Morgan Asset Management Investment Advice Florida

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					                                                   PFM




Financial Markets Evolution and
 Current Financing Alternatives
                        November 9, 2010

                                    Prepared by
                     Jay Glover and Brent Wilder
               Public Financial Management, Inc.
                 300 S. Orange Ave, Suite 1170
                              Orlando, FL 32801
                                   407-648-2208
                                   www.pfm.com
                                                    PFM
Outline
• Introduction

• Financial Markets Evolution and Economic Update

• Debt Issuance Process

• Current Financing Alternatives:
   – Publically Offered Bonds

   – Privately Placed Bank Loans

   – State Revolving Fund (SRF) Loans

   – Commercial Paper

   – Summary

   – Stimulus Related Bond Provisions

                                                          1
                                                                    PFM
Introduction


Jay Glover                          Brent Wilder
Senior Managing Consultant          Senior Managing Consultant
Public Financial Management, Inc.   Public Financial Management, Inc.
300 S. Orange Ave, Suite 1170       300 S. Orange Ave, Suite 1170
Orlando, FL 32801                   Orlando, FL 32801
407-648-2208                        407-648-2208
gloverj@pfm.com                     wilderb@pfm.com




                                                                          2
                                                                                           PFM
Introduction
• Public Financial Management
   -   Offering financial and investment advice to governments & not-for-profits
   -   400 professionals in 30+ offices throughout the US (Orlando and Miami)
   -   Two separate operating companies

       Public Financial Management                     PFM Asset Management
   Financial Advice & Strategic Consulting        Investment Management & Consulting

   $50+Bn/Yr Capital Markets Transactions             SEC Registered & Regulated

        10 Person Public Power Group              Managing $35+ Billion of Client Assets

   -   No bond underwriting or trading for our own account
   -   Helping our clients maximize financial value
   -   Within risk tolerances consistent with public sector objectives




                                                                                                 3
                                              PFM




   Financial Markets Evolution and Economic
                                     Update
FINANCIAL


                                                    4
                                                                   PFM
Financial Markets Update
• The Problem Started With Maybe a Little Too Much Mortgage Debt


   – The New Dollar Tells the Story




                                                                         5
                                                                            PFM
Financial Markets Value Quality During Stress
• Back to September, 2008
                                Long Term Rates

   8.50%                                          AAA Muni 30 yr
                                                  A Electric Muni 30 yr
   7.50%                                          Treasury 30 yr
                                                  BBB Corp. Utility 30 yr
   6.50%

   5.50%
              The Peak of
            Flight to Quality
   4.50%

   3.50%                                           Rates Plummet
                                                   Spreads Narrow
   2.50%




                                                                                  6
                                                                                                             PFM
   Yield Curve Remains Steep
       • Spreads between 2 year Treasury notes and 30 year Treasury notes have narrowed from earlier
         this year, but still remain historically wide.

                                          2-Year vs. 30-Year Treasury
             8.00%                                                                                  8.00%
                                                                          Spread
             7.00%                                                        2 Year Treasury           7.00%
                                                                          30 Year Treasury
             6.00%                                                                                  6.00%

             5.00%                                                                                  5.00%

             4.00%                                                                                  4.00%

             3.00%                                                                                  3.00%

             2.00%                                                                                  2.00%

             1.00%                                                                                  1.00%

             0.00%                                                                                  0.00%

            -1.00%                                                                                  -1.00%
                  2000   2001   2002   2003   2004   2005   2006   2007    2008     2009     2010
Source: Bloomberg

                                                                                                                   7
                                                                                  PFM
  Banks Feel the Strain of the Financial Crisis


                           Banking Industry Losses
                           July „07 to September „08

                  +$1,000,000,000
                                                            Total Estimated
                                                       Banking Industry Layoffs
                                                         Since November 2008


         “You only learn who has been swimming naked     100,000+
         when the tide goes out - and what we are
         witnessing at some of our largest financial
         institutions is an ugly sight.“
         - Warren Buffet




Source: FDIC, forbes.com


                                                                                        8
                                                                                                                                    PFM
  Bank Failures Continue
                                                       Bank Failures and Troubled Banks in U.S.
                                                                           2001-2010
                            900
                                       Failed Banks                                                                           775
                            800
                                       Problem Banks                                                               702
                            700

                            600
          Number of Banks




                                                             Estimated Cost to FDIC
                            500
                                                              January „08 to June ‟10
                            400
                                                       $67,453,900,002
                            300
                                                                                                           252
                            200
                                                 136        116                                                  140
                                      114
                                                                      80                         76                      90
                            100
                                                                               52       50            25
                                  4         11          3         4        0        0        3
                             0
                                  2001      2002        2003      2004     2005     2006     2007     2008        2009   2010
Source: FDIC


                                                                                                                                          9
  Consumer Savings Increase Post Credit Crisis                                                    PFM




• While unemployment remains a constraint on spending, even those who have income are saving
  a larger portion than at any time in the last 10 years.
• Tighter credit requirements and people trying to repay debt are also leading savings rates higher.

                                            Consumer Savings Rate
                                           January 2000 – August 2010
                    9.0%

                    8.0%

                    7.0%

                    6.0%

                    5.0%

                    4.0%

                    3.0%

                    2.0%

                    1.0%

                    0.0%
                       Jan '00   Jan '02     Jan '04     Jan '06        Jan '08   Jan '10


                                                                                                       10
Source: Bloomberg
   Household Debt Begins To Ebb                                                              PFM




• As a result of increased saving, household debt has been slowly declining.
• Household debt has fallen 3.4% since it his its peak in June 2008.


                                             Total U.S. Household Debt
                                      First Quarter 2000 – Second Quarter 2010
                    15,000

                    14,000

                    13,000

                    12,000

                    11,000

                    10,000

                     9,000

                     8,000

                     7,000

                     6,000
                         Mar '00   Mar '02     Mar '04      Mar '06      Mar '08   Mar '10




                                                                                               11
Source: Bloomberg
                                                                                                   PFM
   Commercial Bank Cash Assets Ballooned
• As the Fed eased monetary policy, it dumped billions of dollars in cash into the economy in an
  attempt to unfreeze the credit markets.
• With increased financial regulation and concern over consumer demand, banks are unwilling to
  lend to all, and the most credit worth customers and business are hesitant about using cash to
  invest in their businesses. As a result, banks and corporations are flush with cash.

                                           Commercial Bank Cash Assets
                                           January 2000 – September 2010
                    1,400


                    1,200


                    1,000


                     800


                     600


                     400


                     200
                       Jan '00   Jan '02       Jan '04    Jan '06    Jan '08   Jan '10

                                                                                                     12
Source: Bloomberg
  Private Payrolls                                                                              PFM




   • Despite high levels of unemployment, aggregate private payrolls have nearly returned to pre-
     crisis levels. This could partly account for why consumer demand has not dropped off as much
     as expected.
   • Local governments, facing increasing budgetary pressures, have been forced to scale back hiring
     and increase layoffs.
                                                    Aggregate Private Payrolls
                                                  January 2000 – September 2010
                             135

                             130

                             125

                             120
                    Index*




                             115

                             110

                             105

                             100

                             95

                             90
                              Jan '00   Jan '02       Jan '04    Jan '06    Jan '08   Jan '10
*Base Year 2002 = 100

                                                                                                    13
Source: Bloomberg
More Spending?   PFM




                   14
                                                                         PFM
 Investment Banking Changes as Well
• Firms file for bankruptcy, are sold, merged or change business lines

                             Underwriter Changes


                   Bought by JP Morgan


                   Bankruptcy


                   Out of Munis


                   Bought by B of A


                   Bought by Wells Fargo


                   Out of Muni Swaps



                                                                           15
                                                                                                                                                                                PFM
Bond Insurer Downfall
• The once AAA group of bond insurers no longer exists
                                     Moody's Investor Services                     Standard & Poor's Rating Services                       Fitch Rating Services
                             Prior    Revised      Prior      Current      Prior      Revised       Prior        Current          Prior   Revised      Prior        Current
          Insurer           Rating     Rating    Outlook      Outlook     Rating       Rating     Outlook        Outlook         Rating    Rating     Outlook       Outlook
        FSA/Assured                              Negative                                                                                                            Ratings
          Guaranty                                Watch       Negative                            Negative         Stable                            Negative      Withdrawn
        Municipal Corp       Aaa        Aa3      (5/20/09)   (11/12/09)    AAA         AA+        (4/21/09)      (10/25/10)       AA        WD      (10/12/09)      (2/24/10)
                                                               Positive                R=                                                                            Ratings
                                                Developing     Watch                Regulatory    Developing                                         Negative      Withdrawn
           Ambac             Ba3        Caa2     (7/29/09)    (3/26/10)    CC       Supervision    (12/2/09)   NM (3/25/10)       AA        WD       (3/12/08)      (6/26/08)
                                                               Ratings                                           Ratings                              Evolving       Ratings
                                                 Negative    Withdrawn                            Negative      Withdrawn                             Watch        Withdrawn
            FGIC            Caa3        WD       (3/24/09)    (3/24/09)    CC           WD        (4/22/09)     (4/22/09)         CCC       WD       (7/31/08)     (11/24/08)
                                                                                                                                                                     Ratings
       MBIA Insurance                           Developing    Negative                             Negative      Negative                            Negative      Withdrawn
           Corp             Baa1        B3       (2/18/09)    (6/25/09)    BBB          BB+        (6/5/09)      (9/28/09)        AA        WD       (4/4/08)       (6/26/08)

        National Public                           Watch                                           Developing
      Finance Guarantee                           Positive   Developing                             Watch        Developing
       Corp/MBIA Illinois    A2        Baa1      (2/18/09)    (6/25/09)    AA-          A          (2/18/09)     (6/5/2009)
           Syncora                                Watch                                R=                                                             Positive        Rating
       Guarantee Inc/XL                         Developing   Developing             Regulatory     Negative                                           Watch        Withdrawn
      Capital Assurance     Caa1        Ca      (10/24/08)    (3/9/09)     CC       Supervision   (11/18/08)   NM (4/27/09)       CCC       WD       (8/11/08)       (9/5/08)
                                                              Ratings                                            Ratings                              Evolving       Ratings
                                                Developing   Withdrawn                            Negative      Withdrawn                             Watch        Withdrawn
            CIFG             Ca         WD      (11/11/09)   (11/11/09)    CC           WD        (6/15/09)     (2/16/10)         CCC       WD       (5/30/08)     (10/21/08)
                                                 Negative                                                                                                            Ratings
      Assured Guaranty                            Watch       Negative                             Negative        Stable                            Negative      Withdrawn
            Corp             Aa2        Aa3     (11/12/09)   (12/18/09)    AAA          AA+         (7/1/09)     (10/25/10)       AA-       WD      (10/12/09)      (2/24/10)
                                                                                                  Developing      Ratings
                                                                                                    Watch        Withdrawn
             ACA             NR                                             B           WD        (12/15/08)     (12/15/08)       NR
                                                 Negative                                          Negative                                          Evolving       Ratings
        Radian Asset                              Watch        Stable                               Watch         Negative                            Watch        Withdrawn
         Assurance           A3         Ba1     (10/10/08)    (3/12/09)    BB           BB-       (11/24/09)     (12/22/09)       A+        WD       (9/5/07)       (5/2/08)
          Berkshire                                                                                Negative
          Hathaway                                                                                   Watch
       Assurance Corp.       Aaa        Aa1       Stable       Stable      AAA          AA+        (11/4/09)   Stable (2/4/10)    NR




                                                                                                                                                                                  16
                                                                                        PFM
Big Changes in the Municipal Market
• Prior to the market meltdown, most municipal bonds were sold tax
  exempt, insured and fixed rate
   – Most bond insurers were rated “AAA” and insurance was plentiful and cheap
   – While most bonds were fixed rate, there was a substantial variable rate volume
   – Build America Bonds (BABs) have broadened the use of taxable debt


                     Breakdown of Municipal Bond Issuance over Time
     100%
      90%
      80%
      70%
      60%
      50%
      40%
      30%              % of Bonds Insured
      20%              % of Bonds Fixed Rate
      10%              % of Bonds Tax Exempt
       0%
             2003     2004      2005       2006   2007    2008     2009   2010 (First
                                                                          6 Months)



                                                                                          17
                                                                                    PFM
 Municipal Market Supply
• The supply of debt in the municipal market was steady through first half
  of 2010 but has increased in 3rd quarter and is projected to peak at year
  end.
                          30 Day Visible Municipal Supply
             20,000

             18,000

             16,000

             14,000

             12,000
     (millions)




             10,000

                  8,000

                  6,000

                  4,000

                  2,000                                     30-Day Visible Supply
                                                            Trendline
                     0




                                                                                      18
                                                                                                       PFM
Municipal Market Interest Rates
• The MMD AAA scale is a proxy for interest rate for the highest credit
  quality borrowers.
                                             MMD AAA G.O. Curve
             6.5%


             5.5%


             4.5%
     Yield




             3.5%


             2.5%
                                                                                     11/4/2009
                                                                                     10/4/2010
             1.5%
                                                                                     10/28/2010
                                                                                     11/4/2010
             0.5%
                    1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
                                                  Maturity

                                                                                                         19
                                                                          PFM
Municipal Market Credit Spreads
• Since early 2009, credit spreads have continued to stabilize making
  interest rates for lesser credits more attractive.
                                         Revenue Spreads to AAA MMD
                     400
                                 Aa/AA   A/A    Baa/BBB
                     350

                     300   361

                     250
      Basis Points




                     200
                                                                        187
                           145
                     150

                     100                                                 91
                           29
                     50
                                                                         31
                      0




                                                                              20
                                                                                     PFM
It‟s Official, The Financial Crisis is Over!!
• The Proof:
   –   Long-Term Rates are Low for Good Credits
   –   Short-Term Rates at Historic Lows
   –   Credit Spreads have Stabilized             The Good Old Days
   –   The Stock Market is Coming Back
                                                   Are Here Again!
       (well, in some weeks)
   – The Real Proof ……..                          If Only I Could Get a Jumbo Mortgage




• Or So It Would Seem …
                                                             BUY StufF




                                                                                         21
                                                  PFM
One Crisis Down, But Maybe More to Come
• Credit
   – Expensive, scarce


• Liquidity
   – Watch that cash

                                   Credit
• Economy
                                   Swap$    RPS
   – Jobless recovery?,
                          Carbon
     or                             Hedge$
   – Recovery-less          CA$H
     recovery                      GDP




                                                    22
                        PFM




Debt Issuance Process




                          23
                                                  PFM
Debt Issuance Process




                           The remainder of
                        presentation focuses of
                         the options available
                             for Phase 4.




                                                    24
                           PFM




 Financing Alternatives:
Publically Offered Bonds




                             25
                                                                                    PFM
Publically Offered Bonds
 – Very efficient for longer term transactions – 30 years (rates fixed for entire
   term)
 – Can accommodate innovative and creative financial solutions beneficial to
   the issuer
 – Highest cost of issuance
 – Debt rating and/or credit enhancement (bond insurance) may be required.
   Less so in today‟s market versus pre-credit crisis.
 – Funding of Debt Service Reserve Fund required for most credits (General
   Obligation Bonds are the exception).
 – Risk of future changes in tax laws passed in investors (i.e., no “gross up”
   language)
 – Sold either competitively or negotiated
 – Initial disclosure requirements (official statement) can be burdensome
 – Continuing disclosure required after bonds are sold
 – Flexible call features (10 year par call is standard)

                                                                                      26
Publically Offered Bonds – Method of Sale
                                                  PFM




– Competitive Sale:
   • Underwriters bid against each other
       – Specific bid date and time
       – Sealed or electronic bid
       – Awarded by lowest true interest cost

– Negotiated Sale:
   • Underwriter chosen prior to sale
   • Assists with structuring and pre-marketing
   • Greater market timing flexibility




                                                    27
Publically Offered Bonds – Method of Sale
                                                                            PFM




– Competitive Sale:
   • Straight-forward transactions
   • Well-established credits
   • Broad investor mix
   • Stable bond market

– Negotiated Sale:
   • Innovative or uncommon structures that require pre-sale marketing or
     input from investment bankers
   • New or weak credits
   • Limited investor mix
   • Volatile bond market
   • Bond-structuring flexibility needed



                                                                              28
                                PFM




      Financing Alternatives:
Privately Placed Bank Loans




                                  29
                                                                            PFM
Privately Placed Bank Loans
– Does not require that transaction be rated or insured


– No offering documents or registration required


– Banks usually do not require a Debt Service Reserve Fund


– Disclosure usually limited to receipt of CAFR and budget (no official
  statement)


– Minimal cost of issuance


– The purchase of tax-exempt loans by non-bank subsidiaries and affiliates of
  commercial banks debt has resulted in more efficient “nonbank qualified”
  pricing (Leasing Corporation)



                                                                                30
                                                                                 PFM
Privately Placed Bank Loans
– Risk of future tax law changes retained by the issuer. Bank loans usually
  contain interest rate “gross up” language; providing the bank the right to
  increase the loan rate should tax law changes negatively impact the bank‟s
  after tax yield


– Term limited to 20 years and some banks will not provide a fixed rate for the
  entire term. Instead, the bank would have a “put” option during the term of
  the loan (5 , 10, or 15 years). This gives the bank the option to “put” the loan
  back to the issuer and force them to refinance at the then current market
  rates.


– Level of municipal finance expertise varies. Larger banks have dedicated
  professionals; while smaller institutions may not.




                                                                                     31
                                                                                PFM
Bank Qualified Status
– The IRS provides a special exemption for small issuers of debt that allows
  them to obtain significant interest cost savings.
– If a municipality issues less than $30 million of tax exempt debt in any given
  calendar year, they are able to fund capital projects by issuing “qualified tax
  exempt obligations”. This limit was increased from $10 million as part of the
  American Recovery and Reinvestment Act of 2009 and is set to return to the
  $10 million level in 2011 pending further legislative action.
– The lender receives an extra tax deduction which allows them to offer a lower
  interest rate and receive a comparable return.
– Applies mainly to bank loans but can also result in interest costs savings on
  bond deals.
– Example: Bank Qualified Bank Loan Rate set at 67% of 10 Year Treasury +
  70 bps vs. Non Bank Qualified Rate set at 67% of 10 Year Treasury + 170
  bps (1.00% savings).



                                                                                    32
                          PFM




Financing Alternatives:
    Commercial Paper




                            33
                                                                               PFM
Commercial Paper
– Small to Medium Project Cost


– Ability to Drawdown Proceeds over time to fund Project


– Desired Repayment is short (5 years or less) and repayment timing is flexible


– Interest rate is variable


– Letter of Credit (LOC) may be required from bank, which is costly in current
  market (up to 100+ basis points). Also leaves issuer exposed to credit risk of
  the bank as well as renewal risk on LOC.


– Early Prepayment Flexibility


– Bridge/Interim Financing
                                                                                   34
                                     PFM




           Financing Alternatives:
State Revolving Fund (SRF) Loans




                                       35
                                                                              PFM
SRF Loan
– State Revolving Fund Loans (SRF) are limited to water and sewer type
  projects.


– State of Florida issues bonds to generate a pool of funds, which are then
  used to make loans to local governments.

– Issuer must complete application about projects to be financed, which is then
  reviewed by the State. Assuming the projects qualify and funds are available
  then all or a portion of the project may receive SRF funding.




                                                                                  36
                                                                              PFM
SRF Loan
– Interest rates are generally lower than what is available through public bond
  market or private bank market because interest rates are subsidized by the
  State (2.00% to 3.00%).
– The term of these loans is 20 years with debt service paid on a level annual
  basis. As a result, the issuer has little structuring flexibility.
– Revenue pledged as security typically subordinate to other water and sewer
  debt of the issuer (very important to make sure SRF documents comply with
  existing water and sewer bond documents to the extent issuer has other
  debt).
– Funds are generally provided on a reimbursement basis so some type of
  interim financing or internal financing may be required.
– Limited amount of capacity and typically abundant demand.
– Stringent ongoing reporting/compliance requirements (a lot of paperwork).



                                                                                  37
                          PFM




Financing Alternatives:
             Summary




                            38
                                                                                                                        PFM
Summary of Options
  Type of Financing                           Pros                                              Cons
Publicly Offered Bond   • Able to reach a broad market of investors        • Need ratings or credit enhancement
                        • Can issue bonds out to 30-years                  • Higher costs of issuance
                        • Flexible schedule                                • Greater administrative requirements

Privately Placed Bank   • Does not require ratings or credit               • Typically longest allowable term is15-20
Loan                      enhancement                                        years
                        • Lowest rates available if structured to enable   • Interest rate subject to increase if tax laws
                          banks to receive tax advantage (Bank               change
                          Qualified rates)
                        • Minimal cost of issuance
                        • Fewer administrative requirements
                          (continuing disclosure)

Commercial Paper        • Generally low interest rates (short term)        • Interest rate is variable
                        • Flexible repayment schedule                      • Requires letter of credit, which can be
                        • Early prepayment allowed                           costly (credit risk)


State Revolving Fund    • Interest rates are usually lower than what is    • Stringent application process
Loan Program              available to smaller local governments           • Specific coverage requirements
                        • The SRF takes care of sale process and           • Term limited to 20 years with level debt
                          arbitrage compliance                               service
                        • Potential for principal forgiveness through      • Loans are disbursed on a cost incurred
                          legislative appropriation                          basis, not upfront (reimbursement)
                        • Typically subordinate pledge of revenues         • Limited amount of capacity available


                                                                                                                             39
                                                                                                                 PFM
Summary of Options – Cost of Capital
  – Below is a summary of the estimated rates and Annual Debt Service for a
    $20 million loan. All numbers are estimates and for discussion purposes
    only.


Type of Financing               15-Year                      20-Year                           30-Year

Publically Offered   • Rate = 3.58%                 • Rate = 4.00%                • Rate = 4.56%
Bonds                • Avg. Annual D/S = $1.8 MM    • Avg. Annual D/S = $1.5 MM   • Avg. Annual D/S = $1.25 MM
                     • Total D/S = $27 MM           • Total D/S = $30 MM          • Total D/S = $37.5 MM


Private              • Rate = 3.50%                 • Rate = 4.00%                • Not Available (term limited to
Placement Bank       • Avg. Annual D/S = $1.75 MM   • Avg. Annual D/S = $1.5 MM     20 years)
Loan                 • Total D/S = $26 MM           • Total D/S = $30 MM




                                                                                                                     40
                                    PFM




          Financing Alternatives:
Stimulus Related Bond Provisions




                                      41
                                                                          PFM
American Recovery and Reinvestment Act
– The $787 billion American Recovery and Reinvestment Act of 2009 (the
  “Recovery Act” or “ARRA”) was signed into law on February 17, 2009.

– The Recovery Act is intended to stimulate economic growth through
  federal spending in the areas of education, health care, housing, and
  transportation.

– The Recovery Act includes various spending initiatives for State and
  Local governments, as well as provisions and enhancements related to
  municipal bond issuance and the laws governing their type and use.

– Funds distributed under the Recovery Act must be spent in accordance
  with applicable nondiscrimination and equal opportunity statutes,
  regulations and executive orders.




                                                                            42
                                                                                                                                                                              PFM
American Recovery and Reinvestment Act
         • Many bond related provisions were included in the Recovery
           Act.
                – The Build America Bond (“BAB”) program has been the most
                  utilized tool to date.
                – Many of the programs are limit in use (education, energy
                  enhancements, etc)

                                              Recovery Zone                                                     Qualified                      Repeal of AMT
                                                Economic                      Qualified School    Clean          Energy         Refund AMT on New Money Expansion of
                         Build America        Development      Recovery Zone   Construction     Renewable      Conservation    Bonds with Non- Private Activity Bank Qualified
                             Bonds               Bonds         Facility Bonds     Bonds        Energy Bonds      Bonds          AMT Bonds          Bonds           Bonds
                 Acronym     BABs               RZEDBs            RZFBs           QSCBs           CREBs          QECBs              N/A             N/A             N/A
                                                                Tax-Exempt
                                                                Bonds, Non-
                     Type    Direct Subsidy   Direct Subsidy        AMT         Tax Credit      Tax Credit      Tax Credit           N/A                N/A             N/A
         % of Tax Credit /
                  Subsidy        35%               45%             N/A            100%             70%             70%               N/A                N/A             N/A
              Time Period      2009-2010        2009-2010        2009-2010      2009-2010       No Change       No Change         2009-2010          2009-2010        2009-2010
           Program Limit       No Limit         $10 Billion      $15 Billion    $22 Billion     $1.6 Billion    $3.2 Billion       No Limit           No Limit        No Limit
              Government           x                x                -              x                x               x                 x                  x               x
                  501(c )3         -                 -               -              -                -               x                 x                  -               x
Issuer




                   Energy          x                x                x              -                x               x                 x                  x               x
Type




                Corporate          -                 -               x              -                x               x                 x                  x               x
                                                                                                                                Private Activity   Private Activity
          Structural Limit    Traditional       Traditional      Traditional    Section 54A    Section 54A     Section 54A          Bonds              Bonds          Traditional




                                                                                                                                                                                    43
                                                                              PFM
American Recovery and Reinvestment Act
• The primary ARRA bond programs available to the Cities and
  Counties include:
   – Build America Bonds (“BAB”)
       • Can only be used for general governmental projects
       • The Build America Bond (“BAB”) program has been the most utilized
         tool to date.
       • BABs are sold as taxable bonds and the IRS rebates (referred to as
         subsidy and/or credit) 35% of the interest paid
   – Recovery Zone Bonds
       • Two type of bonds
           – Economic Develop Bonds, also know as “Super BABs”
                » Same restrictions as BABs, but have a 45% credit to the
                  issuer
           – Facility Bonds
                » Intended for private business (i.e. finance private use
                  depreciable property)


                                                                                44
                                                                                                              PFM
American Recovery and Reinvestment Act
Use of Proceeds                               Governmental Purpose                         Private Business
                                                            Recovery Zone
Name of Program                                               Economic                     Recovery Zone
                                    Build America Bonds Development Bonds                  Facility Bonds
Acronym                                      BABs              RZEDBs (Super BAB)              RZFBs
                                     Issue Taxable Bonds,      Issue Taxable Bonds,
Subsidy Type
                                        get credit/rebate         get credit/rebate    Tax-Exempt, Non-AMT
% of Credit / Subsidy                        35%                       45%                       N/A
Time Period                               2009-2010                 2009-2010                 2009-2010
Program Limit (national)                   No Limit                 $10 Billion               $15 Billion
Program Limit (Volusia County)             No Limit                $19.1 Million             $28.7 Million

                                    Reduces interest rates Reduces interest rates Reduce interest rates
Benefit                             compared to regular tax- compared to regular tax- by approximately 30%
                                      exempt financing by     exempt financing just    (no definitive market
                                     approximately 0.50%           over 1.0%               data to date)
Annual cashflow benefit for a $10
million financing                   $                 32,983   $              82,699   $               166,945
Total cashflow benefit (over
estimated 30 year financing)        $              989,479     $           2,480,980   $            5,008,356




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                                                                       PFM
American Recovery and Reinvestment Act
 • How does the math work for a BAB?
    – BABs are issued as TAXABLE bonds and the IRS rebates a
      portion of the interest to borrowers


                                                BAB       Super BAB
         Net BAB Interest Rate Calculation
         Taxable Rate for BAB                    7.00%        7.00%
         Subsidy (factor)                          0.35         0.45
         Subsidy payment from IRS (rate)         -2.45%       -3.15%
         Net Interest Rate                       4.55%        3.85%


         Traditional Tax-Exempt Interest Rate    5.00%        5.00%


         Estimated savings over tax-exempt       0.45%        1.15%




                                                                         46
Commonly Asked BAB/Recovery Zone Questions                                                         PFM




• Why were BABs created?
   – BABs were NOT created to provide a subsidy to local governments.
       • While there is a reduction in net interest expense using BABs, they were
         created to enhance liquidity, not subsidize local government financings.
       • The tax-exempt borrowing market “froze” in the fall of 2008. BABs were
         created to let local governments borrow in the much larger, more liquid taxable
         (corporate) market. Thus their access to capital was increased during the
         economic turmoil.
            – Market expectation is that the BAB program will be extended but at a subsidy level
              that is closer to break-even (see calculation on the prior page)
• Why is there a limit on “Super BABs” (Recovery Zone Economic
  Development Bonds)
   – Since the subsidy is larger than regular BABs (45% versus 35%) there is a
     significant cost to the Federal government, so they limited the amount
     Recovery Zone Bonds.




                                                                                                     47
Commonly Asked BAB/Recovery Zone Questions                                               PFM




• What is the purpose of Recovery Zone Facility Bonds?
   – Encourage private (non-governmental) investment in buildings. Facility
     Bonds can be used to fund construction of most types of private commercial
     buildings
                                               City/
                                                                              Investor
• How do the BAB payments work?               County          7.00% Taxable
                                                                 Interest
   – City/County issues bonds in the          2.45% Subsidy
     typical manner and the IRS
     rebates a portion of the interest       U.S.
                                             Treasury
     back to the issuer.


• Where do you go to get BAB and Recovery Zone funds/loans?
   – There are no “BAB funds/loans”. You do not go to the Federal Reserve or
     Treasury to obtain a loan. Issuers obtain financing through the same
     processes (bond and/or bank loans) and then the IRS rebates a portion of
     the interest payment for BABs.
                                                                                           48
Florida County & City Allocations                                                                                                               PFM



                                  Recovery Zone                                                        Recovery Zone
                                     Economic         Recovery Zone                                       Economic         Recovery Zone
                 County          Development Bond      Facility Bond                   City           Development Bond      Facility Bond
       Baker County, FL                     471,000              707,000   Cape Coral City, FL                15,379,000           23,069,000
       Bay County, FL                     1,922,000            2,883,000   Clearwater City, FL                 2,697,000            4,045,000
       Brevard County, FL                19,106,000           28,659,000   Coral Springs City, FL              5,913,000            8,869,000
       Broward County, FL                40,739,000           61,108,000   Fort Lauderdale City, FL            8,045,000           12,068,000
       Charlotte County, FL               8,005,000           12,008,000   Hialeah City, FL                    4,134,000            6,201,000
       Clay County, FL                    3,719,000            5,579,000   Hollywood City, FL                  6,155,000            9,232,000
       Collier County, FL                14,184,000           21,276,000   Jacksonville City, FL              16,346,000           24,518,000
       Duval County, FL                   1,038,000            1,557,000   Miami City, FL                      7,877,000           11,816,000
       Escambia County, FL                6,594,000            9,891,000   Miramar City, FL                    4,627,000            6,940,000
       Flagler County, FL                 1,669,000            2,504,000   Orlando City, FL                    6,781,000           10,171,000
       Franklin County, FL                  519,000              779,000   Palm Bay City, FL                   4,590,000            6,884,000
       Gadsden County, FL                   924,000            1,386,000   Pembroke Pines City, FL             6,424,000            9,636,000
       Gulf County, FL                      122,000              184,000   Pompano Beach City, FL              4,009,000            6,014,000
       Hernando County, FL                3,032,000            4,548,000   Port St. Lucie City, FL             9,107,000           13,661,000
       Hillsborough County, FL           21,742,000           32,613,000   St. Petersburg City, FL             6,227,000            9,340,000
       Indian River County, FL            9,954,000           14,931,000   Tallahassee City, FL                4,142,000            6,213,000
       Jefferson County, FL                 303,000              455,000   Tampa City, FL                      8,045,000           12,068,000
       Lake County, FL                    6,770,000           10,155,000   Total                             120,498,000         180,745,000
       Lee County, FL                    37,403,000           56,105,000
       Leon County, FL                    2,388,000            3,582,000
       Levy County, FL                      346,000              519,000
       Madison County, FL                   213,000              319,000
       Manatee County, FL                16,002,000           24,003,000
       Marion County, FL                  6,791,000           10,187,000
       Martin County, FL                  7,752,000           11,628,000
       Miami-Dade County, FL             40,281,000           60,422,000
       Nassau County, FL                  1,398,000            2,096,000
       Orange County, FL                 23,677,000           35,516,000
       Osceola County, FL                 6,773,000           10,159,000
       Palm Beach County, FL             35,993,000           53,988,000
       Pasco County, FL                   9,584,000           14,376,000
       Pinellas County, FL               13,609,000           20,413,000
       Polk County, FL                   11,748,000           17,622,000
       Santa Rosa County, FL              3,272,000            4,908,000
       Sarasota County, FL               18,534,000           27,801,000
       Seminole County, FL               12,243,000           18,365,000
       St. Johns County, FL               3,676,000            5,515,000
       St. Lucie County, FL               5,468,000            8,202,000
       Taylor County, FL                    173,000              260,000
       Volusia County, FL                19,168,000           28,751,000
       Wakulla County, FL                   682,000            1,022,000
       Total                            417,987,000         626,982,000



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             PFM




Questions?




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