,000 $7,595 $7,344 Issuance in Millions $7,000 $6,000 $5,000 $4,000 $3,000 $6,696 $6,624 $6,123 $5,290 $5,084 $2,529 $2,514 $2,551 $6,732 $2,000 $1,000 $1,934 $1,380 $ * Annual California K 12 GO Issuance Source: California Debt and Investment Advisory Commission, Individual Debt Issuance Data by Year databases. * Comprised of January through June 2011 databases Roles of Finance Team Members for School District Public Financing 6

7 Upcoming Prop.39 Election Dates June 5, 2012 Primary Election November 6, 2012 General Election Other dates only if coincide with regularly scheduled district-wide election School Board election County election Special District election Community College election Roles of Finance Team Members for School District Public Financing 7

8 Building the Support Voter research poll Voter profile Project and Measure Support Campaign Advice Campaign Consultant Campaign steering committee District Activities to build support of the Measure Campaign Financial activities in order (Clean House) Clear and consistent message Supportive community leaders Supportive school district staff Engage the taxpayer early in the process Funding Media promotions Phone bank Speakers Bureau Endorsement Roles of Finance Team Members for School District Public Financing 8

9 Tax Rates Tax Rate = Annual Debt Service Assessed Valuation Therefore, bonding capacity at a given tax rate is a function of the following variables: Beginning g Assessed Valuation of Taxable Property Assumed Growth Rate of Assessed Valuation Number of Years Tax to be Levied Assumed Interest Rates on Bonds Timing and Amount of Individual Bond Sales Shape of Debt Service Profile Roles of Finance Team Members for School District Public Financing 9

10 Bond Anticipation Notes (BANs) Bond Anticipation Notes can be used to give districts access to cash sooner than bonds Notes and renewals thereof must be payable not more than 5 years from the date of the original issuance of the first Notes Total amount of Notes or renewals thereof issued and outstanding may not exceed the total amount of unsold (authorized) bonds The proceeds from the sales of the Notes must be used only for authorized purposes of the bonds or to repay outstanding notes previously issued Roles of Finance Team Members for School District Public Financing 10

11 Certificates of Participation (COPs) COPs / lease financings enable school districts to finance capital assets over a multi-year period without voter approval COPs / lease financing is a borrowing to be repaid over time from the school district s s general fund Roles of Finance Team Members for School District Public Financing 11

12 Annual K-12 COPs Volume $1,800 $1,600 Annual California K 12 COP Issuance $1,651 $1,400 Issuance in Millions $1,200 $1,000 $800 $600 $538 $858 $993 $849 $804 $770 $891 $1,081 $527 $755 $400 $402 $200 $130 $ * Annual California K 12 COP Issuance Source: California Debt and Investment Advisory Commission, Individual Debt Issuance Data by Year databases. * Comprised of January through June 2011 databases Roles of Finance Team Members for School District Public Financing 12

13 COPs - continued Advance / finance bond authorization to undertake immediate facility needs Pay-off with GO Bonds in the future when assessed value has grown Drawback: COPs pay interest that is a current drain on the General Fund Roles of Finance Team Members for School District Public Financing 13

14 Community Facilities Districts (CFD) What is a CFD? CFD has the authority to: Levy and collect a Special Tax on parcels within its boundaries Use the revenue to finance specified facilities and service Borrow money (by issuing bonds or incurring other debt) to assist with the facilities Other Improvement Areas (for our purposes very similar to a CFD) Roles of Finance Team Members for School District Public Financing 14

15 CFDs $3,000 Annual California CFD Issuance $2,762 $2,500 $2,258 Issua ance in Millions $2,000 $1,500 $1,000 $928 $1,378 $1,546 $1,713 $1,833 $500 $389 $265 $469 $180 $ * Annual California CFD Issuance Source: California Debt and Investment Advisory Commission, Individual Debt Issuance Data by Year databases. * Comprised of January through June 2011 databases Roles of Finance Team Members for School District Public Financing 15

16 CFDs - continued Why do School Districts do CFDs? CFDs provide a method that can help solve the funding ggap between the Developer Fees and what it actually costs to construct school facilities As a condition to doing CFDs, a school district may require that Developers pay in excess of the amount required through Developer Fees CFD can be structured so that there are benefits to the School District for years to come Roles of Finance Team Members for School District Public Financing 16

17 CFDs Establish Boundaries Key: School District Boundary..Black CFD No Orange CFD No Green CFD No Blue CFD No. 1 CFD No.2 CFD No.2 CFD No. 3 Roles of Finance Team Members for School District Public Financing 17

18 Tax and Revenue Anticipation Notes (TRANs) Short term borrowing up to 15 months maturity May be issued tax-exempt Issuance of TRANs Stand Alone Pool Structures May be sold competitive or negotiated Accounting issues Must be repaid from revenues of the same fiscal year Repayment set-aside revenues made during fiscal year Roles of Finance Team Members for School District Public Financing 18

19 TRAN Volume $3,000 Annual California K 12 TRANs Issuance $2,685 $2,500 Issuan nce in Millions $2,000 $1,500 $1,000 $1,755 $2,063 $500 $251 $ * Annual California K 12 TRANs Issuance Source: California Debt and Investment Advisory Commission, Individual Debt Issuance Data by Year databases. * Comprised of January through June 2011 databases Roles of Finance Team Members for School District Public Financing 19

20 TRANs - continued Advantages No required voter approval Source of funds for temporary cash flow deficits Only method of borrowing for working capital authorized by statue Simple and inexpensive May permit arbitrage earnings to be kept Disadvantages Generates no additional revenues (except for arbitrage earnings) Size of borrowing is restricted Only revenues received or attributable to the fiscal year in which the TRANs are issued may be pledged for repayment Roles of Finance Team Members for School District Public Financing 20

21 TRANs - continued No voter approval required Require school board and county board approval, ratings (or credit enhancements), and disclosure Alternative: Borrow from the County Office or County Treasurer in negative months Roles of Finance Team Members for School District Public Financing 21

22 Financing Team Members & Roles Issuer Internal Team: Superintendent Chief Business Official Facilities Director District i t Counsel Issuer Consultants: t Bond Counsel Financial Advisor Disclosure Counsel Campaign Consultant Trustee Dissemination Agent Underwriter Third Parties: County Treasurer/Auditor Rating Agency Credit Enhancer Roles of Finance Team Members for School District Public Financing 22

23 Financing Team Members & Roles (con t) Their Collective Role: Optimal structuring to accomplish goals Better market Minimize acceptance of potential for legal debt being sold liability Roles of Finance Team Members for School District Public Financing 23

24 Financing Team Members & Roles (con t) Bond Counsel Provides legal parameters and guidelines to School District and Financing Team Drafts legal documents pursuant to which debt is issued/secured Provides the legal opinion stating that debt is exempt from federal and state income taxes (California) or That QSCBs and BABs are valid obligations and exempt from California income taxes only Roles of Finance Team Members for School District Public Financing 24

25 Financing Team Members & Roles (con t) Financial Advisor Prepares, advises and assists in the formulation/execution of financing plans Negotiates bond parameters on behalf of the School District Role of financial advisor depends on: The needs of the School District The method of sale chosen and/or The complexity of the financing Does not purchase or underwrite debt Roles of Finance Team Members for School District Public Financing 25

26 Financing Team Members & Roles (con t) Underwriter Purchases debt with the intent to resell to investors In a negotiated sale, the underwriter is hired early in the process and assists the School District i and other financing team members In a competitive sale, the underwriter simply delivers a sealed bid on the date of sale offering to purchase the debt at fixed interest rates and prices Campaign Consultant Hired by the School District to conduct marketing campaign for election Works directly with School District staff, legal and financial team to determine most successful strategy to win bond election Roles of Finance Team Members for School District Public Financing 26

27 Finance Team Members Unique to School Districts One firm at times will serve many functions Financial Advisor Underwriter Pollster Election Consultant Roles of Finance Team Members for School District Public Financing 27

28 Finance Team Members Unique to School Districts One firm serving many functions Argument for this approach: Pros: No Ad-hoc advising One firm saves time No upfront fees Roles of Finance Team Members for School District Public Financing 28

29 Finance Team Members Unique to School Districts One firm serving many functions Argument against this approach: Cons: No checks and balances or new ideas Quality of work lower due to no specialization In some cases some argue that t approach is illegall Roles of Finance Team Members for School District Public Financing 29

30 Financing Team Members & Roles (con t) Their Collective Role: Optimal structuring to accomplish goals Better market Minimize acceptance of potential for legal debt being sold liability Roles of Finance Team Members for School District Public Financing 30

31 Financing Team Members & Roles (con t) Disclosure Counsel A law firm retained to assist the School District in fairly disclosing all pertinent facts relating to the debt offering Bond Trustee / Registrar / Paying Agent Usually a bank with trust power which acts in a fiduciary capacity for the benefit of the bondholders in enforcing the terms of the bond documents Maintains records on behalf of the issuer for the purpose of notifying the owners of registered bonds Pays interest and principal on bonds on behalf of the issuer Roles of Finance Team Members for School District Public Financing 31

32 Financing Team Members & Roles (con t) Dissemination Agent Takes responsibility for filing the Annual Report under the Continuing Disclosure Agreement and filing notices of material events County Treasurer / Auditor The principal duties include the management and investment of County, School & Special District funds Bond Administration (general obligation bonds) Collection of taxes and revenues Roles of Finance Team Members for School District Public Financing 32

33 Financing Team Members & Roles (con t) Underwriter s Counsel A law firm retained by the Underwriter to represent the Underwriter s interests Rating Agency An independent service that provides a credit quality evaluation of bonds and notes. Standard & Poor s, Moody s and Fitch are common for school district credit ratings Credit Provider An institution that lends its credit for a cost to provide a school district the opportunity for a lower cost of borrowing (i.e., Bond Insurance, Liquidity Facility or Letter of Credit) Roles of Finance Team Members for School District Public Financing 33

34 Questions & Discussion Roles of Finance Team Members for School District Public Financing 34