General Obligation Bonds and Developer Fees and Agreements

2008 School Finance Conference

January 19, 2008

Presented by

John R. BaracyVice President

Stone & Youngberg LLC

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General Obligation Bonds

Developer Fees and Agreements

Discussion ItemsDiscussion Items

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GO BondsGO Bonds

Secured by an Ad valorem tax on all taxable property within the School District’s boundary

Ad valorem taxes create anew revenue stream for theSchool District

Requires voter approval oftax

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Unlimited ability to raise taxes provides investors with greatest security and lowest borrowing cost

School Facilities Improvement District (SFID) can be formed by School Districts to tax only a portion of their territory

GO BondsGO Bonds

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Bond Approval MethodBond Approval Method

Two methods available under State law

Proposition 46 (1986) Required 2/3rds favorable vote

Proposition 39 (2000) Requires 55% favorable vote

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Prop 46 v. Prop 39Prop 46 v. Prop 39

Types of Facilities

Maximum Tax Rates

Election Dates

Accountability Measures

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Prop 46 Bonds may fund land acquisition purchase or construction of new school

facilities renovation and repair of existing school

buildings permanent improvements to school grounds

Prop 39 Bonds may fund All the above PLUS Furnishing and equipping of school facilities Lease of real property for school facilities

GO Bond UsesGO Bond Uses

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Prop 46

No maximum tax rate

Prop 39

Establishes a maximum tax rate(per $100,000 of assessed value)

$30 for elementary andhigh school districts

$60 for unified school districts

$25 for community college districts

GO BondsGO Bonds

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Election DatesElection DatesProp 46

Any Tuesday – 89 Days in Advance of Election

Prop 39

February 5, 2008 and June 3, 2008 – Primary Elections

November 4, 2008 – General Election

Other dates only if coincide with regularly scheduleddistrict-wide election

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Accountability MeasuresAccountability Measures

Prop 46 Annual Report(1)

Prop 39 Annual Report(1)

Citizens Oversight Committee (COC) Performance and Financial Audits

(1)Required under the Government Code.

11AB 1368, also known as the Mullin Bill, went into affect on January 1, 2008 allowing Bond Anticipation Notes (“BANs”) to amortize over 5 years

New Legislation Effecting GO New Legislation Effecting GO BondsBonds

AB 1482, also known as the Canciamilla Bill, went into affect on January 1, 2007

Prior to the bond sale, the Board must adopt a resolution that:

Designates / approves method of sale States reasons for the method of sale selected Discloses the bond counsel, and the underwriter and financial advisor if either

or both are used for the sale Estimates the costs associated with the issuance

After the bond sale, the actual costs associated with the issuance must be:

Presented to the Board Disclosed at the next scheduled public meeting Submitted to the California Debt and Investment Advisory Commission (CDIAC)

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Total Amount: $14.9 Billion

Total Transactions: 323

Source: California Debt and Investment Advisory Commission (CDIAC)

(in $Billions)

72Issues

212 Issues 39Issues

California’s 2006 GO Bond California’s 2006 GO Bond IssuesIssues

45%

$6.70

21%

$3.10

34%

$5.14

K-12 School Facilities

Community College Facilities

General Government (1)

(1)Includes: Flood Control & Storm Drainage, Healthcare Facilities, Multifamily Housing, Multiple Capital Improvements, CorrectionalFacilities, Parks, Public Building, Public Transit, Seismic Safety Improvements, Wastewater & Water.

13Source: California Debt and Investment Advisory Commission (CDIAC)

1997-20061997-2006Total Amount: $42 Billion

Total Transactions: 1,837

212 Issues

Annual K-12 GO Bond Annual K-12 GO Bond VolumeVolume

$1,969$2,321

$1,934$2,529 $2,514

$5,290

$6,123

$5,084

$7,595

$6,696

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

$Millions

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

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Developer FeesDeveloper Fees General

Level One: fees are defined as general school facilities fees

Level Two: Nominally 50% of construction costs with fees to be used for new school construction

Level Three: Nominally 100% of construction costs, authorized when the State does not have available funds (option is currently suspended).

More unpredictable than Mello-Roos districts due to absence of a formal tax structure

Securitization of Developer Fees

If a school district selects to securitize the developer fees, generally a Certificates of Participation (“COP”) long term debt instrument is issued

Unless a school district pledges both general fund and developer fees (double-barrel pledge), securitizing the revenue stream will be very costly

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Developer FeesDeveloper Fees

+ Can supplement other financing sources in areas of consistent growth.

+ Best use in diversifiedareas (multiple developers in growing school district)

+ No tax restrictions on expenditures (bond proceeds are restricted).

- Must be for new construction only.

- During times of slower growth, less revenue available to pay off debt is the stream is securitized.

- Unpredictable revenue stream.

Advantages Disadvantages

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Developer AgreementsDeveloper Agreements

Background – Public school districts are required to provide facilities to house students within their respective jurisdiction.

Senate Bill 50 (“SB 50”)

Creates 50/50 split construction costs of new schools.

Over time, hasn’t kept up with escalated construction costs.

Current environment requires school districts to engage in aggressive mitigation negotiations for utilizing other financing vehicles (CFDs) and streams of revenue (special tax).

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Developer Agreement Developer Agreement TimelineTimeline

Developer typically contacts school district.

Information is gathered regarding developer’s project needs, likely student generation factors and determines potential revenue stream identified.

Special tax consultant and underwriter work identified with developer and school district during negotiations of the School Facilities Impact Mitigation Agreement (“SFIMA”)

Once terms are settled, school district board adopts the SFIMA

The SFIMA is recorded on title and becomes an obligation of the respective property

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Great Questions and Great Questions and AnswersAnswers

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The PresenterThe Presenter

John R. BaracyVice President

John R. Baracy is a Vice President in our Los Angeles office.  He brings over thirteen years of experience to California and Arizona education finance.  John has expertise in the structuring of new money and refunding issues, analysis of debt capacity, tax rate analysis, rating agency credit presentations, arbitrage rebate requirements, derivative financings, and investment of bond proceeds for general obligation bonds, certificates of participation, Mello-Roos bonds, and all other education financing vehicles.  Most recently, John has been assisting K-12 clients with financing solutions pertaining to GASB 45.  He is currently structuring transactions totaling nearly $500 million for school districts looking to fund GASB 45-related obligations with bond proceeds.

John is a member of the 2008 CASH Statewide General Obligation Bond Committee.  He comes from an education family: his parents are long-standing administrators for a school district and community college in Arizona.  John has a bachelors of science degree from Arizona State University.  He also enjoys playing golf and is an active snowboarder.

Stone & Youngberg LLCStone & Youngberg was founded in San Francisco in 1931The firm was established to advise, structure, underwrite and sell California municipal bonds. In addition to its headquarters office in San Francisco, the firm maintains public finance and sales offices in Los Angeles, San Diego, New York, Chicago, Phoenix, Richmond and Annapolis.

Today, Stone & Youngberg is California’s largest regional investment bank devoted to municipal bonds. Over the past five years, Stone & Youngberg has led all investment banks and financial advisors by structuring the most long-term government financings in California.

Stone & Youngberg’s leading status in local California municipal finance reflects the firm’s 75-year dedication to helping local public agencies achieve their financial goals. In 2005, Stone & Youngberg underwrote 222 financings for California public agencies. Since 2001, Stone & Youngberg has participated on over 1,270 transactions representing $23.9 billion of California financings as sole or senior managing underwriter or financial advisor in all areas of municipal finance. The firm’s website is www.syllc.com.

CONTACT INFORMATION:515 South Figueroa Street, Suite 1060Los Angeles, California 90071Phone (213) 443-5025Fax (213) 443-5023Email jbaracy@syllc.com