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2008 Training Session. Capital Improvement Planning - An Investment Banker’s Perspective. Friday, January 11 th , 2008, 1:30 p.m. - 2:30 p.m. Scottsdale, Arizona. Presented By:. 2555 E. Camelback Road, Suite 280, Phoenix, Arizona 85016 (602) 794-4000. Overview of Presentation. Pages
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2008 Training Session Capital Improvement Planning - An Investment Banker’s Perspective Friday, January 11th, 2008, 1:30 p.m. - 2:30 p.m. Scottsdale, Arizona Presented By: 2555 E. Camelback Road, Suite 280, Phoenix, Arizona 85016 (602) 794-4000
Overview of Presentation Pages An Investment Banker’s Perspective 2-4 Financial Policy Recommendations (Best Practices) 5-6 General Obligation Bond Alternative Overview 7 CIP Financing Alternatives Summary 8-10 Cities & Towns Counties Fundamental Debt vs. Pay-As-You-Go Questions 11-12 Debt vs. Pay-As-You-Go Example 13 Questions 14
1) An Investment Banker’s Perspective CIP Planning Documents Vary Significantly Across the State Absence of Minimum Five-Year CIP May Be Viewed as a Credit Negative (translates to potential higher borrowing costs) Ten Year CIP Encouraged to Develop a More Comprehensive Funding Plan SOPHISTICATED CIP PLANNING DOCUMENTS ARE VERY IMPORTANT TO THE MARKETPLACE:
An Investment Banker’s Perspective Learn from Other Governmental Jurisdictions – Outstanding Models To Choose From Integrate O & M Ramifications into Long-Term Forecasts & Related Planning Documents Identify Financing Alternatives For Each Project and Why Such Alternative(s) are Equitable
INCLUDE THE COMMUNITY IN THE PLANNING PROCESS Improves Relationships and Builds Support for Future Revenue Stream(s) Use as a Tool to Control Political and Community Expectations Regarding CIP and On-Going Pressure on Revenues to Accomplish Projects Documented, Publicly Available (i.e., website), Easy to Read and Updated Annually Transparency Builds Confidence Among Stakeholders DEBT PLANNING & FINANCIAL POLICIES SHOULD BE CROSS REFERENCED THROUGHOUT THE CIP See Policy Recommendations Herein An Investment Banker’s Perspective
2) Financial Policy Recommendations (Best Practices) Formal Council Approved Policies are Viewed Favorably By Market Participants CIP Policy (Authorizing & Establishing) Complete Master Plan Documents Which Support Capital Improvement Projects General Fund “Cash” Balance Reserve Policy – One Size Does Not Fit All! % of Expenditures or Number of Days of Operating Expenses Non-Recurring Revenue Policies: How Does your Jurisdiction Plan for Economically Sensitive Revenues (i.e., Sales Tax, Construction Related Revenues, Income Taxes and Bed Taxes)? Debt Planning & Affordability Policies: Formalized Plan that Includes Targeted and Maximum Debt Levels & Pay-As-You-Go Funding Determining Debt Capacity is an Art Not a Science
Financial Policy Recommendations (Best Practices) Community Facilities District (CFD) Policies & Procedures Improvement District (I.D.) Policies & Procedures Impact Fee Policies & Procedures Utility Enterprise Systems Policies and Procedures: Outline Procedures for Monitoring Covenants to Ensure Compliance Inter-Fund Borrowing Policies Primary and Secondary Tax Rate Policies & Objectives
Substantial CIP Funds Can Come from G.O. Bond Authorization Voter Approval Required (Majority Vote). Election Opportunity Limited to the First Tuesday After the First Monday in November Repaid Through Secondary Property Tax Levy City/Town Debt Limitations: 20% and 6% of Secondary Assessed Valuation 20% Category: Public Safety, Law Enforcement, Fire and Emergency Services, Water, Lights, Sewer, Open Space, Parks, Streets & Transportation Facilities 6% Category: Any of 20% Category & All Other General Municipal Purposes County Debt Limitations: 15% of Secondary Assessed Valuation All Eligible Projects and Related Debt Categories Subject to Bond Counsel Approval 3) General Obligation (G.O.) Bonds Alternative Overview
4) Arizona City & Town, CIP Financing Alternatives Summary (a) Election Permitted to be held on the First Tuesday after the First Monday in November of each year. (b) Election Permitted in March, May, September and November. (c) Election not required if population is less than 50,000. Excise Taxes and Development Fees required by WIFA Under Certain Circumstances. (d) Election not required if population is less than 50,000.
Arizona City & Town, CIP Financing Alternatives Summary (a) Election Permitted to be held on the First Tuesday after the First Monday in November of each year. (b) Election Permitted in March, May, September and November. (c) Election not required if population is less than 50,000. Excise Taxes and Development Fees required by WIFA Under Certain Circumstances. (d) Election not required if population is less than 50,000. (e) Amortization Limited to Average Useful Life of Assets Being Financed.
Arizona Counties, CIP Financing Alternatives Summary (a) Includes Sanitary Districts, Domestic Water Improvement Districts and other similar Districts. (b) County Highway Acceleration Financing Option Also Available. (c) Election not required if population is less than 50,000. (d) Election not required if population is lass than 200,000
5) Fundamental Debt Vs. Pay-As-You-Go Questions PROJECT COMPLETION: Ability to Construct Public Infrastructure in Advance to Enjoy Benefits Related Thereto and Meet Community Service Objectives Necessity and Desire for highly Essential Capital Improvement Projects (i.e., Health & Safety, Highway Acceleration, Open Space Preservation) Opportunity to Purchase Capital Assets at an Attractive Price CONSTRUCTION COSTS AND ECONOMIC CONDITIONS: Impact of Inflation on Project Budget Economies of Scale Possibilities. Does Current Bid Environment Create Opportunities? BUDGET & CASH FLOW CONSIDERATIONS: Limit Revenue Bond Debt Service to a % of the City’s General Fund (Don’t Overburden Budget) Debt Affordability Analysis. Identify/Implement Special Revenue Stream to Repay Debt Obligation. Updated Debt Issue Size Based on Debt Service Amount in Budget
Fundamental Debt Vs. Pay-As-You-Go Questions INTERGENERATIONAL EQUITY: Spreading Costs of Project Over Approximate Useful Life Which Allows for Multiple Generations to Help Pay for Fair Share Current Residents Paying Taxes During the Cash Build-up Period Without the Benefit ONGOING O&M FOR REPLACEMENT FACILITIES: Growing Costs of Remediating Long Neglected Public Infrastructure, Including Ramifications of Operation & Maintenance COST OF MONEY: Investment Rate of City/County Funds Currently Approximate 4.0% - 4.5% Bond Interest Rates Approximate 4.5% for 20-Year Insured Bonds POLITICAL RAMIFICATIONS