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By: Lourdes German
Economic Perspectives on State and Local Taxes Conference
December 2015
I. When do Municipalities Access The Capital
Markets?
II. How Are Municipalities Using Securities to
Finance Infrastructure via the Capital
Markets?
III. Conclusion & Questions
 When they want to raise funds for a capital project by borrowing from investors
via the issuance of municipal securities (Bonds, Notes)
• When they want to borrow the funds on a tax-exempt basis
• When the IRS authorizes the borrowing for the purpose of the project
• When state law authorizes the borrowing & there is a public purpose
Municipality Investors
• $3.8 Trillion of bonds outstanding for municipal infrastructure
• Municipal securities are issued in all 50 States
• Property Tax is predominant security for general obligation borrowings
• Debt is often one long term liability that triggers municipal defaults & bankruptcy
• Predominant investors and holders of municipal bonds are individuals
0.00
200.00
400.00
600.00
800.00
1,000.00
1,200.00
1,400.00
1,600.00
1,800.00
2,000.00
INDIVIDUALS&HOUSEHOLDS
MUTUALFUNDS
MONEYMARKETFUNDS
CLOSED-ENDFUNDS
EXCHANGE-TRADEDFUNDS
NONFINANCIALCORPORATE…
NONFARMNONCORPORATE…
GOVERNMENT-SPONSORED…
STATE&LOCAL…
U.S.-CHARTERED…
FOREIGNBANKINGOFFICES…
BANKSINU.S.-AFFILIATED…
CREDITUNIONS
PROPERTY&CASUALTY…
LIFEINSURANCECOMPANIES
STATE&LOCAL…
BROKERS&DEALERS
OTHER
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Securities Industry & Financial Markets Association
Municipality
Identifies Capital
Project
State Law Authority
Confirmed
Tax Exemption Analysis
Debt
Structure/Security
/Debt Capacity
Confirmed
Method of Sale
Chosen – Public vs.
Private Offering
Offering Documents
Announce Sale
Credit Analysis &
Public Underwriting
The Closing:
Municipality Receives
Funds & Begins
Project
Municipality Begins
Repaying Investors
Municipality
Investors
Capital Markets Regulators:
SEC, IRS, MSRB, FINRA
Bond &
Disclosure
Counsel
Financial
Advisor
Underwriter
/ Broker
Dealer
Bond
Trustee &
Paying
Agent
Rating
Agencies
Depository
Trust
Company
Municipality Investors
11,000 Average New
Municipal Bonds Deals Per Year by
Governments - “Primary” Market
(~$400 Billion)
$3.8 Trillion Bonds
Outstanding -The
“Secondary” Market
(Approx. ~10,000,000
Trades Annually
Among Investors)
Source: Municipal Securities Rulemaking Board, www.msrb.org
Capital Project
Event
Monitoring
(Fire, Sale) (IRS)
Change in Use
& Use of
Proceeds
Monitoring
(IRS)
Material Events
Disclosures &
Annual
Financials
(SEC, MSRB)
Credit
Surveillance
(Private Sector)
Source: Municipal Securities Rulemaking Board, www.msrb.org
Deal: $9,050,000 Municipal Purpose Loan of 2008 Bonds – Tax Exempt
• One Bond was issued to fund multiple capital projects in the Town – electric plant,
fire facilities, water tank
• Chapter 44 of the Massachusetts General Laws & Town meeting approval required
• Full faith and credit pledge of the Town’s property tax supports repayment
Source: Town of Shrewsbury, Massachusetts Official Statement dated
February 7, 2008
• Public offering
• Official
Statement with
Continuing
Disclosure
• Competitive
Bids solicited
from a Universe
of Capital
Markets
Underwriters
• Bond Opinion
provided to
Capital Market
Investors
Source: Town of Shrewsbury, Massachusetts Official Statement dated
February 7, 2008
• Chapter 44 of the Massachusetts General Laws & Debt Affordability informs
structure: Project useful life analysis & 18 year amortization; Prices and yields set by
winning underwriter based on market conditions
• Credit quality impacted bond prices & yields
• Result: Town will repay $9,050,000 of principal and $2,569,393 of interest to investors
Source: Town of Shrewsbury, Massachusetts Official Statement dated
February 7, 2008
Deal: $39,926,000 New Bedford State Qualified Bonds (Taxable/Tax-Exempt)
• Borrowing authorized under special legislation and Massachusetts General Laws
• City used Massachusetts State Qualified Bond Act
• Funding for railroad remediation, refinancing of prior debt and sewer/school projects
Source: City of New Bedford Official Statement, Dated February 7, 2008
• Sold as a
public
offering via
an Official
Statement
• Negotiated
offering
• Bond
Opinion
• SEC Anti-
Fraud
Standards
apply &
Continuing
Disclosure
Source: City of New Bedford Official Statement, Dated February 7, 2008
• Two series of bonds issued due to Taxable/Tax-Exempt Status
• Special Law & Massachusetts General Laws guide amortization
• State Qualified Bond Act and Use of Insurance impact credit quality and pricing
• 24 Year Amortization governed refinancing, school, sewer projects
Source: City of New Bedford Official Statement, Dated February 7, 2008
• 15 year amortization for taxable series for remediation
• $22,209,000 issued to refinance existing debt
• Result: City paid $215,000 for insurance policy & will repay $39,926,000 of principal
and $5,935,959 of interest to investors
Source: City of New Bedford Official Statement, Dated February 7, 2008
• State Aid
Debt
Affordability
Analysis
required
because
New Bedford
Used State
Qualified
Bond
Program
Source: City of New Bedford Official Statement, Dated February 7, 2008
City of Brockton Bond Financing
Using Clean Renewable Energy
Bonds – Zero percent borrowing
relying on IRS Tax Credits
City of Woburn Bond Financing for School
Construction via Massachusetts School
Building Authority Revenue Bond Program
Berkshire Arts & Technology Charter
School Bond Financing Using
Qualified Zone Academy Bonds –
Zero percent borrowing relying on
IRS Tax Credits
MIT - Massachusetts Development Finance
Agency Bond Financings for Campus
Capital Construction
Any references to bonds or fixed income securities in this presentation are intended for educational
purposes only. Any references to bonds or fixed income securities presented in this piece should not be
construed as an offer, solicitation, or recommendation to buy or sell securities or other investment
products, nor are they intended to be used as a general guide to investing, or as a source of any specific
or general investment recommendation. Screenshots are included of various bond official statements
for teaching and illustrative purposes to demonstrate how information appears within the official sales
document prepared under securities laws in the context of the capital market transaction for the
municipality, with full links provided where the audience can view and access the entire official
statement.

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Accessing Capital Markets for Capital Needs

  • 1. By: Lourdes German Economic Perspectives on State and Local Taxes Conference December 2015
  • 2. I. When do Municipalities Access The Capital Markets? II. How Are Municipalities Using Securities to Finance Infrastructure via the Capital Markets? III. Conclusion & Questions
  • 3.
  • 4.  When they want to raise funds for a capital project by borrowing from investors via the issuance of municipal securities (Bonds, Notes) • When they want to borrow the funds on a tax-exempt basis • When the IRS authorizes the borrowing for the purpose of the project • When state law authorizes the borrowing & there is a public purpose Municipality Investors
  • 5. • $3.8 Trillion of bonds outstanding for municipal infrastructure • Municipal securities are issued in all 50 States • Property Tax is predominant security for general obligation borrowings • Debt is often one long term liability that triggers municipal defaults & bankruptcy • Predominant investors and holders of municipal bonds are individuals
  • 7.
  • 8. Municipality Identifies Capital Project State Law Authority Confirmed Tax Exemption Analysis Debt Structure/Security /Debt Capacity Confirmed Method of Sale Chosen – Public vs. Private Offering Offering Documents Announce Sale Credit Analysis & Public Underwriting The Closing: Municipality Receives Funds & Begins Project Municipality Begins Repaying Investors Municipality Investors
  • 9. Capital Markets Regulators: SEC, IRS, MSRB, FINRA Bond & Disclosure Counsel Financial Advisor Underwriter / Broker Dealer Bond Trustee & Paying Agent Rating Agencies Depository Trust Company Municipality Investors
  • 10. 11,000 Average New Municipal Bonds Deals Per Year by Governments - “Primary” Market (~$400 Billion) $3.8 Trillion Bonds Outstanding -The “Secondary” Market (Approx. ~10,000,000 Trades Annually Among Investors) Source: Municipal Securities Rulemaking Board, www.msrb.org
  • 11. Capital Project Event Monitoring (Fire, Sale) (IRS) Change in Use & Use of Proceeds Monitoring (IRS) Material Events Disclosures & Annual Financials (SEC, MSRB) Credit Surveillance (Private Sector) Source: Municipal Securities Rulemaking Board, www.msrb.org
  • 12.
  • 13. Deal: $9,050,000 Municipal Purpose Loan of 2008 Bonds – Tax Exempt • One Bond was issued to fund multiple capital projects in the Town – electric plant, fire facilities, water tank • Chapter 44 of the Massachusetts General Laws & Town meeting approval required • Full faith and credit pledge of the Town’s property tax supports repayment Source: Town of Shrewsbury, Massachusetts Official Statement dated February 7, 2008
  • 14. • Public offering • Official Statement with Continuing Disclosure • Competitive Bids solicited from a Universe of Capital Markets Underwriters • Bond Opinion provided to Capital Market Investors Source: Town of Shrewsbury, Massachusetts Official Statement dated February 7, 2008
  • 15. • Chapter 44 of the Massachusetts General Laws & Debt Affordability informs structure: Project useful life analysis & 18 year amortization; Prices and yields set by winning underwriter based on market conditions • Credit quality impacted bond prices & yields • Result: Town will repay $9,050,000 of principal and $2,569,393 of interest to investors Source: Town of Shrewsbury, Massachusetts Official Statement dated February 7, 2008
  • 16.
  • 17. Deal: $39,926,000 New Bedford State Qualified Bonds (Taxable/Tax-Exempt) • Borrowing authorized under special legislation and Massachusetts General Laws • City used Massachusetts State Qualified Bond Act • Funding for railroad remediation, refinancing of prior debt and sewer/school projects Source: City of New Bedford Official Statement, Dated February 7, 2008
  • 18. • Sold as a public offering via an Official Statement • Negotiated offering • Bond Opinion • SEC Anti- Fraud Standards apply & Continuing Disclosure Source: City of New Bedford Official Statement, Dated February 7, 2008
  • 19. • Two series of bonds issued due to Taxable/Tax-Exempt Status • Special Law & Massachusetts General Laws guide amortization • State Qualified Bond Act and Use of Insurance impact credit quality and pricing • 24 Year Amortization governed refinancing, school, sewer projects Source: City of New Bedford Official Statement, Dated February 7, 2008
  • 20. • 15 year amortization for taxable series for remediation • $22,209,000 issued to refinance existing debt • Result: City paid $215,000 for insurance policy & will repay $39,926,000 of principal and $5,935,959 of interest to investors Source: City of New Bedford Official Statement, Dated February 7, 2008
  • 21. • State Aid Debt Affordability Analysis required because New Bedford Used State Qualified Bond Program Source: City of New Bedford Official Statement, Dated February 7, 2008
  • 22.
  • 23.
  • 24. City of Brockton Bond Financing Using Clean Renewable Energy Bonds – Zero percent borrowing relying on IRS Tax Credits City of Woburn Bond Financing for School Construction via Massachusetts School Building Authority Revenue Bond Program
  • 25. Berkshire Arts & Technology Charter School Bond Financing Using Qualified Zone Academy Bonds – Zero percent borrowing relying on IRS Tax Credits MIT - Massachusetts Development Finance Agency Bond Financings for Campus Capital Construction
  • 26. Any references to bonds or fixed income securities in this presentation are intended for educational purposes only. Any references to bonds or fixed income securities presented in this piece should not be construed as an offer, solicitation, or recommendation to buy or sell securities or other investment products, nor are they intended to be used as a general guide to investing, or as a source of any specific or general investment recommendation. Screenshots are included of various bond official statements for teaching and illustrative purposes to demonstrate how information appears within the official sales document prepared under securities laws in the context of the capital market transaction for the municipality, with full links provided where the audience can view and access the entire official statement.