Debt Service and Leasing SASBO. The Power of Connections Kingsport, Tennessee April 7-10, 2014

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Walter Green
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1 Debt Service and Leasing SASBO The Power of Connections Kingsport, Tennessee April 7-10, 2014

3 Issuance of Eight Percent Debt Debt is limited to 8% of the total School District s Assessed Value. Short-Term form of financing, generally under 5 years. Recycling capabilities of 8% capacity.

4 Issuance of Referendum Debt Generally used for major capital projects Traditionally Long-Term form of financing, generally 15 years or more. Requires voter approval. Can be combined with Sales Tax revenues.

5 Issuance of Bond Anticipation Notes Can be used to manage millage rates, way to differ millage increases. Short-Term obligations. Can be utilized when market conditions are not favorable for long term debt. Can be used for either 8% or referendum debt.

6 Installment Purchase Revenue Bond Program Installment Purchase Revenue Bonds (IPRB) Based on Annual Appropriation or Annual Use of Eight Percent Bonding Capacity Alternative Use of Eight Percent Dollars Capitalizing Interest Allowed Debt Service Restructuring Allowed Needs Multiple Projects to Effect a Stronger Collateral Package.

Capacity Alternative Use of Eight Percent Dollars Capitalizing Interest Allowed

7 Issuance of Installment Purchase Revenue Bonds (IPRB) Recently enacted legislation has determined that Installment Purchase Revenue debt is chargeable to a district s 8% capacity, making the IPRB not a viable solution. Prior to the new legislation a district could issue an IPRB through a separate entity (Non Profit) for school facilities without a referendum, payments could be made by issuing short-term 8% general obligation bonds.

8 Lease and Other Forms of Financing Can be used for equipment purchases. Term is matched with the useful life of the asset or equipment being purchased. Qualified Zone Academy Bond

10 Benefits to Local Governments SCAGO s primary objective is the development and promotion of innovative financing programs. SCAGO programs focus on: Efficiency Cost Savings through Economies of Scale Ease and Convenience Fiscal Oversight

11 Tax Anticipation Note Program Tax Anticipation Note (TAN) Program is a cash management tool offered via a short-term borrowing program. TANs allow School Districts to borrow money at tax-exempt rates to meet cash flow requirements in anticipation of tax receipts. Funds are invested at more competitive rates than would be available on an individual District-by-District basis. A District s borrowing is evidenced by the issuance of notes representing the maximum amount of projected cash flow needs by the general fund into which ad valorem taxes are deposited. Costs of issuance are lower due to the pooling effect. Fees to Bond Counsel, Financial Advisor, Trustee, etc. are divided amongst all participants.

Funds are invested at more competitive rates than would be available on an individual District-by-District basis.

12 Tax Anticipation Note Program Participants Series Par Amount 30 Series 2002 $107,584, Series 2003 $206,892, Series 2004 $135,175, Series 2005 $92,564, Series 2006 $74,782, Series 2007 $93,411, Series 2008 $88,629, Series 2009 $146,615, Series 2010 $179,734, Series 2011 $137,875, Series 2012 $104,236, Series 2013 $115,098,000 Total: $1,482,595,000

Series 2007 $93,411,000 17 Series 2008 $88,629,000 28 Series 2009 $146,615,000 37 Series 2010

13 General Obligation Debt Program Innovative financing program available to all School Districts regardless of size. Utilizes 8% constitutional debt capacity subject to the District s full faith and credit resulting in lower cost. Effective debt management tool. Offers terms as short as one year. Costs of issuance are lower due to the pooling effect. Fees to Bond Counsel, Financial Advisor, Trustee, etc. are divided amongst all participants. Typically used for small-to-medium sized projects such as equipment purchase, facilities renovation, IPRB payments and refunding of small bond issues. Two programs a year, March sale and August sale

Offers terms as short as one year. Costs of issuance are lower due to the pooling effect. Fees to Bond Counsel, Financial Advisor, Trustee, etc.

14 General Obligation Debt Program Issuers Series Par Amount 4 Series 2003A $3,165,000 7 Series 2004A B $4,820,000 5 Series 2005A $5,010,000 6 Series 2006A $4,590, Series 2007A, B, C $57,980, Series 2008B, C, D $102,180, Series 2009B $119,475, Series 2010B, C, D, E $137,185, Series 2011 B, C, D $113,600, Series 2012A (Spring) $59,410, Series 2012C,D,E (Fall) $105,345, Series 2013A (Spring) $56,960, Series 2013C,D (Fall) $120,396, Series 2014A (Spring) $54,955,000 Total $945,071,000

49 Series 2010B, C, D, E $137,185,000 38 Series 2011 B, C, D $113,600,000 17 Series 2012A (Spring) $59,410,000 47 Series 2012C,D,E

15 Equipment Acquisition Program Incremental acquisition purchase for equipment. Annual payments may be made from operations millage or proceeds of general obligation bonds. May be combined with performance contracting. Taxable issues may be issued to reimburse for past cash purchases.

Annual payments may be made from operations millage or proceeds of

16 Installment Purchase Revenue Bond Program Even though the Program closed by Act 388 in 2006 for School Districts SCAGO does assist in issuance of annual debt issuance to pay the annual installment payments through the General Obligation Program as describe on slide 13 This method is available for all other forms of local government which SCAGO is equipped to assist.

annual installment payments through the General Obligation Program as describe on slide 13

17 QUALIFIED ZONE ACADEMY BONDS

18 Qualified Zone Academy Bonds QZAB s are a source of funding that may be used for renovating school buildings, purchasing equipment, developing curricula, and/or training school personnel. The proceeds of the bonds may not be used for new construction. This is a tax credit bonds program, not a grant program. Requirements: Public schools that are either located in an Empowerment Zone or Enterprise Community or in which at least 35 percent of the school s students are eligible for free or reduced-price lunch under the federal lunch program (National School Lunch Act). Public schools that have an education program designed in cooperation with business and receive a private business contribution that is not less than 10 percent of the net present value of the proceeds of the bond. Public schools that have an approved education plan by their school districts and in which students are subject to the same standards and assessments as other students in the district. "Qualified Zone Academy Bonds." US Department of Education. US Department of Education, 08 Dec Web. 3 Mar <

Requirements: Public schools that are either located in an Empowerment Zone or Enterprise Community or in which at least 35 percent of the school s students are eligible for free or reduced-price

19 What can QZABs be used for? QZABs can be used for renovation and modernization to an existing school structure. Rehabilitating or repairing the public school facility in which the academy is established; Improving energy efficiency/renewable energy; Providing equipment and technology for use at the academy; Developing course materials for education to be provided at the academy; or Training teachers and other school personnel in the academy QZABs cannot be used for new construction.

efficiency/renewable energy; Providing equipment and technology for use at the academy; Developing course materials for

20 Will a QZAB work in my capital funding program? QZABs are flexible to compliment your funding and debt structure needs. General Obligation Bonds Payable with debt service millage. Equipment Lease Payable from operations millage. Equipment Acquisition Agreement Payable from operations millage or debt service millage. South Carolina Department of Education QZAB Allocation 2012 QZAB Allocation 2013 Total $6,788,000 $6,788,000 $13,576,000 The 2012 allocation must be issued by 12/31/2014. "US Department of Education: QZABs." Apply for QZAB grant. N.p.. Web. 4 Mar <

Equipment Acquisition Agreement Payable from operations millage or debt service millage.

21 EQUIPMENT ACQUISITION CASE STUDIES

22 South Carolina School District Number 1 Technology Improvement $6,242,000 Security Use and Acquisition Agreement, Series 2013 Single financing agreement funded the following objectives: Energy Savings Performance Contract (Self-funded portion) Non-PC capital projects (Not funded by energy savings) Technology infrastructure upgrade & 1:1 Digital Conversion Financing Terms (Blended Amortization Schedule) Technology Infrastructure: Three year financing term Capital Projects: Fifteen year financing term Energy Savings Contract: Fifteen year financing term Bidder Name True Interest Cost Bank of America 2.695% US Bank 2.775% SunTrust Bank 2.835% Capital One 3.29% Highlights: Annuitizes Constitutional Debt Limit (8% Availability x Factor = Purchasing Power) A Blended Amortization Schedule was used to fit the useful life of each funding objective

23 South Carolina School No. 2 Funding to Accelerate Building Projects $6,000,000 Acquisition Financing Agreement, Series 2012 Political Unit Situation Identifies Need heavy equipment Equipment has a Ten Year Useful Life Financing Terms Ten Year financing Term Bidder Name True Interest Cost Chase Bank % SunTrust Bank 1.67% PNC Bank 1.74% TD Bank 1.83% Bank of America 2.84% Highlights: Accelerated capital program by a year Additional Funding for Shortfalls in Capital Building Programs

24 Questions

General. Scope. Objectives. The objective of the Policy is to ensure prudent debt management practices that include:

General. Scope. Objectives. The objective of the Policy is to ensure prudent debt management practices that include: General This Policy (the Policy ) establishes conditions for the use of debt and creates procedures and policies designed to manage the Alamo Community College District s (the College District ) obligations