Transcript No Slide Title

2008 Training Session
Capital Improvement Planning An Investment Banker’s Perspective
Friday, January 11th, 2008, 1:30 p.m. - 2:30 p.m.
Scottsdale, Arizona
Presented By:
2555 E. Camelback Road, Suite 280, Phoenix, Arizona 85016 (602) 794-4000
Overview of Presentation
Pages
1)
An Investment Banker’s Perspective
2-4
2)
Financial Policy Recommendations (Best Practices)
5-6
3)
General Obligation Bond Alternative Overview
4)
CIP Financing Alternatives Summary

Cities & Towns

Counties
7
8-10
5)
Fundamental Debt vs. Pay-As-You-Go Questions
6)
Debt vs. Pay-As-You-Go Example
13
7)
Questions
14
Page 1
11-12
1) An Investment Banker’s Perspective
 SOPHISTICATED CIP PLANNING DOCUMENTS ARE VERY
IMPORTANT TO THE MARKETPLACE:
1.
CIP Planning Documents Vary Significantly Across the State
2.
Absence of Minimum Five-Year CIP May Be Viewed as a Credit Negative
(translates to potential higher borrowing costs)
3.
Ten Year CIP Encouraged to Develop a More Comprehensive Funding Plan
Page 2
An Investment Banker’s Perspective
5.
Learn from Other Governmental Jurisdictions – Outstanding Models To
Choose From
6.
Integrate O & M Ramifications into Long-Term Forecasts & Related Planning
Documents
7.
Identify Financing Alternatives For Each Project and Why Such Alternative(s)
are Equitable
Page 3
An Investment Banker’s Perspective


INCLUDE THE COMMUNITY IN THE PLANNING PROCESS
1.
Improves Relationships and Builds Support for Future Revenue Stream(s)
2.
Use as a Tool to Control Political and Community Expectations Regarding
CIP and On-Going Pressure on Revenues to Accomplish Projects
3.
Documented, Publicly Available (i.e., website), Easy to Read and Updated
Annually
4.
Transparency Builds Confidence Among Stakeholders
DEBT PLANNING & FINANCIAL POLICIES SHOULD BE
CROSS REFERENCED THROUGHOUT THE CIP
1.
See Policy Recommendations Herein
Page 4
2) Financial Policy Recommendations (Best Practices)
1.
Formal Council Approved Policies are Viewed Favorably By Market Participants
2.
CIP Policy (Authorizing & Establishing)
3.
Complete Master Plan Documents Which Support Capital Improvement
Projects
4.
General Fund “Cash” Balance Reserve Policy – One Size Does Not Fit All!
o
5.
Non-Recurring Revenue Policies:
o
6.
% of Expenditures or Number of Days of Operating Expenses
How Does your Jurisdiction Plan for Economically Sensitive Revenues (i.e.,
Sales Tax, Construction Related Revenues, Income Taxes and Bed Taxes)?
Debt Planning & Affordability Policies:
o
Formalized Plan that Includes Targeted and Maximum Debt Levels & PayAs-You-Go Funding
o
Determining Debt Capacity is an Art Not a Science
Page 5
Financial Policy Recommendations (Best Practices)
7.
Community Facilities District (CFD) Policies & Procedures
8.
Improvement District (I.D.) Policies & Procedures
9.
Impact Fee Policies & Procedures
10. Utility Enterprise Systems Policies and Procedures:
o
Outline Procedures for Monitoring Covenants to Ensure Compliance
11. Inter-Fund Borrowing Policies
12. Primary and Secondary Tax Rate Policies & Objectives
Page 6
3) General Obligation (G.O.) Bonds Alternative Overview

Substantial CIP Funds Can Come from G.O. Bond Authorization

Voter Approval Required (Majority Vote). Election Opportunity Limited to the
First Tuesday After the First Monday in November

Repaid Through Secondary Property Tax Levy

City/Town Debt Limitations: 20% and 6% of Secondary Assessed Valuation

20% Category:
Public Safety, Law Enforcement, Fire and Emergency Services, Water,
Lights, Sewer, Open Space, Parks, Streets & Transportation Facilities

6% Category:
Any of 20% Category & All Other General Municipal Purposes

County Debt Limitations: 15% of Secondary Assessed Valuation

All Eligible Projects and Related Debt Categories Subject to Bond Counsel
Approval
Page 7
4) Arizona City & Town, CIP Financing Alternatives Summary
Type of
Infrastructure
Improvements
G.O. Bonds
(a)
(b)
Excise
Tax
Rev.
Bonds
1. Streets & Roads
(Transportation)

(20% or 6%)


2. Parks & Open
Space

(20% or 6%)

3. Water &
Wastewater
Utilities
(Acquisitions &
Improvements)

(20% or 6%)

4. Electric & Gas

(6%)

5. Police & Fire
(Public Safety)

(20% or 6%)

6. Administrative
Facilities
(i.e., City Hall)

(6%)

(a)
(b)
(c)
(d)
HURF
Bonds
Lease
Purchase
/ COPs
(Annual
Approp.)
Utility
Revenue
Bonds &
WIFA
I.D.
Bonds
CFD
Bonds







(c)

GADA
(d)

USDA
/ RUS


(Including
Grants)



(No WIFA)



(No
Grants)


(No
Grants)




(No
Grants)
Election Permitted to be held on the First Tuesday after the First Monday in November of each year.
Election Permitted in March, May, September and November.
Election not required if population is less than 50,000. Excise Taxes and Development Fees required by WIFA Under Certain Circumstances.
Election not required if population is less than 50,000.
Page 8
P3

Arizona City & Town, CIP Financing Alternatives Summary
Type of
Infrastructure
Improvements
7. Libraries
G.O. Bonds
(a)
HURF
Bonds
(b)
Excise
Tax
Rev.
Bonds

(6%)

8. Airport

(20% or 6%)

9. Equipment /
Technology

(20%or 6%)
(e)
10. Economic
Development




(20% or 6%)

12. Solid Waste

(6%)
13. Sport Facilities
(Professional)

(6%)
(a)
(b)
(c)
(d)
(e)
CFD
Bonds


Utility
Rev.
Bonds &
WIFA
(c)
GADA
(d)

USDA /
RUS
P3

(No Grants)

(6%)
11. Storm
Drainage
I.D.
Bonds
Lease
Purchase/
COPs
(Annual
Approp.)








(e)
(No Grants)



( Grants?)


(No Grants)





Election Permitted to be held on the First Tuesday after the First Monday in November of each year.
Election Permitted in March, May, September and November.
Election not required if population is less than 50,000. Excise Taxes and Development Fees required by WIFA Under Certain Circumstances.
Election not required if population is less than 50,000.
Amortization Limited to Average Useful Life of Assets Being Financed.
Page 9

Arizona Counties, CIP Financing Alternatives Summary
Type of
Infrastructure
Improvements
G.O.
Bonds
(15%)
HURF
Bonds
1. Streets & Roads
(Transportation)


2. Parks & Open
Space

3. Water &
Wastewater
Utilities
Excise
Tax Rev.
Bonds
I.D.
Bonds
CFD
Bonds
Lease
Purchase/
COPs
Special
Districts
(a)






Library
District
Jail
District
WIFA
(c)
GADA
(d)
(b)








(Includes
Grants)
(Pima
County
WW
Only)
4. Public Safety /
Courts





5. Administrative
Facilities





6. Libraries

7. Equipment /
Technology


8. Detention
Facilities & Jails


9. Economic
Development


(a)
(b)
(c)
(d)
USDA
/ RUS










Includes Sanitary Districts, Domestic Water Improvement Districts and other similar Districts.
County Highway Acceleration Financing Option Also Available.
Election not required if population is less than 50,000.
Election not required if population is lass than 200,000
Page 10
5) Fundamental Debt Vs. Pay-As-You-Go Questions
 PROJECT COMPLETION:
o Ability to Construct Public Infrastructure in Advance to Enjoy Benefits
Related Thereto and Meet Community Service Objectives
o Necessity and Desire for highly Essential Capital Improvement Projects (i.e.,
Health & Safety, Highway Acceleration, Open Space Preservation)
o Opportunity to Purchase Capital Assets at an Attractive Price
 CONSTRUCTION COSTS AND ECONOMIC CONDITIONS:
o Impact of Inflation on Project Budget
o Economies of Scale Possibilities. Does Current Bid Environment Create
Opportunities?
 BUDGET & CASH FLOW CONSIDERATIONS:
o Limit Revenue Bond Debt Service to a % of the City’s General Fund (Don’t
Overburden Budget)
o Debt Affordability Analysis. Identify/Implement Special Revenue Stream to
Repay Debt Obligation.
o Updated Debt Issue Size Based on Debt Service Amount in Budget
Page 11
Fundamental Debt Vs. Pay-As-You-Go Questions
 INTERGENERATIONAL EQUITY:
o Spreading Costs of Project Over Approximate Useful Life Which Allows for
Multiple Generations to Help Pay for Fair Share
o Current Residents Paying Taxes During the Cash Build-up Period Without the
Benefit
 ONGOING O&M FOR REPLACEMENT FACILITIES:
o Growing Costs of Remediating Long Neglected Public Infrastructure,
Including Ramifications of Operation & Maintenance
 COST OF MONEY:
o Investment Rate of City/County Funds Currently Approximate 4.0% - 4.5%
o Bond Interest Rates Approximate 4.5% for 20-Year Insured Bonds
 POLITICAL RAMIFICATIONS
Page 12
6) Debt Vs. Pay-As-You-Go Example
Assumptions:
1 Project Cost in Today's Dollars
2 Construction Cost Inflation Rate
3 Amortization
(1)
(2)
(3)
$10,000,000
5.00-7.00%
15-Years
(4)
(5)
4 Interest Rate
5 Bond Costs
6 Number of Years to Build Cash Reserves
(6)
(7)
$10,150,000 Bond Issue
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Principal
Interest
$470,000
495,000
520,000
545,000
570,000
600,000
630,000
660,000
695,000
730,000
765,000
805,000
845,000
890,000
930,000
$10,150,000
$507,500
484,000
459,250
433,250
406,000
377,500
347,500
316,000
283,000
248,250
211,750
173,500
133,250
91,000
46,500
$4,518,250
Annual Debt
Service
$977,500
979,000
979,250
978,250
976,000
977,500
977,500
976,000
978,000
978,250
976,750
978,500
978,250
981,000
976,500
$14,668,250
(9)
(10)
Pay-As-You-Go
15-Year Amortization: Interest Estimated at 5.00%
Fiscal Year
Ending
(8)
PV at
5.00%
$936,437
892,407
849,354
807,340
766,414
730,335
694,878
660,119
629,328
598,891
568,897
542,188
515,666
491,931
465,816
$10,150,000
Less: Total Estimated Bonding Costs
Benefit/(Cost) of Using Bonds
Page 13
Future
Value Cash
Payment
(11)
Pay-As-You-Go
Inflation Estimated at 5.00%
Cost at
5.00%
Inflation
$10,000,000
10,500,000
11,025,000
11,576,250
12,155,063
12,762,816
5.00%
$150,000
5
PV at
5.00%
$12,762,816
$10,000,000
$12,762,816
$14,668,250
($1,905,434)
Inflation Estimated at 7.00%
Cost at
7.00%
Inflation
$10,000,000
10,700,000
11,449,000
12,250,430
13,107,960
14,025,517
Future
Value Cash
Payment
PV at
5.00%
$14,025,517
$10,989,360
$10,000,000
$14,025,517
$10,989,360
$10,150,000
($150,000)
$14,668,250
($642,733)
$10,150,000
$839,360
Questions?
Page 14