Wyoming’s Industrial Revenue Development Bonds

1. Wyoming’s Industrial Revenue Development Bonds Presentation for: Wyoming Economic Development Association Winter Conference, Cheyenne, Wyoming, Feb. 2014

2. History from inception in 1995 • Four Investments funded: • Union Tank Car - June 1999, Fully paid off Dec 2003 / still a going concern in Evanston, Wyoming • Hawkins and Powers Aviation – Closed 2004, Defaulted within a year/ two years to secure principle, most of the interest and fees owed • Parkway Plaza Hotel – Denied as reconfigured May 2013 after more than a year of review and deliberation • UR-Energy funded Fall 2013 after about 16 months of review – 1 year interest only 7 year amortization at 5.75% • Uranerz Energy funded fall 2013 after 14 month of review -- 1 year interest only 7 year amortization at 5.75% • Other interested parties • Gestamp/Worthington – never applied partnership dissolved last fall • DKRW – expressed interest • Trona, Uranium, Coal, Gas to Liquid Facilities, Tourism/Convention facilities, and Manufacturers all have indicated potential interest

3. Experience • When I was appointed Treasurer October 31st of 2012, there were three applicants pending our review. The particulars of the most mature of those had changed substantially from its Business Council Recommendation enough so that it no longer met the requirements of the statute. It was denied in its modified form. The other two worked there way through and were funded last fall. • The experience led us to seek rule-making authority for this facility last session. We waited until all three of the pending applications were complete before crafting our rules. • We released our rules last week and they are available for comment now. • Available on our Web-site http://treasurer.state.wy.us/ under “publications – what’s New.” One can also get a copy by contacting our office. • Comment Period ends March 24, 2014 • Public Hearing set for March 28, 2014

4. Treasurer’s Estimated Timeline

5. Constitutional Considerations Sec. 19. Mineral excise tax; distribution. The Legislature shall provide by law for an excise tax on the privilege of severing or extracting minerals, of one and one-half percent (1 1/2%) on the value of the gross product extracted. The minerals subject to such excise tax shall be coal, petroleum, natural gas, oil shale, and such other minerals as may be designated by the Legislature. Such tax shall be in addition to any other excise, severance or ad valorem tax. The proceeds from such tax shall be deposited in the Permanent Wyoming Mineral Trust Fund. The fund, including all monies deposited in the fund from whatever source, shall remain inviolate. The monies in the fund shall be invested as prescribed by the Legislature and all income from fund investments shall be deposited by the State Treasurer in the general fund on an annual basis. The Legislature may also specify by law, conditions and terms under which monies in the fund may be loaned to political subdivisions of the state. • This section was amended by a resolution adopted by the 1974 legislature, ratified by a vote of the people at the general election held on November 5, 1974, and proclaimed in effect on December 12, 1974. • This section was amended by a resolution adopted by the 1974 legislature, ratified by a vote of the people at the general election held on November 7, 2006, and proclaimed in effect on November 15, 2006.

6. Constitutional Considerations Continued • Sec. 6. Loan of credit; donations prohibited; works of internal improvement. Neither the state nor any county, city, township, town, school district, or any other political subdivision, shall loan or give its credit or make donations to or in aid of any individual, association or corporation, except for necessary support of the poor, nor subscribe to or become the owner of the capital stock of any association or corporation, except that funds of public employee retirement systems and the permanent funds of the state of Wyoming may be invested in such stock under conditions the legislature prescribes. The state shall not engage in any work of internal improvement unless authorized by a two-thirds (2/3) vote of the people. • This section was amended by a resolution adopted by the 1984 legislature, ratified by a vote of the people at the general election held on November 6, 1984, and proclaimed in effect on November 14, 1984. • This section was amended again by a resolution adopted by the 1995 legisla- ture, ratified by a vote of the people at the general election held on November 5, • 1996, and proclaimed in effect on November 18, 1996.

7. Authorizing Legislation (excerpts of Title 9-4-715. Permissible investments.) (m)  To promote economic development, the state treasurer may invest and keep invested not to exceed three hundred million dollars ($300,000,000.00) of any state permanent funds through the purchase of industrial development bonds issued by joint powers boards, municipalities or counties under W.S. 15‑1‑701 through 15‑1‑710 subject to the terms and conditions specified under this subsection. The state treasurer may adopt rules as necessary to carry out his duties under this subsection… (A)  The bonds are to finance the cost of acquisition of land or rights-of-way and the purchase, construction, and installation of buildings, appurtenant personal property and equipment which will add economic value to goods, services or resources within or outside this state… iii(A)  The state of Wyoming shall not acquire an ownership interest in the facility being financed except to realize a security interest; (vi)  No investment shall be made under this subsection after June 30, 2017. Any investment under this subsection shall be subject to the prudent investor standard as specified in subsection (d) of this section; (vii)  No investment in excess of one hundred million dollars ($100,000,000.00) shall be made under this subsection in bonds for any one (1) project without specific legislative authorization.

8. Challenges and Resolutions for IRDBs • Challenges • Time Frame 15-24 months • Process • Business Council (on positive vote success presumed) • Governor (appropriateness review) • Treasurer (prudent investor considerations) • Bond preparation (sufficiency and completeness) • Attorney General (Statutory and Constitutional) • Decision • Pitfalls • Delay can fundamentally change project • Subsequent financing problematic • Bonding (all sorts of issues) • Negotiations (Presumption of success) • Public Company issues (Premature comment) • Resolutions • Time Frame shortened • Process • Business Council all-in Recommendation (No Announcements) • Governor’s review • Treasurer (More or less Concurrent Review informed by rules) • Bond Preparation • Attorney General’s Review • Decision (within 6 months of Governor’s Recommendation) • Speedier completion • Clearer understanding of allowable financing • Bonding part and parcel of decision • Limited subsequent negotiation • No public communication until process is complete

9. Other Concerns • Issues that have emerged: • The long interval between application to the WBC and Final Purchase exacerbated by technicalities of issuing and buying bonds • The long timeframe leading to liquidity challenges for the applicant which eroded the quality of the investment • The long timeframe and early public announcement of WBC recommendation led to increased scrutiny, analysis, and speculation on the part of securities analysts which affected the price of stock and could lead to moral hazard • Program as constituted could well be problematic for very large projects by confounding the applicants ability to seek further financing beyond the capacities set in statute. • My office is not well staffed for the reviews necessary for these sorts of asset purchases took conservatively more than 25% of out time processing • How to contemplate diversification across industry sectors, projects, and communities

10. Looking Forward • The Treasurer’s Office will meet with any new applicant at the beginning of the process to make certain the applicant fully understands the full course of review under statute including the time it takes to properly craft bonds, identify trustees, review collateral and so on – all of which really begins following a favorable recommendation by the WBC • We will begin review of an application immediately following the favorable recommendation of the WBC but cannot complete that review until we receive a positive recommendation from the Governor • There should be no public announcement of a positive WBC recommendation or use of any such information to aid in raising equity in public markets. The process must be complete before any acknowledgement of success or failure of the application. • The rules we have prepared will further outline the processes I have outlined above and seek to minimize unforeseen or anticipated hiccups as well as expedite prosecution.

11. Overview of Rules • Guidance • Focus on quality of investment only • Collateral • Encumbrances • Interest • Diversification of Portfolio • Monitoring • Efficient Prosecution • Full Information from Beginning • No Premature Announcements • Overview • What goes to the WBC must be complete • Any changes or significant developments go back to WBC (de facto loan committee) • Bond Considerations are part of evaluation • Erosion of credit or significant modifications return to WBC for review • Tidier process (attorneys, agents, other helpful folks) • Predictable course and conditions (rate, term informed by WBC and calibrated within market bands) • Time certain disposition (6 months post Governor’s Decision • No public communication before completion of full process • Monitoring requirements

12. Questions?