Ensuring the Success of Your Local Bond Program: Strategic ... · Ensuring the Success of Your...

Regional Workshops

Ensuring the Success of Your Local Bond Program: Strategic Program Management & Financing

COAST CCD Thursday, February 2, 2017

9:00 am to 2:30 pm District Board Room 1370 Adams Avenue

Costa Mesa, CA 92626

AGENDA

9:00 am Welcome and Opening Remarks Jerry Marchbank, CCFC Board of Directors, Coast CCD 9:15 am CCFC Update: Proposition 51 Implementation and the Governor’s 2017-18

Budget Proposal Rebekah Cearley, Community College Facility Coalition 9:30 am Strategic Program Management: Establishing a Smart Capital Planning Process Bob Bradshaw, El Camino College Fred Diamond, Citrus College Fred Williams, North Orange County CCD Lori O’Keefe, MAAS Companies, Inc. 10:30 am Break 10:45 am Continued: Strategic Program Management 11:45 am Q & A 12:00 pm Lunch 1:00 pm Financing Your Bond Program Ivory Li, Piper Jaffray & Co. Chet Wang, Keygent LLC David Casnocha, Esq., Stradling Yocca Carlson & Rauth 2:15 pm Q & A 2:30 pm Evaluations & Adjourn

CCFC Regional Workshops


Thursday, February 2, 2017

Orange Coast College, Coast CCD

Costa Mesa, California

CCFC Update: Proposition 51 Implementation and the Governor’s 2017-18 Budget Proposal

Rebekah Cearley

Community College Facility Coalition

COMMUNITY COLLEGE FACILITY COALITION

1303 J Street, Suite 520 Sacramento, CA 95814 Phone (916) 446-3042 Fax: (916) 441-3893 www.caccfc.org

http://www.caccfc.org/

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Rebekah CearleyCommunity College Facility Coalition

CCC typically receives 10.93% of Proposition 98 Minimum Guarantee◦ 10.87% proposed for 2017-18◦ $45 million less than traditionally expected

About $400 million in new funds for CCDs, despite reductions elsewhere in budget◦ Funds to reorganize Chancellor’s Office

Administration’s priorities for higher education:◦ Student success ◦ Guided Pathways: $150 million – to develop cohesive,

integrated pathways to help more students achieve their educational objectives

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Enrollment growth - $79.3 million◦ 1.34% growth in access

$94.1 million for COLA (1.48%) Increased Operating Expenses - $23.6 million Chancellor’s Office State Operations - $378k GF

increase and two Vice Chancellor positions◦ Improve student success, address equity disparities,

develop Guided Pathways program◦ Priorities of new chancellor

No student fee increase is proposed

Capital Outlay Program – Funding for five projects:◦ Pasadena City College – Armen Sarafain Building Seismic

Replacement◦ San Francisco CCD – Alemany Center Seismic Upgrade◦ San Francisco CCD – Ocean Campus Utility Replacement◦ North Orange CCD – Fullerton College – Business and

Humanities Buildings Modernization◦ El Camino CCD – Compton Center – Instructional Building 2

Replacement Worth $7.4 million in 2017-18 – preliminary plans only Fire/life safety projects and modernization projects Board of Governors approved 29 projects in May 2016

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This is the beginning of negotiations – community colleges are subject to the political budget process (vs. K-12)

The Governor’s proposal is generally consistent with his philosophy◦ Fiscal prudence and legacy◦ No changes proposed to CCC capital outlay program

mechanics The ball is now in the Legislature’s court Help us make the case that ALL projects should be

funded

State Capital Outlay Grants approved by Board of Governors annually in Capital Outlay Spending Plan◦ Subject to budget appropriation ◦ Priority funding categories:

A. Health and Safety – Highest Priority – up to 50% of available funds

B. Growth – Instructional Space – 50% remainingC. Modernize – Instructional Space – 25% remainingD. Complete Campus – 15% remainingE. Growth – Instructional Support – 5% remainingF. Modernize – Instructional Support – 5% remaining

Prioritize projects with “least cost to state”

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2017-18 CC Capital Outlay Spending Plan ◦ Approved by Board of Governors May 2016◦ $692 million state funds for 29 new start projects Total local contribution = $438 million

◦ Only one project per site for 2016-17 and 2017-18 Chancellor’s Office plan for Prop 51 allocation:◦ 2017-18: $692 million ◦ 2018-19: $750 million ◦ 2019-20: $558 million

2018-19 Spending Plan under development – will there be changes to the allocation methodology?

Projected need over five years = $28 billion

Proposition 39 Energy Efficiency Funding - $52.3million◦ Increase of $3 million over 2016-17 funding level

Deferred Maintenance & Instructional Equipment -$43.7 million◦ Can used for specified water projects◦ No district match required

Online Education Initiative - $10 million increase to provide system-wide access to new learning management system

Integrated Library System - $6 million increase for development of an integrated cloud-based library system

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CCFC will advocate to fund all 29 capital outlay projects◦ Uncertainty impacts local bond programs

New Chancellor, new vision Colleges are concerned to dip below historic Prop 98

funding level Use of one-time money has decreased, consistent with

Governor’s approach◦ Deferred Maintenance and Instructional Support

Colleges cautious given out-year concerns◦ STRS/PERS Employer contribution increases

Rebekah CearleyLegislative Advocate

Community College Facility [email protected]

(916) 446-3042






Strategic Program Management: Establishing a Smart Capital Planning Process

Bob Bradshaw

El Camino College

Fred Diamond

Citrus College

Fred Williams

North Orange County CCD

Lori O’Keefe

MAAS Companies




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Strategic Program Management

…for Results and Success

COMMUNITY COLLEGE FACILITY COALITIONCOAST COMMUNITY COLLEGE DISTRICT

Goals of the Seminar

With the success of Proposition 51 as well as several local general obligation bonds, building quality facilities for continued student success is a profound goal. This seminar will focus on best management practices for implementing and managing a successful bond program. Employing best practices will help assure successful projects and bring value to the total cost of ownership.

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Set the Tone for the Team

General Discussion• How many have passed Bonds? How many are planning to?

• How many are planning to leverage your bond funds with State funds?

• How many have their Master Plans in place? Are your bond programs intended to implement those plans?

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Implementing Your Bond Program

• Infrastructure

• Managing your program

• Creating an implementation plan

• Architectural/Engineering RFPs

• Board, Citizens Oversight, and Staff

Infrastructure• Contract with electrical, mechanical and civil engineers

o Evaluate your existing utilities to be sure they are adequate to service any additional new or remodeled facilities

• Hopefully these were done as part of the master plan/bond program planning and cost estimating.

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Managing Your Program• Determine how and with whom you are going to manage the program. o Will you bring managers in house as employees or special services consultants under contracts?

o Will you contract with a program management firm, and or a program management/construction management firm?

Create an Implementation Plan

• Set up budgets, with accounting, for the entire program and for each project.

• Provide a schedule for selling the bonds and the anticipated need for the funds to hire the architects, engineers, bid the projects, pay the contractors and pay for the testing and inspections and on‐site inspector.

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• Along with your management personnel, create a plan that identifies:oSwing space if necessaryoStudent accessoParkingoOngoing campus activities, like theatre, sports, rentals etc.

oWhich buildings or projects will go first. oWhere on campus they are located relative to time of year, semester breaks, college closures, holidays etc.


• Which projects are you hoping to leverage with State funds?oWhat are your chances of obtaining those State funds in the IPP/ FPP process.

o If approved will the project be ready access and how will that affect the coordination and timelines of other projects in the implementation plan?

• Create a schedule for the overall program and project by project.

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Architectural/Engineering RFPs

• Should be specific to the project

• Should have at least 5 years experience on similar projectsoDSA and contract administration

• Identify the scope of work and project

• Ask them to provide an estimate for the time lines including programming with staff, SDs, DDs, CDs and DSA approval and construction and fees.

• Share with the successful short listed firms to interview the implementation planoInterview no more than 8.

Board, Citizens Oversight, and Staff Info

• Keep them all informed

• Present implementation plan to:oSteering Committee

oBoardoCitizens Oversight Committee – when they convene for the first time

• There will be pressure to get things moving.oA thorough presentation will provide an understanding of the trials and tribulations of implementing a bond program

• Put the implementation plan on the webpage.

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MAAS and NOCCCD RFQ ProcessApril‐ RFQ released

May 1‐ Submitted completed RFQ

Late May‐ Selected as Firm to Move Forward in Process

May through October‐ Additional Interviews with various District Departments and Teams; Discussions regarding best structure and leveraging of resources

October‐ Finalized Organizational Structure, Responsibility Matrix and Contract

November‐MAAS begins work on Measure J

Lessons Learned‐ Contracting

‐ Enrollments

‐ Responsibilities

‐ Collaboration

‐ Messaging

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Maximizing District ResourcesLeveraging of MAAS Staff and Software PROMPT.ed◦ Customization of Reports

◦ Direct Automatic Pull of Data from Banner‐ Less Reliance on Staff Hours

◦ Prompt Data for Board Reports, CBOC Reports and Bond Website

◦ One Location to House all Program Documents

◦ Software comes with MAAS team without an additional cost

◦ NO DUPLICATION OF EFFORTS‐ Leveraging what is already standard practice at the District to accomplish what is needed for the Bond Program

◦ Utilizing Existing District Staff

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Challenges Establishing Clear Roles and Responsibilities of both MAAS and District overall and individual Staff Members

Creating an Environment and Developing Relationships that allow for effective Communication and Results‐ Bridging MAAS & District Staff

Overcoming experiences from previous bond program

Identifying Staff who are most qualified to preform under a new structure and who can forge the path successfully

Delivering overall compliance and management of a program when we do not oversee the project managers or district staff who are involved

Ensuring we meet/exceed the clients expectations under a new structure and approach

SuccessesHigh Level of Ownership, Direction and Input at both the District and College Level

Utilizing Experts in Each Area of the Program‐ Both MAAS and District Staff

A Customized Approach that Reflects the Culture and Vision of the District and Community

Leveraging Processes and Procedures that are already in place and Successful within the District

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Other Successful Program Structures DESERT CCD

Overall day‐to‐day Management of the Bond Program

MAAS staff includes a Program Manager, Project Managers and Finance Team

Number of Staff and Positions fluctuate based on current project needs

MAAS Program Manager oversees all Bond Staff

Direct report to President and VP of Admin. Services

On‐site since 2006 for Measure B and recently passed Measure CC

FOOTHILL/DE‐ANZA CCD

Joint Venture with Gilbane Building Co.

MAAS Financial Management & Gilbane Project/Construction Management

District Staff Serves as Overall Program Managers

District Staff highly involved in day‐to‐day Project and Finance Operations

MAAS and Gilbane report Directly to District Program Managers and District Accounting Staff

On‐site since 2006 for Measures E and C






Financing Your Bond Program

Ivory Li

Piper Jaffray & Co.

Chet Wang

Keygent LLC

David Casnocha

Stradling Yocca Carlson & Rauth




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Regional Workshop

Financing Your Bond Program

February 2017

Prop. 39 Bond Refresher

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Proposition 39 (2000), also known as “the School Facilities Local Vote Act of 2000,” wasapproved by the State of California voters on November 7, 2000

Reduced the threshold required to pass a local education bond from a 2/3 supermajorityvote to a 55% supermajority vote, as long as statutory district debt limit and actual &projected tax rates do not exceed:

– Debt limit: 2.50% of total assessed valuation (absent a waiver)

– Tax rate limit: $25 per $100,000 of assessed valuation per bond measure

Requires:

1. Specific project lists in bond resolution/voter handbook

2. Citizens’ Oversight Committee

3. Financial and performance audits

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Pre‐Prop 39. CCD Bond Statistics

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Election Date# of CCD Bonds On the Ballot

# of CCD Bonds Approved Total $ Approved

Jun‐1988 1 0 $ 0

Nov‐1991 1 0 0

Nov‐1992 2 1 50,000,000

Nov‐1996 2 1 8,000,000

Jun‐1997 1 1 50,000,000

Nov‐1997 2 1 23,000,000

Jun‐1998 3 1 85,000,000

Nov‐1998 2 2 169,000,000

Nov‐1999 4 1 248,000,000

Mar‐2000 2 0 0

Nov‐2000 5 2 242,500,000

Total 25 10 $875,500,000

Approval Percentage: 40.0% Average Bond Size: $87,550,000

Post‐Prop. 39 CCD Bond Statistics

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Election Date# of CCD Bonds On the Ballot

# of CCD Bonds Approved Total $ Approved

Apr‐2001 1 1 $ 1,245,000,000

Nov‐2001 4 4 705,110,000

Mar‐2002 14 13 2,314,947,814

Nov‐2002 16 15 3,224,230,000

May‐2003 1 1 980,000,000

Mar‐2004 12 10 2,286,800,000

Nov‐2004 11 11 1,467,714,000

Nov‐2005 4 3 745,700,000

Jun‐2006 8 4 1,347,300,000

Nov‐2006 9 6 2,003,500,000

Feb‐2008 3 2 940,000,000

Jun‐2008 2 2 89,000,000

Nov‐2008 10 10 5,440,100,000

Nov‐2010 4 3 697,000,000

Nov‐2011 1 0 0

Jun‐2012 1 1 350,000,000

Nov‐2012 8 7 2,354,655,000

Jun‐2014 1 1 450,000,000

Nov‐2014 11 9 2,129,500,000

Jun‐2016 6 5 2,780,000,000

Nov‐2016 14 12 7,394,246,000

Total 141 120 $38,944,802,814

Approval Percentage: 85.1% Average Bond Size: $324,540,023

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Overview of General Obligation Bonds

Since the passage of Prop. 39, General Obligation Bonds have become a common method ofdebt financing used by California K‐14 districts to fund their facility/technology needs

– 68 community college districts have been successful in passing at least one Prop. 39education bond

29 districts have passed 1 bond measure

30 districts have passed 2 bond measures

9 districts have passed 3 bond measures or more

– Generally the lowest borrowing cost of any debt financing vehicle available to districts

– Ad valorem taxes are levied on properties within the district to pay principal and interest(debt service) due on the bonds

– Bond proceeds can be used to finance:

Acquisition/construction/renovation of buildings

Furniture, fixtures & equipment

Small capital repairs

Technology

Refinancing of general fund‐backed/facility‐related debt

– Bonds are typically sold in increments (series) to meet district project/cash‐flow needs

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Bond Financing Team Members

Bond and Disclosure Counsel

– Prepares all legal documentation related to a bond election and bond financings, such us:

• Resolution calling bond election

• Reimbursement resolution

• Citizens’ Oversight Committee bylaws

• Issuance resolution

• Offering documents (preliminary and final official statements)

• Closing documents

– Delivers legal opinion that district bonds are valid and binding obligations and, if applicable, thatinterest on the bonds is exempt from federal and state income taxes

Financial Advisor

– Fiduciary to district

– Formulates and structures capital financing plan in accordance with district needs, assessed valueprojections and tax rate constraints

– Creates credit rating/enhancement strategy

– Reviews interest rates achieved during bond sale

Underwriter

– Works with Financial Advisor on the structuring and sequencing of bond financings based oninvestor feedback

– Markets and sell district bonds to investors

– Determines interest rates for district bonds based on market conditions and investor demand

– Purchases any unsold balances and takes on interest rate risk to lock interest rates for district

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4

Legal Considerations

Legal housekeeping activities

Enter election results into Board minutes

Establish Citizens’ Oversight Committee (COC); approve bylaws

Appoint members to COC

Approve debt policy

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Project‐related legal planning

Consider Reimbursement Resolution

Identify projects to be funded with bond because

a. Bond term vs useful life of project

b. IRS rules re spend‐down of proceeds

c. Meet facilities/equipment test

Quirky projects

a. Software, scheduled maintenance, landscaping, leases, solar, programs to serve disadvantagedbusinesses

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5


New laws

Investment of bond proceeds

Debt policy

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Bond Issuance Process

Establish working group contact list and financing schedule

Formulate financing parameters

− Issuance amount

− Timing of next issuance

− Financing term

− Tax‐exempt vs. taxable

Board approves issuance resolution and related financing documents

Obtain credit ratings

Distribute offering documents to investors

Structure/sell (price) bonds; lock interest rates

Close bond financing/deliver bond proceeds

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Bond Credit Ratings

Rank bond issuers based on their relative credit quality

Help investors assess the likelihood the bonds will be repaid

Play a key role in determining interest rates (borrowing cost) for the bonds

Three major credit rating agencies:

− Standard & Poor’s

− Moody’s Investors Service

− Fitch Ratings

Rating methodology:

− Economy/tax base (30%)

− Finances (30%)

− Management (20%)

− Pension/Debt (20%)

Non‐contingent fees charged when ratings are assigned; fee amounts determined bysecurity type and bond amount

Periodic surveillance to monitor district updates10

Credit Rating Scale

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Moody’s S&P Fitch Rating Description

Aaa AAA AAA Prime

Investment grade

Aa1 AA+ AA+

High gradeAa2 AA AA

Aa3 AA‐ AA‐

A1 A+ A+

Upper medium gradeA2 A A

A3 A‐ A‐

Baa1 BBB+ BBB+

Lower medium gradeBaa2 BBB BBB

Baa3 BBB‐ BBB‐

Ba1 BB+ BB+

Speculative

Non‐investment grade/ High‐yield bonds/

Junk bonds

Ba2 BB BB

Ba3 BB‐ BB‐

B1 B+ B+

Highly speculativeB2 B B

B3 B‐ B‐

Caa1 & below

CCC+ & below

CCC & below

Extremely speculative/ Default

California CCD Rating Range

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Recent Development in Credit Ratings

Fitch “AAA” Rating

− Enactment of SB 222 clarified that tax revenues levied to repay general obligation bonds would beconsidered “pledged special revenues” in the event of a district bankruptcy

− Fitch started to assign AAA ratings “based on a dedicated tax analysis as long as the district’s bondcounsel delivers a bankruptcy opinion”

− District finances and management are no longer critical in Fitch’s evaluation

− Additional fees

− Minimum impact on interest rates

− District would receive two ratings; one based on assessed value, the other on finances

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Structuring a Bond Program

Bond authorization amount

– Bond funds needed to complete all or a phase of district projects

Phasing and timing of individual bond issues

– Delivery of bond funds to match project cash flow schedules

District assessed valuation and projected growth

– Determines tax base and ability to issue bonds in the future

Desired tax rates

– Annual tax rate ≈ annual debt service ÷ current assessed valuation

– Prop. 39 legal maximum vs. Voter supported level

Municipal bond interest rates

– Market environment

– District credit ratings

– Other recent comparable sales

Length of bond financing

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District Assessed Valuation

Taxable base for determining amount of bonds that can be issued at a fixed tax rate

Recent and historical increases/declines are considerations in projecting future AV

Districts should be cautioned against simply using long‐term growth statistics as futuregrowth assumption

− Sample annualized average growth rates:• 1‐year: 7.07%• 5‐year: 5.03%• 10‐year: 4.20%• 20‐year: 6.76%• 30‐year: 7.09%

− Sample lowest rolling averages:• 3‐year: 0.61%• 5‐year: 1.83%• 10‐year: 4.20%• 15‐year: 6.22%• 20‐year: 6.40%

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1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Sample District Total Assessed Valuation

Interest Rates

Interest rates impact the amount of bonds than can be issued or the tax rate outcome

Lower interest rates result in larger amount of bonds for a given tax rate, or a lower taxrate for a given amount of bonds

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0%

2%

4%

6%

8%

10%

12%

14%

Bond Buyer General Obligation Bond Index (1)

(1) Index reflects average yield to maturity of a sample of 20 general obligation bonds with 20‐year maturities rated Aa2by Moody’s Investors Service and AA by Standard & Poor’s. Source: The Bond Buyer & Bloomberg

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Sample Bond Program (Base Case)

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Total Bond Authorization Amount $300,000,000

1st Issuance 2017 25‐Year Bond $75,000,000

2nd Issuance 2020 25‐Year Bond $75,000,000

3rd Issuance 2023 25‐Year Bond $75,000,000

4th Issuance 2026 22‐Year Bond $75,000,000

Total Length of Time to Access All Bond Authorization 9 Years

Total Length of Tax 31 Years

District Assessed Valuation $35.5 Billion

Assumed Future Assessed Valuation Growth (Per Year) 4.00%

Estimated Tax Rate (Per $100,000 of Assessed Valuation) $25.00

Assumed Municipal Interest Rate 5.00%

Sample Bond Program Illustration

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$0.00

$10.00

$20.00

$30.00

2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048

Allocation of Tax Rate

1st Issuance 2nd Issuance 3rd Issuance 4th Issuance Approved/Max. Tax Rate ($25)

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048

Projected Tax Revenue and Debt Service

1st Issuance 2nd Issuance 3rd Issuance 4th Issuance Projected Tax Revenue

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Impact of Changing Variables

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Base CaseAccessing

More $$ EarlierLower

AV Growth RateHigher

Interest Rate

1st Issuance 2017 $75,000,000 2017 $100,000,000 2017 $75,000,000 2017 $75,000,000

2nd Issuance 2020 $75,000,000 2020 $100,000,000 2020 $75,000,000 2020 $75,000,000

3rd Issuance 2023 $75,000,000 2025 $50,000,000 2026 $75,000,000 2025 $75,000,000

4th Issuance 2026 $75,000,000 2031 $50,000,000 2032 $75,000,000 2031 $75,000,000

$300,000,000 $300,000,000 $300,000,000 $300,000,000

Total Time to Access All Authorization

9 Years 14 Years 15 Years 14 Years

Assumed AV Growth (Per Year)

4.00% 4.00% 3.00% 4.00%

Assumed Interest Rate

5.00% 5.00% 5.00% 6.00%

Interim/Bridge Financing – BANs

Bond Anticipation Notes (“BANs”) are short‐term financings available to districts withvoter‐approved general obligation bonds

Short‐term debt for up to five years

− Must be repaid from issuance of bonds in five years or less

Allows districts to access project proceeds at short‐term interest rates

− Potential risk that long term interest rates may increase when bonds are issued to repay BANs

Issuance of BANs does not count against remaining bond authorization

− BANs are not included in bonding capacity calculation

Allows for the flexibility to monitor future AV growth

− BANs should not be utilized if ability to issue take‐out bonds is questionable, e.g. if significant AVgrowth would be required to issue future bonds

Must have available bond authorization to issue BANs

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Interim/Bridge Financing – Lease Financings

A Certificate of Participation (“COP”)/Lease Revenue Bond is a method of lease borrowingtypically used to construct/acquire real or personal property

Can be used as interim financing for a general obligation bond

The district enters into a lease and makes lease payments

Proceeds are used to construct/acquire real or personal property

− Cannot be used for operations/cash flow purposes

The district must collateralize an essential district property (e.g. a school site)

− Property title is transferred back to the district at the end of the lease

Borrowing costs are higher than GO bonds

Districts use general fund to repay COP/lease revenue bond

No voter approval required

Maximum term of useful life of project

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Questions?

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David Casnocha

Stradling Yocca Carlson & Rauth

(415) 283‐2241

[email protected]

Chet Wang

Keygent LLC

(310) 322‐4222

[email protected]

Ivory Li

Piper Jaffray & Company

(415) 616‐1614

[email protected]

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