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    Bondsleviesvoterptrns 8 12 08 Bondsleviesvoterptrns 8 12 08 Presentation Transcript

    • Washington State University Bonds, Levies and Voter Patterns August 12, 2008 Jon Gores Senior Vice President (206) 389-4043 [email_address]
    • Introduction to D.A. Davidson
      • The largest employee-owned financial services company headquartered in the Pacific Northwest
      • Uninterrupted service to school districts throughout the Northwest since 1968
      • The most experienced school finance professionals
      • Capital base of over $100 million
      • Outstanding corporate citizen which gives back to Districts, Foundations and Associations.
      • Leading underwriter of school bonds in 2008.
      In 2007, Davidson completed 219 public finance negotiated transactions totaling $1.545 billion. Our most recent ranking was 11 th in the country among municipal underwriters by number of sales and the top 30th by dollar amount. In 2007, Davidson senior managed 16 school district transactions. In addition, we served as a Financial Advisor on 2 bond issues totaling $112 million in 2007. So far in 2008 Davidson has Senior Managed 13 Washington School District transactions. Washington Schools 2008 2008 Totals Senior Manager 2 Piper Jaffray 7 Seattle-Northwest 13 D.A. Davidson & Co.
    • Davidson’s Education Finance Team Jack Eaton Managing Director 35 Yrs Experience Jon Gores Sr. Vice President 23 Yrs Experience Dave Trageser Sr. Vice President 23 Yrs Experience Financial and Quantitative Analysis Chad Cowan Vice President 9 Yrs Experience Municipal Credit Maura Lentini Vice President 7 Yrs Experience Disclosure Shandra Tietze Associate 25 Yrs Experience Underwriting Mark Froio Vice President 24 Yrs Experience Marketing Joe Brady Sr. Vice President/ Sales Manager 25 Yrs Experience Fixed Income Research Mary Ann Hurley Vice President 30 Yrs Experience D.A. Davidson & Co. Northwest Education Finance Team BANKERS Analytics Kelsey Draper Administrative Assistant We have the most experienced school finance team in the state.
    • Davidson’s 2007/2008 Washington School District Transactions $27,800,000 West Valley School District No. 208 Unlimited Tax General Obligation Bonds, 2007 $14,750,000 Orting School District No. 344 Unlimited Tax General Obligation Bonds, 2007 $22,775,000 Ellensburg School District No. 401 Unlimited Tax General Obligation Refunding Bonds, 2007 $3,500,000 Cape Flattery School District No. 401 Unlimited Tax General Obligation Bonds, 2007 $9,720,000 Griffin School District No. 324 Unlimited Tax General Obligation Refunding Bonds, 2007 $9,700,000 Arlington School District No. 16 Unlimited Tax General Obligation Refunding Bonds, 2007 $15,000,000 Riverview School District No. 407 Unlimited Tax General Obligation Bonds, 2007 $15,000,000 Deer Park School District No. 414-200-61 Unlimited Tax General Obligation Bonds, 2007 $8,000,000 Nine Mile Falls School District No. 325-170 Unlimited Tax General Obligation Bonds, 2007
    • Davidson’s 2007/2008 Washington School District Transactions ( Continued ) $9,900,000 Kelso School District No. 458 Unlimited Tax General Obligation Refunding Bonds, 2007 $4,296,277 Prescott School District No. 402-37 Unlimited Tax General Obligation Bonds, 2007 $5,835,000 Burlington-Edison School District No. 100 Unlimited Tax General Obligation Refunding Bonds, 2007 $45,000,000 Federal Way School District No. 210 Unlimited Tax General Obligation Bonds, 2007 $67,000,000 North Thurston Public Schools Unlimited Tax General Obligation Bonds, 2007 $7,155,000 Port Townsend School District No. 50 Unlimited Tax General Obligation Refunding Bonds, 2007 $2,205,000 Liberty School District No. 362 Unlimited Tax General Obligation Refunding Bonds, 2007 $15,000,000 Riverview School District No. 407 Unlimited Tax General Obligation Bonds, 2008 $36,000,000 Sumner School District No. 320 Unlimited Tax General Obligation Bonds, 2007
    • 2007/2008 Washington School District Transactions ( Continued ) $2,115,000 Sultan School District No. 311 Unlimited Tax General Obligation Refunding Bonds, 2008 $7,645,000 Nooksack Valley School District No. 506 Unlimited Tax General Obligation Refunding Bonds, 2007 $5,650,000 Selah School District No. 119 Unlimited Tax General Obligation Refunding Bonds, 2008 $4,350,000 Nine Mile Falls School District No. 325 Unlimited Tax General Obligation Bonds, 2008 $7,440,000 Toppenish School District No. 202 Unlimited Tax General Obligation Refunding Bonds, 2008 $16,000,000 Oak Harbor School District No. 201 Unlimited Tax General Obligation Bonds, 2008 $2,795,000 Aberdeen School District No. 5 Unlimited Tax General Obligation Refunding Bonds, 2008 $5,500,000 Lake Chelan School District No. 129 Unlimited Tax General Obligation Bonds, 2008 $4,290,000 Sequim School District No. 323 Unlimited Tax General Obligation Refunding Bonds, 2008
    • 2007/2008 Washington School District Transactions ( Continued ) $7,470,000 Orting School District No. 344 Unlimited Tax General Obligation Refunding Bonds, 2008 $14,695,000 Tahoma School District No. 409 Unlimited Tax General Obligation Refunding Bonds, 2008 $13,615,000 Northshore School District No. 417 Unlimited Tax General Obligation Refunding Bonds, 2008 $15,000,000 Freeman School District No. 358 Unlimited Tax General Obligation Bonds, 2008
    • Outline
      • Election Research
      • Bond Fundamentals—Bonds 101
      • Bond Issue Planning—Projected Tax Rates
    • Election Research
      • Election Date Research
      • Multiple Ballot Measures
      • Tax Rate vs. Election Success
      • Economy vs. Election Success
    • Election Timing
            • When should we run our Bonds?
    • Voting Patterns
    • Voting Patterns
    • Voting Patterns
    • Multiple Propositions on Same Ballot Example: PROPOSITION 2 BONDS FOR NEW STADIUM AND MULTIPURPOSE FIELD The Board of Directors of ABC District No. 1 adopted Resolution No. 11-07/08, concerning a proposition to finance a new stadium and multipurpose field. This proposition would authorize the District, only if Proposition 1 is approved, to construct and equip a new High School Stadium and synthetic turf multipurpose field; issue no more than $4,000,000 of general obligation bonds maturing within 20 years; and levy annual excess property taxes to repay the bonds, all as provided in Resolution No. 11-07-08. Should this proposition be: Approved………. ____ Rejected………...____
    • Multiple Ballot Measures
      • Should M&O Levies, Capital Projects Levies and Bonds Be Separate Elections?
    • M&O/Bonds on the Same Ballot
    • M&O and Capital Levies on the Same Ballot
    • M&O and Transportation Levies on the Same Ballot
    • 2009 Special Election and Resolution Filing Dates
      • Do tax rates or the economy influence voters?
      Controlling Tax Rates
      • If you knew the passage of the levy won’t increase the tax rate for homeowners?
      Tax Rate Changes % In Favor *2003 Eiland Survey 60%
      • The absolute size of the tax rate may be less important than the change in rates.
      • There is very little correlation between the total tax rate and election success. That is, the amount of the total tax rate does not appear to influence voters as much as the stability of the tax rates.
      Tax Rates Research
      • Stable tax rates lead to greater success at election time.
      • Districts with smaller tax rate changes have more success passing levies.
      Tax Rate Change
      • This is reflected in the voter survey data.
      • The correlation of real dollar change in tax rates from 1992-97 with election results demonstrates that stable tax rates lead to greater election success.
    • Consumer Confidence Index
    • Standard & Poor’s 500 Index
      • Effects of the Simple Majority
    • 2008 Election Summary February Election March Election
    • 2008 Election Summary April Election May Election
      • Property Tax 101
      • Do you agree or disagree that school districts get more money in taxes as property values go up?
      Property Taxes Source: Tom Eiland & CFM Consulting 20% 68% 2007 Voters 66% Agree 23% 2005 Voters Disagree
    • Property Taxes 101 Increases in Home Values Will Not Increase School District Tax Collections
      • Changes in home values don’t change the amount of taxes authorized.
      • Local school taxes can only be increased by a vote of the people.
      • Changing property values will change tax rates, but not tax collections.
    • $1,000 Levy $250 $250 $250 $250 $100,000 $100,000 $100,000 $100,000 Property Taxes 101
    • $1,000 Levy $250 $250 $250 $250 $200,000 $200,000 $200,000 $200,000 Property Taxes 101
    • $1,000 Levy $187.50 $250 $250 $312.50 $150,000 $200,000 $200,000 $250,000 Property Taxes 101
    • Property Taxes 101 $1,000 Levy $200 $200 $200 $200 $200 $100,000 $100,000 $100,000 $100,000 $100,000
    • Increase in Property Values Will Not Increase School District Tax Collections
      • Changes in property values don’t change the amount of taxes authorized
      • Local school taxes can only be increased by a vote of the people
      • Changing property values will change tax rates, but not tax collections
      Year Home Value Tax Rate Tax Bill ABC School District Home Value 2006 $100,000 $5.00/$1,000 $500 Assume a 20% increase in Assessed Value for ABC School District #1: 20% increase 2007 $120,000 $4.17/$1,000 $500 #2: 10% increase 2007 $110,000 $4.17/$1,000 $459 #3: 30% increase 2007 $130,000 $4.17/$1,000 $542
    • Property Taxes 101 Conclusion
      • If your property value increases at a lower rate than the average increase for the school district, the amount of taxes you pay will decrease.
      • If your property value increases at a higher rate than the average increase for the school district, the amount of taxes you pay will increase.
      • Capital Projects Financing
    • Capital Financing Options
      • Most common
        • Bonds
          • Voted
          • Non-voted
        • Capital Projects Levy
      • Less Common
        • Qualified Zone Academy Bonds (QZAB)
        • Conditional Sale Contracts
      • Types of School District Bonds
        • Voted- Unlimited Tax General Obligation Bonds (UTGO)
        • Non-voted – Limited General Obligation Bonds (LGO)
      • Voter approved bonds are
        • repaid with property taxes
        • approved with a 60% yes vote, 40% validation
        • 5% Debt Capacity
      • Non-voted bonds are (LGO)
        • repaid with existing revenue
        • can’t be used for “new” construction
        • 3/8 of 1% debt
      • Conditional Sale Contracts
        • Considered “debt” (non-voted)
        • Payment from general district revenues
        • No maximum term (economic life)
      Capital Finance Options
      • Qualified Zone Academy Bonds (QZAB)
        • interest free loan
        • private partnership/free & reduced lunch
        • can’t be used for new construction
        • non-voted debt
      • Capital projects levy (no debt limit)
        • one to six year repayment
        • no interest cost
        • significantly reduced interest earnings
        • life cycle mismatch
      Capital Financial Options
      • Bonds are the primary method used by Washington school districts to finance the “local share” of capital projects because
        • cash is generated up front
        • payments can be spread over time, and
        • districts have some control over taxpayer impacts
      • State match for construction projects available to all school districts
      • Study and survey grant
      • State match ratios from 20% to 90%--not dollar for dollar
      • Does state match create incentive for deferred maintenance?
      • Unhoused vs. modernization
      Capital Financing Options
      • Ideal Time Frame for Major Decisions
      Preparing for the Election
      • The Participants
        • 1. Bond Counsel prepares documents and provides a legal opinion
        • 2. The Underwriter provides financial planning and ultimately buys the bonds for resale to investors
        • 3. The Financial Advisor represents the District during negotiations with the Underwriter
        • 4. The County Treasurer is the District’s treasurer and takes receipt of the bond proceeds
        • 5. The Architect provides cost projections based on the project scope
      Planning a Bond Financing
      • The Ballot Proposition—Voted Bonds
        • 1. Maximum amount to be borrowed
        • 2. Maximum term of the bonds
        • 3. Use of bond proceeds
        • 4. Use of State matching money (Front Funded)
        • 5. Unlimited Authority to levy property taxes to pay debt service
      Planning a Financing
      • PROPOSITION 1
      • SCHOOL DISTRICT NO. ___
      • BONDS FOR CONSTRUCTION OF SCHOOL FACILITIES
      • The Board of Directors of _____ School District No. ___, adopted Resolution No._____, concerning a proposition to finance construction of school facilities. This proposition would authorize the District to construct a new elementary school (Grades K-3) to replace _______ Elementary School on the existing site and construct additional classrooms to replace portable classrooms at _______ Middle School; issue no more than $19,544,500 of general obligation bonds maturing within 20 years; and levy annual excess property taxes to repay the bonds, all as provided in Resolution No.______. Should this proposition be:
      • Approved………. ____
      • Rejected………...____
      Bond Proposition
      • 1. Maximum amount to be levied
      • 2. Maximum term of the levy
      • 3. Use of levy proceeds
      • 4. Estimated levy amount per year
      • 5. Estimated tax rate per year
      The Ballot Proposition—Capital Projects Levy
      • PROPOSITION __________
      • SCHOOL DISTRICT NO. ___
      • CAPITAL LEVY FOR TECHNOLOGY IMPROVEMENTS
      • The Board of Directors of ________School District No. ___adopted Resolution No. _____, concerning a proposition to finance technology improvements. This proposition would authorize the District to acquire and install technology and communication equipment and make other technology improvements and upgrades throughout existing school facilities to improve student learning, and levy the following excess taxes, on all taxable property within the District:
      Capital Projects Proposition Approximate Levy Rate/$1,000 Collection Year Assessed Value Levy Amount 2009 $_________ $________ 2010 $_________ $________ 2011 $_________ $________ 2012 $_________ $________ All as provided in Resolution No. ___. Should this proposition be approved? LEVY . . . YES ___ LEVY . . . NO ___
      • A. Projected Budget
        • Estimated costs
        • Estimated revenues
          • Bonds
          • State match Local share vs. Front Funded
          • Investment earnings
          • Impact fees
      • B. Projected Cash Flow
        • Tax law considerations
          • Arbitrage Rebate
          • Expenditure Rule
      • C. Projected Impact on taxpayers
        • Levy rates are the standard means of communicating the tax impact
          • Tax rate per $1,000
          • Tax deduction
      The Financing Plan
      • Assumptions for Tax Rate Planning
        • Interest Rates
        • Bond Rating
        • Assessed Value
        • Bond Structure
      Financial Planning
      • Assumptions for Levy Rate Planning
      • A. Interest Rates
      • - Lower interest rates result in lower tax rates for bonds.
      • - Interest rates are determined when bonds are actually sold.
      • - Assumption: Current rates plus 1.5%
      Financial Planning
      • Assumptions for Levy Rate Planning (continued)
      • B. Bond Rating
      • - A higher bond rating results in lower interest rates.
      • - Assumption: Aaa (with bond insurance)
      • Aa1 (with State Guaranty)
      Financial Planning NR (Nonrated) Lowest Quality Baa1, Baa2, Baa3 A1, A2, A3 Aa1, Aa2, Aa3 Aaa Highest Quality Moody’s Investors Service – Founded 1918 A Guide to Bond Ratings
    • Bond raters consider local economy, district finances and other factors. Example : Financial Planning The Rating Debt Factors Economy Governmental Factors Financial Performance A2 Yakima A1 Sumner Aa1 Issaquah A1 Richland A3 Selah Aa3 Puyallup Aa3 Edmonds A3 Lake Chelan Aa3 Tacoma
    • Financial Planning
      • C. Assessed Value
        • Higher Assessed values will lower the District’s tax rates (but not overall payment).
        • An individual’s taxes will be based on the assessed value for their own property.
        • Growth from new construction.
        • Assessment cycle (Annual market based adjustment vs. periodic reassessment by County Assessor)
      Change from Previous Years
      • D. Bond Structure
        • State law gives districts great flexibility in determining bond structures.
        • Options frequently include: Level payments
        • Level rate for bonds only
        • Level rate for all levies
      Financial Planning
    • Option #1: Level Debt Service $70MM
      • D. Bond Structure
        • State law gives districts great flexibility in determining bond structures.
        • Options frequently include: Level payments
        • Level rate for bonds only
        • Level rate for all levies
    • Option #2: Level Tax Rate $70MM
      • D. Bond Structure
        • State law gives districts great flexibility in determining bond structures.
        • Options frequently include: Level payments
        • Level rate for bonds only
        • Level rate for all levies
    • Option #3: Stepped Level Tax Rate $70MM
      • D. Bond Structure
        • State law gives districts great flexibility in determining bond structures.
        • Options frequently include: Level payments
        • Level rate for bonds only
        • Level rate for all levies
    • Option #4: Level Tax Rate (All) $70MM
      • D. Bond Structure
        • State law gives districts great flexibility in determining bond structures.
        • Options frequently include: Level payments
        • Level rate for bonds only
        • Level rate for all levies
    • Option #5: Level Tax Rate (All) $70MM
    • Tax Impact Analysis Issue Structure: Level Debt Service Estimated 2008 Tax Rate Increase Over 2007 Tax Rate (Bonds Only) (per $1,000 assessed value): $0.53 -- Federal Income Tax Bracket-- Net Tax Increase from Bonds After Allowing for Income Tax Deduction NOTE: Qualified homeowners may apply for a senior exemption. Please contact the County Assessor for details. 35% 33% 28% 25% Monthly Gross Increase Gross Property Tax Increase For Bonds Assessed Value of Property 103.55 106.53 114.48 119.25 13.23 159.00 300,000 86.13 88.78 95.40 99.38 11.04 132.50 250,000 68.90 71.02 76.32 79.50 8.83 106.00 200,000 51.68 53.27 57.24 59.63 6.63 79.50 150,000 $34.45 $35.51 38.16 $39.75 $4.42 $53.00 $100,000
      • Construction Cash Flows
        • Effect on tax rates
        • Effect on project costs
        • Effect on investment earnings
      • 2. Other Levies
        • M&O levy
        • Other levies
      • 3. Assessed Value Growth
        • What is your county’s assessment practice?
        • Source of new assessed value
      • Impact on Taxpayers
        • Federal Income Tax deductibility
        • Senior exemption
      • Financing Goals
        • Tax rates?
        • Interest rates?
      Things to Consider
    • Financing Alternatives for School Construction
      • Engrossed House Bill 1832—Expanded use of non-voted debt.
      • Engrossed House Bill 1833—Authorizes schools to enter into long-term leases and allows bond proceeds to pay lease payment.
      • Qualified Zone Academy Bonds (QZABs)—Federal government interest free loans.
      • Capital Projects Levy—Maximum six years. Used for construction and technology.
      • I-728 money can be used to provide improvements or additions to school facilities which are directly related to class size reduction and extended learning opportunities.
    • Refunding Overview
      • What is a refunding?
        • A refunding is a procedure whereby an issuer refinances an outstanding bond issue by issuing new bonds. Issuers refund bonds to reduce interest costs, and/or restructure the payment of the debt.
    • Refunding Bonds
      • There are two primary types of refundings: current refundings and advance refundings.
      • Current refundings — Under federal tax law, a current refunding is one in which the new refunding bond transaction is closed within 90 days of the refunded issue’s next available call date of the debt to be refunded.
      • Advanced refundings – Under federal tax law, an advanced refunding is one in which the new refunding bond transaction is closed more than 90 days before the first available call date of the debt being refunded.
    • Call Feature on Bonds
      • “ Calling” a bond means to prepay it before its scheduled maturity date
      • Not all bonds can be called
      • Call feature is set prior to the sale of bonds
        • Which bonds can be called
        • Why they can be called
        • What price is paid to call the bonds
      • Example of typical call language: “Bonds maturing on and after December 1, 2008 are subject to redemption on or after June 1, 2008 at the price of par.”
    • Refunding Overview ISSUER Debt Service on Outstanding Bonds New Refunding Bonds Special U.S. Government Obligation (SLGS) and T-Bills Debt Service on Refunding Bonds Old Bonds New Bonds Debt Service on Outstanding Bonds Old Bonds New Bonds TO BUY TO PAY OWES ISSUES OWES
    • Points to Consider
      • By law, advanced refundings are only allowed once before the call date.
        • Must provide debt service savings annually
        • Savings benefit only taxpayers
        • Cannot extend term of the bonds
      • Impact on non-voted debt capacity—the “over issuance” of new bonds to pay cost of issuance and fund escrow is counted against non-voted debt capacity
      • Bond rating—is this the best time to have the District’s bond rating reviewed?
      • Future debt issuance and the impact of Federal Tax Law related to:
        • Arbitrage rebate
        • Bank Qualification
    • Selling the Bonds
      • Two Methods
        • Competitive
        • Negotiated
      • Competitive Sale
        • Financial Advisor
        • Bonds sold to highest bidder
      • Negotiated
        • Underwriter
        • Bonds sold to produce desired result
    • Competitive vs. Negotiated
      • Our school district clients care most about outcomes
        • Schools are different than the State, the largest cities or some counties
        • They have to care about managing tax rates in both the near and long term, because they (uniquely) have to go to the voters for approval of funds for a significant portion of their operating revenues
        • It is no coincidence that the extensive use of negotiated bond sale coincides with 20 years of voter generosity.
    • SAFECO Montana Board of Investments Santa Barbara Trust Charles Schwab Washington First First Security Investment Wells Fargo Bank Discover Brokerage PEMCO American Marine Bank Peoples Bank 1st Independent Bank WM Advisors Bank of America USAA Investment Management Co. Franklin Federal Tax Free Fund ICM Asset Management Baker Boyer National Bank Northern State Bank Thornburg Investment Management WEST Fidelity Investments PNC Bank Bear Stearns MD Sass Investors Services Inc. Chase Manhattan Bank Colonial Funds Pioneering Management Corp. AAL Capital Management Lord Abbett Delaware Management Co. Alliance Capital Management Co. Salomon Brothers Asset Management Sanford C. Bernstein DB Scudder of Boston, MA Dreyfus U. S. Trust of New York Boston Company Eaton Vance Municipals . EAST CENTRAL Nuveen Advisory Corp Strong Capital Management Allstate Insurance Co. Stein Roe & Farnham State Farm Fire & Casualty IDS Tax Exempt Voyageur Asset Management Janus Investors Fiduciary Trust Co. Continental Illinois Nat’l. Bank Allstate Insurance Co. Northern Trust Co. Montana Tax-Free Fund Wells Fargo Bank State Farm Fire & Casualty Harris Bank Heartland Advisors Inc. First Security Investment U.S. Bank Bank One United Savings & Loan Society Asset Management * Selected representative institutional clients Selling the Bonds
    • Selling the Bonds
    • Levy Library http://www.levylibrary.org/
    • Levy Library
    • Levy Library
    • D.A. Davidson Contact List
      • Northwest Education Finance Team
      Kelsey Draper Administrative Assistant (206) 903-8694 phone (206) 389-4040 fax [email_address] Chad Cowan Vice President (206) 903-8697 phone (206) 389-4040 fax [email_address] Maria Elvrum Executive Assistant (206) 389-4044 phone (206) 389-4040 fax [email_address] Shandra Tietze Associate (206) 903-8695 phone (206) 389-4040 fax [email_address] Maura Lentini Vice President (206) 903-8687 phone (206) 389-4040 fax [email_address] Jon Gores Senior Vice President (206) 389-4043 phone (206) 389-4040 fax [email_address] Jack Eaton Senior Vice President (206) 903-8698 phone (206) 389-4040 fax [email_address]