Local Government Finance
123
Local Government Finance Realistic Solutions for your Community
description
Local Government Finance. Realistic Solutions for your Community. Money, money, money. Financing Options. Financing Options. General Obligation Bonds. Financing Options. General Obligation Bonds Revenue Bonds. Financing Options. General Obligation Bonds Revenue Bonds - PowerPoint PPT Presentation
Transcript of Local Government Finance
Local Government FinanceRealistic Solutions for your Community
Financing Options
Financing Options• General Obligation Bonds
Financing Options• General Obligation Bonds• Revenue Bonds
Financing Options• General Obligation Bonds• Revenue Bonds• Full Faith and Credit Obligations
Financing Options• General Obligation Bonds• Revenue Bonds• Full Faith and Credit Obligations• Tax Anticipation Notes
Financing Options• General Obligation Bonds• Revenue Bonds• Full Faith and Credit Obligations• Tax Anticipation Notes• Lines of Credit
Financing Options• General Obligation Bonds• Revenue Bonds• Full Faith and Credit Obligations• Tax Anticipation Notes• Lines of Credit• Pension Obligation Bonds
Financing Options• General Obligation Bonds• Revenue Bonds• Full Faith and Credit Obligations• Tax Anticipation Notes• Lines of Credit• Pension Obligation Bonds• Local Improvement District Bonds
Financing Options• General Obligation Bonds• Revenue Bonds• Full Faith and Credit Obligations• Tax Anticipation Notes• Lines of Credit• Pension Obligation Bonds• Local Improvement District Bonds• Urban Renewal Bonds
Now Let’s Play…..
Now Let’s Play…..
What
Now Let’s Play…..
What should
Now Let’s Play…..
What should
you
Now Let’s Play…..
What should
you issue?
Case Study One
Case Study One• City of 9,000 people needs to rebuild its police station.
Case Study One• City of 9,000 people needs to rebuild its police station.
• Cost is estimated to be $4,000,000.
Case Study One• City of 9,000 people needs to rebuild its police station.
• Cost is estimated to be $4,000,000. • Debt Service to be $300,000/year.
Case Study One• City of 9,000 people needs to rebuild its police station.
• Cost is estimated to be $4,000,000. • Debt Service to be $300,000/year.
Would you issue….
Case Study One• City of 9,000 people needs to rebuild its police station.
• Cost is estimated to be $4,000,000. • Debt Service to be $300,000/year.
Would you issue….A. General Obligation Bond
Case Study One• City of 9,000 people needs to rebuild its police station.
• Cost is estimated to be $4,000,000. • Debt Service to be $300,000/year.
Would you issue….A. General Obligation BondB. Full Faith and Credit Obligation
Case Study One• City of 9,000 people needs to rebuild its police station.
• Cost is estimated to be $4,000,000. • Debt Service to be $300,000/year.
Would you issue….A. General Obligation BondB. Full Faith and Credit ObligationC. Urban Renewal Bond
Case Study One• City of 9,000 people needs to rebuild its police station.
• Cost is estimated to be $4,000,000. • Debt Service to be $300,000/year.
Would you issue….A. General Obligation BondB. Full Faith and Credit ObligationC. Urban Renewal BondD. Revenue Bond
Case Study One• City of 9,000 people needs to rebuild its police station.
• Cost is estimated to be $4,000,000. • Debt Service to be $300,000/year.
Would you issue….A. General Obligation BondB. Full Faith and Credit ObligationC. Urban Renewal BondD. Revenue Bond
If you said….
If you said….• General Obligation Bond
If you said….• General Obligation Bond• You are right!
If you said….• General Obligation Bond• You are right!• Least expensive financing available
If you said….• General Obligation Bond• You are right!• Least expensive financing available• New property tax levy generates new revenue to pay back
the loan
If you said….• General Obligation Bond• You are right!• Least expensive financing available• New property tax levy generates new revenue to pay back
the loan• Unless…..
If you said….• General Obligation Bond• You are right!• Least expensive financing available• New property tax levy generates new revenue to pay back
the loan• Unless…..• You can’t get voter approval
What about…
What about…• Full Faith and Credit Obligation
What about…• Full Faith and Credit Obligation• You are right!
What about…• Full Faith and Credit Obligation• You are right!• Voter approval not needed
What about…• Full Faith and Credit Obligation• You are right!• Voter approval not needed• Flexibility of timing and expenditure
What about…• Full Faith and Credit Obligation• You are right!• Voter approval not needed• Flexibility of timing and expenditure
• Unless….
What about…• Full Faith and Credit Obligation• You are right!• Voter approval not needed• Flexibility of timing and expenditure
• Unless….• Current tax revenues cannot support the annual debt
service without deep service cuts
Okay then, how about….
Okay then, how about….• Urban Renewal Bond
Okay then, how about….• Urban Renewal Bond• You are right!
Okay then, how about….• Urban Renewal Bond• You are right!• Debt service to be paid by the tax increment revenues
Okay then, how about….• Urban Renewal Bond• You are right!• Debt service to be paid by the tax increment revenues
• Unless…
Okay then, how about….• Urban Renewal Bond• You are right!• Debt service to be paid by the tax increment revenues
• Unless• Building police station with urban renewal dollars is not
politically feasible
Okay then, how about….• Urban Renewal Bond• You are right!• Debt service to be paid by the tax increment revenues
• Unless• Building police station with urban renewal dollars is not
politically feasible• Tax increment revenues aren’t sufficient to support debt
service
Fine, then it must be…
Fine, then it must be…• Revenue Bond
Fine, then it must be…• Revenue Bond• Wrong!
Fine, then it must be…• Revenue Bond• Wrong!
Fine, then it must be…• Revenue Bond• Wrong!• Unless…..
Fine, then it must be…• Revenue Bond• Wrong!• Unless…• Your police force issues enough speeding tickets to support
the debt service
Case Study One Recap
Case Study One Recap• Several options for financing for any given project
Case Study One Recap• Several options for financing for any given project• Best option is contingent on local factors
Case Study One Recap• Several options for financing for any given project• Best option is contingent on local factors• Politics is the constraint
Case Study Two
Case Study Two• Rural city is switching from septic tanks to sewer system which will cost $5 million. How should it finance the cost?
Case Study Two• Rural city is switching from septic tanks to sewer system which will cost $5 million. How should it finance the cost?
Would you issue…
Case Study Two• Rural city is switching from septic tanks to sewer system which will cost $5 million. How should it finance the cost?
Would you issue…A.General Obligation Bond
Case Study Two• Rural city is switching from septic tanks to sewer system which will cost $5 million. How should it finance the cost?
Would you issue…A.General Obligation BondB.Full Faith and Credit Obligation
Case Study Two• Rural city is switching from septic tanks to sewer system which will cost $5 million. How should it finance the cost?
Would you issue…A.General Obligation BondB.Full Faith and Credit ObligationC.Sewer Revenue Utility Bond
Case Study Two• Rural city is switching from septic tanks to sewer system which will cost $5 million. How should it finance the cost?
Would you issue…A.General Obligation BondB.Full Faith and Credit ObligationC.Sewer Revenue Utility BondD.All of the above
Case Study Two• Rural city is switching from septic tanks to sewer system which will cost $5 million. How should it finance the cost?
Would you issue…A.General Obligation BondB.Full Faith and Credit ObligationC.Sewer Revenue Utility BondD.All of the above
If you said….
If you said….• GO Bond
If you said….• GO Bond• You are right!
If you said….• GO Bond• You are right!• Least expensive financing available
If you said….• GO Bond• You are right!• Least expensive financing available• New property tax levy generates new revenue to pay back
the loan
If you said….• GO Bond• You are right!• Least expensive financing available• New property tax levy generates new revenue to pay back
the loan• Unless…
If you said….• GO Bond• You are right!• Least expensive financing available• New property tax levy generates new revenue to pay back
the loan• Unless…• Voters don’t approve and this might be tough as all
property owners will pay for the project even those that won’t have sewer hookups
What about…
What about…• Sewer System Revenue Bonds
What about…• Sewer System Revenue Bonds• You are right!
What about…• Sewer System Revenue Bonds• You are right!• Cost of system will be paid by users of new system
What about…• Sewer System Revenue Bonds• You are right!• Cost of system will be paid by users of new system
• Unless…
What about…• Sewer System Revenue Bonds• You are right!• Cost of system will be paid by users of new system
• Unless…• Remonstrance – petition to refer approval to voters
What about…• Sewer System Revenue Bonds• You are right!• Cost of system will be paid by users of new system
• Unless…• Remonstrance – petition to refer approval to voters• No sewer system yet so no sewer system revenues
Okay then, how about….
Okay then, how about….• Full Faith and Credit Obligation
Okay then, how about….• Full Faith and Credit Obligation• You are right!
Okay then, how about….• Full Faith and Credit Obligation• You are right!• Voter approval not needed
Okay then, how about….• Full Faith and Credit Obligation• You are right!• Voter approval not needed• Flexibility of timing and expenditure
Okay then, how about….• Full Faith and Credit Obligation• You are right!• Voter approval not needed• Flexibility of timing and expenditure
• Unless…
Okay then, how about….• Full Faith and Credit Obligation• You are right!• Voter approval not needed• Flexibility of timing and expenditure
• Unless…• Existing revenues cannot support payments until sewer
system revenues materialize
Fine, then it must be….
Fine, then it must be….• All of the above
Fine, then it must be….• All of the above• You are right!
Fine, then it must be….• All of the above• You are right!• Hybrid Security
Fine, then it must be….• All of the above• You are right!• Hybrid Security• City can propose passing a general obligation bond and
only levy property taxes to the extent that sewer or other revenues are insufficient for debt service
Fine, then it must be….• All of the above• You are right!• Hybrid Security• City can propose passing a general obligation bond and
only levy property taxes to the extent that sewer or other revenues are insufficient for debt service
• Unless….
Case Study Two Recap
Case Study Two Recap
• Several options
Case Study Two Recap
• Several options• Again the politics can determine the best option
Case Study Two Recap
• Several options• Again the politics can determine the best option• Combining securities can be your best option
Case Study ThreeType $
AmountInterest Rate
Issue Date
Final Maturity
Case Study ThreeType $
AmountInterest Rate
Issue Date
Final Maturity
OEDD Infrastructure Loan
$2,200,000
4.99% 7/1/2007 7/1/2027
Case Study ThreeType $
AmountInterest Rate
Issue Date
Final Maturity
OEDD Infrastructure Loan
$2,200,000
4.99% 7/1/2007 7/1/2027
DEQ Water Loan
455,000 1% 8/1/2010 8/1/2030
Case Study ThreeType $
AmountInterest Rate
Issue Date
Final Maturity
OEDD Infrastructure Loan
$2,200,000
4.99% 7/1/2007 7/1/2027
DEQ Water Loan
455,000 1% 8/1/2010 8/1/2030
Sewer Revenue Bond
835,000 4.5% 12/1/2001 12/1/2021
Case Study ThreeType $
AmountInterest Rate
Issue Date
Final Maturity
OEDD Infrastructure Loan
$2,200,000
4.99% 7/1/2007 7/1/2027
DEQ Water Loan
455,000 1% 8/1/2010 8/1/2030
Sewer Revenue Bond
835,000 4.5% 12/1/2001 12/1/2021
General Obligation Bond
$1,450,000
3.8% - 4.2%
6/1/1995 6/1/2015
Current Market Rates
1 3 5 7 10 12 15 20 25 300%
1%
2%
3%
4%
5%
0.18%0.65%
1.32%
1.88%2.54%
2.86%3.30%
3.75%4.03%
4.11%
Years to Maturity
What can you refinance?
What can you refinance?A. OEDD Loan
What can you refinance?A. OEDD LoanB. DEQ Loan
What can you refinance?A. OEDD LoanB. DEQ LoanC. Sewer Revenue Bond
What can you refinance?A. OEDD LoanB. DEQ LoanC. Sewer Revenue BondD. GO Bond
What can you refinance?A. OEDD LoanB. DEQ LoanC. Sewer Revenue BondD. GO BondE. All of the above
What can you refinance?A. OEDD LoanB. DEQ LoanC. Sewer Revenue BondD. GO BondE. All of the above
Case Study Three Recap
Case Study Three Recap• Interest rate, credit type, final maturity, par amount all factor in to a refinancing analysis
Case Study Three Recap• Interest rate, credit type, final maturity, par amount all factor in to a refinancing analysis• Some issues can be combined into a single refunding issue
Case Study Three Recap• Interest rate, credit type, final maturity, par amount all factor in to a refinancing analysis• Some issues can be combined into a single refunding issue• Be prepared to take advantage of low interest rates
Know your Debt
Know your Debt• Download worksheet
Know your Debt• Download worksheet• Use your audited financial statements
Know your Debt• Download worksheet• Use your audited financial statements• Use your Official Statements
We are here to help!Questions? Want more information? Get in touch:
D.A. Davidson & [email protected]: (503) 863-5094Mobile: (503) 858-5891
http://www.davidsoncompanies.com/ficm
Take it to the Limit• https://www.youtube.com/watch?v=ItlY6oIfRVg
Dirty Water/Black Water• https://www.youtube.com/watch?v=5apEctKwiD8• https://www.youtube.com/watch?v=yDDkUE8GjZI
If you build it, he will come• https://www.youtube.com/watch?v=5Ay5GqJwHF8
Money For Nothing• https://www.youtube.com/watch?v=D2CfvVUE22E
Faith• https://www.youtube.com/watch?v=lu3VTngm1F0
