P R O M O T I N G E X C E L L E N C E I N G O V E R N M E N T
LOCAL GOVERNMENT DEBT METHODS 101
Why do Cities finance?
• Need for facilities/equipment • Consequences of delay • Spreading of costs
Historical Perspective
Debt excesses & defaults Georgia Constitutional limits What is debt subject to limitations?
• Dawson Case • Griffin Case • Augusta Case
Exceptions to debt limits: • Jonesboro Case • Rome Case • Davisboro Case • Albany Case
Types of Debt General Obligations (GOs) Referendum election requirement Full faith and credit, tax backing Limited to 10% of digest
SPLOST GO Debt Must be part of ballot question Repayable first from SPLOST, with property tax guarantee
Tax Anticipation Notes (TANs)
Must be repaid within calendar year Cannot exceed 75% of prior year or 100% of current year taxes
Types of Debt
Revenue Bonds Available for described revenue producing projects Cannot be supported by general fund
Lease-Purchase & COPs Bricks & Mortar and Equipment Annual debt service subject to 7½% limitation Subject to annual appropriation and termination 100% financing requirement Available for SPLOST projects
Authority Revenue Bonds Project qualifications vary from City to City Some authorities may issue revenue bonds for City projects Cities may contract with Authority to pay debt service Current litigation may decide what types of contracts are lawful
Redevelopment Agencies (URAs) Requires adoption of redevelopment plan URA issues revenue bonds for planned facilities Cities lease facilities from URA; rentals back the revenue bonds
Types of Debt
Getting Started….. Adoption of Reimbursement Resolution Identify a debt sale method
• Direct bank placement • Public Sale
Waive performance audits or reviews Public hearing required by URAs or Bricks & Mortar Projects Validate GO bonds, SPLOST bonds or Revenue bonds Assemble financing team
• City Attorney • Bond Counsel • Finance Director • Municipal Advisor • Investment banker
The Tax Man Cometh… Prerequisites for tax-exempt interest
• Governmental Issuer • Borrowing is legal • Information report filed with IRS • Arbitrage Considerations • Allowable purposes
Cash flow borrowing in limited circumstances Governmental facilities Only qualified private facilities
Bank-Qualified Debt
P R O M O T I N G E X C E L L E N C E I N G O V E R N M E N T
Local Government Debt Methods 101 June, 25, 2016
Kay Love, City of Roswell
Decisions, Decisions, Decisions
Does My City Have a Capital Improvement Plan (CIP)?
CIP?
YES
Refresh It
NO
Develop a CIP
Does My City Have Debt Management Policies?
Debt Policies?
YES
Review Them
NO
Develop a Policy
What Should Be In Debt Management Policies?
Goals and Objectives
Capital Planning and Financing Policies
Structural Approach to Debt Management Policy
Financial Consultants/Service Providers Policy
What Should Be In Debt Management Policies?
Marketing and Inter-Agency Relationship Policy Method of Sale Policy Short-Term Debt & Interim Financing Policy
Credit Ratings and Enhancements Policy
Refunding of City Indebtedness Policy
Referendum Strategy
Project List Project Budgets Timelines/Critical Dates/Responsibilities Ballot Question & Reimbursements Policies Public Education Plan Financing Team
The Public Wants to Know…. What projects will be included in the
project list? How will the projects benefit the city? Will property taxes or fees increase
because of the bonds? When will the city issue bonds? What is the estimated cost to borrow? Where can I get more information?
Project Benefits Example
Pine Cone Bridge Road at State Route 2 will improve safety and operations in and around this interchange. Project details may include a west bound through lane addition, a south bound right turn lane and aesthetic improvements.
Get the Ballot Question(s) Right SHALL GENERAL OBLIGATION BONDS IN THE AGGREGATE AMOUNT
OF $14,700,000.00 BE ISSUED BY PERFECT CITY, GEORGIA TO FINANCE THE COST OF ACQUISITION, DESIGN AND/OR DEVELOPMENT OF REAL AND/OR PERSONAL PROPERTY FOR TRANSPORTATION AND PUBLIC WORKS INFRASTRUCTURE IMPROVEMENT PURPOSES INCLUDING TRAFFIC MITIGATION, FACILITY DESIGN AND DEVELOPMENT, PEDESTRIAN AMENITIES, INTERSECTION IMPROVEMENTS, SIDEWALKS, MULTIUSE TRAILS AND SAFETY RELATED STREET IMPROVEMENTS; TO FINANCE THE COST OF ACQUISITION, DESIGN AND/OR DEVELOPMENT OF REAL AND/OR PERSONAL PROPERTY FOR RECREATIONAL FIELDS AND PARK FACILITIES TOGETHER WITH FURNITURE, FIXTURES AND EQUIPMENT RELATED THERETO; AND TO FINANCE THE ACQUISITION, DESIGN AND/OR DEVELOPMENT OF A FIRE STATION TOGETHER WITH FURNITURE, FIXTURES AND EQUIPMENT RELATED THERETO? YES______ NO______
Make the Projects Real
Website Information
Signage
Lessons Learned
Anticipate citizen questions & follow up Develop multiple venues for input Create key messages Determine communication tactics &
communicate, communicate, communicate Consider new/additional Operating Costs
associated with projects
Lessons Learned
Preliminary Official Statement – Own it Revise project budgets for market
conditions & project timing Have a contingency plan Provide frequent project status updates
Lessons Learned
Anticipate Project Overruns Do what you say you are going to do The best political decisions are not always
the best financial decisions Bad news does not get better with age
Lessons Learned
Make sure elected officials and staff know what they can and can’t do to promote a bond referendum. Use of External Advocacy Groups
VOTE YES
Bri Joiner Manager, Regulatory Education
Municipal Securities Rulemaking Board
Topics • Role of the MSRB and EMMA®
• Putting EMMA® to Work for You
• Working with Municipal Advisors
• MSRB Resources
Role of the MSRB and EMMA®
Mission of the MSRB
• Promote a fair,
transparent and efficient municipal market • Protect investors, issuers and the public interest
How the MSRB Fulfills its Mission
Regulation
Transparency
Education and
Outreach
Meet EMMA
What’s on EMMA
Official Statements Advance Refunding Documents Event Notices Financial Disclosures 529 Plan Disclosures Municipal Asset-Backed
Securities Disclosure Political Contribution
Disclosures
Trade Prices and Yields Interest Rate Resets for
Municipal Variable Rate Securities
Credit Enhancement Documents for Variable Rate Securities
Credit Ratings New Issuance Statistics Trade Statistics Disclosure Statistics
Disclosures Data
Issuer Information on EMMA
Putting EMMA® to Work for You
How to Put EMMA to Work for You
Comply • Comply with financial disclosure obligations
Inform • Provide information to investors
Monitor • See how your bonds are trading
Continuing Disclosure Obligations
General Anti-Fraud Provisions
Specifics/ Timing for Required Disclosures
Securities Exchange Act of 1934
SEC Rule 15c2-12
SEC Rule 10b-5
Continuing Disclosure Agreements
Federal Anti-Fraud Laws • Prohibit fraudulent, inaccurate or
misleading information in disclosures to investors
• Material information may not be omitted
• Violations may result in SEC charges against issuers Fines Bans from business
Required Disclosures (SEC Rule 15c2-12)
• Comprehensive Annual Financial Report • Audited Financial Statements • Financial Information • Operating Data • Notice of Failure to File Annual Financials
Financial/ Operational
• Notices of specific events that can have an impact on key features of the bonds
• Must be submitted within 10 business days
Event Notices
Required Event Disclosures Principal and interest payment delinquencies
Non-payment related defaults
Unscheduled draws on debt service reserves reflecting financial difficulties
Unscheduled draws on credit enhancements reflecting financial difficulties
Substitution of credit or liquidity providers, or their failure to perform
Adverse tax opinions or events affecting the tax-exempt status of the security
Rating changes
Modifications to rights of security holders
Bond calls and tender offers
Defeasances Release, substitution or sale of property securing repayment of the securities
Bankruptcy, insolvency or receivership
Merger, acquisition or sale of all issuer assets
Appointment of successor trustee
Continuing Disclosure Agreements
• Issuer’s contractual obligations for: – What to disclose in annual financials – Required timing of annual financials – Events that will trigger disclosure – History of compliance with SEC Rule
15c2-12 • Often included as exhibits or appendices
in official statements • Details and requirements can vary from
issue to issue
Do you remember signing a CDA?
Submitting Required Disclosures to EMMA
Set Up an Organization Account
• Creates single continuing disclosure submission account for all agents and staff of an issuer
• Allows master account administrator to securely and independently manage staff access
• Required to use certain EMMA® tools
dataport.emma.msrb.org/AboutDataport.aspx
Sign Up for Email Reminders
• Issuers can schedule automated emails from EMMA® to be reminded of approaching annual or quarterly financial disclosure filing deadlines
• Include additional contacts to ensure all those with a role in disclosure are alerted
Click to Access Disclosure Resources
http://www.msrb.org/Education Center/Issuers/Disclosing.aspx
How to Put EMMA to Work for You
Comply • Comply with financial disclosure obligations
Inform • Provide information to investors
Monitor • See how your bonds are trading
How Investors Find Information on EMMA
Navigate by State and Type
Customize Your Issuer Homepage on EMMA
How to Put EMMA to Work for You
Comply • Comply with financial disclosure obligations
Inform • Provide information to investors
Monitor • See how your bonds are trading
View Real-Time and Historical Trade Data
Find and Compare Similar Securities
• EMMA®’s Price Discovery Tool
Export Trade Data
• Use EMMA Trade Monitor to export trade data from EMMA® to a desktop application – Analyze the prices, yield and
amount of secondary market trade activity of municipal bonds
– Support evaluation of pricing for new issues
– Access with an organization account
Muni Market Facts
Pop Quiz • What’s the average number of daily trades in municipal
bonds?
• Which state issues the largest par amount for infrastructure financing?
• How many municipal bonds are outstanding?
Working with Municipal Advisors
The Deal Team
State and Local Governments
(Taxpayers)
Municipal Advisor(s)
Deal Table
Underwriter(s)
Underwriter’s Counsel
Bond Counsel Credit Enhancer
Feasibility Consultant
Underwriting Syndicate Member
Selling Group Members
Auditor
Rating Agencies Disclosure Counsel
Trustee
Other Counsel
What to Expect from Your Municipal Advisor
CH
ECK
Verify Your Municipal Advisor’s Registration Status and Credentials
PRO
TECT
Know the Rules Designed to Protect Your Interests
REPO
RT
Call the MSRB to Report Potential Rule Violations
Verify Municipal Advisor Registration
• All municipal advisor firms should be registered with both the SEC and the MSRB
• Find a full list of MSRB-registered firms on the MSRB website
http://www.msrb.org
Look for Series 50 Credential • MSRB requires all municipal advisors to take and pass
the baseline test of professional qualification • By Fall 2017, all municipal advisor professionals should
hold the MSRB’s Series 50 credential • Ask your municipal advisor whether they have taken and
passed the exam
What to Expect from Your Municipal Advisor
CH
ECK
Verify Your Municipal Advisor’s Registration Status and Credentials
PRO
TECT
Know the Rules Designed to Protect Your Interests
REPO
RT
Call the MSRB to Report Potential Rule Violations
Municipal Advisors MUST
Provide documentation of municipal advisory relationship (e.g. contract) Disclose conflicts of interest Put municipal entity client’s interests
ahead of their own Make suitable recommendations
Municipal Advisors MUST NOT
ₓCharge excessive compensation and fees ₓAttempt to “pay-to-play” by giving
excessive gifts or gratuities to current or prospective clients ₓAdvise on certain transactions where the
municipal advisor’s firm is acting as principal
What to Expect from Your Municipal Advisor
CH
ECK
Verify Your Municipal Advisor’s Registration Status and Credentials
PRO
TECT
Know the Rules Designed to Protect Your Interests
REPO
RT
Call the MSRB to Report Potential Rule Violations
File a Complaint • Submit complaints to the MSRB
– 202-838-1330
• Submit complaints to the SEC
– U.S. Securities and Exchange Commission Office of Municipal Securities 100 F Street, NE Washington, DC 20549
– Tips, Complaints and Referrals Portal
• Submit complaints about FINRA-registered municipal advisors to FINRA
– FINRA's Investor Complaint Center
MSRB Resources
Get the 411 from the Municipal Market’s 311
Call MSRB Support 202-838-1330 [email protected] Live support weekdays 7:30 a.m. - 6:30 p.m. ET
Questions about the municipal market?
Visit the MSRB Education Center
Municipal Securities Rulemaking Board 74
Access Free Educational Resources
Contact the MSRB
MSRB Online msrb.org emma.msrb.org MSRB Support 202-838-1330 [email protected]
MSRB Email Updates – Subscribe at msrb.org Follow the MSRB on Twitter @MSRB_News