Municipal Debt Advisory Commission

Transcription

1 Municipal Debt Advisory Commission 2006

2 Oregon Municipal Debt Advisory Commission 2006 Annual Report PUBLISHED MAY 2007

3 Members Patrick Clancy Western Financial Group, LLC Chair Public Member C. Lance Colley Oregon School Board Association Chief Operations Officer Oregon School Board Association Representative Randall Edwards State Treasurer Member by Position Edward Einowski Stoel Rives LLP Partner Public Member Debra Guzman Linda Haglund Janell Howard Michael Long Tualatin Valley Fire & Rescue Chief Financial Officer Special Districts Representative Deputy State Treasurer Treasurer s Designee City of Coos Bay Finance Director League of Oregon Cities Representative Klamath County Treasurer Association of Oregon Counties Representative

4 Table of Contents Introduction....1 Roles & Responsibilities Debt Instruments Interest Rates Debt Issued Debt Outstanding....6 Advance Refunding Issue Purpose....8 Bond Counsel Financial Advisors Lead Underwriters Underwriter s Counsel

5 Introduction MDAC The Oregon Municipal Debt Advisory Commission (MDAC) was established in 1975 to assist local governments in the cost-effective issuance, sale, and management of their debt. The Commission is composed of seven members, including the State Treasurer, three local government finance officers, one representative for the special districts, and two other public members. The Debt Management Division of the Oregon State Treasurer s Office is staff to the Commission. State law ORS requires the MDAC to prepare an annual report describing activities of the Commission in the preceding year. OREGON ADMINISTRATIVE RULES To ensure that information contained in the Office of the State Treasurer/MDAC Debt System is as accurate as possible, a verification of local government districts and their debt is accomplished at least once every two years. ORS states that: the finance officer of each local government unit authorized by law to issue bonds at least once every biennium, at dates established by the commission, shall verify with the commission the commission s information on the unit s bonded obligations. The information in the Debt System was updated and verified as of The next verification will occur in 2008 for data as of These district-by-district verifications are performed through the close collaboration of Debt Management staff and local government finance officials. The Department of Revenue also provides annual updates of Measure 5 real market values for preparing overlapping debt report information. Additional verifications are performed when bonds are called or when there are special circumstances that may require verification of outstanding debt. 1

6 Roles & Responsibilities State statue ORS empowers the Municipal Debt Advisory Commission to carry out the following functions: 1. Provide assistance and consultation, upon request of the state or of local government units, to assist them in the planning, preparation, marketing and sale of new bond issues to reduce the cost of the issuance to the issuer and to assist in protecting the issuer s credit. 2. Collect, maintain and provide financial, economic and social data on local government units pertinent to their ability to assume and service bonded obligations. 3. Collect, maintain and provide information on bonds sold and outstanding and serve as a clearinghouse for all local bond issues. 4. Maintain contact with municipal bond underwriters, credit rating agencies, investors and others to improve the market for local government bond issues. 5. Undertake Commission studies on methods to reduce the costs of state and local issues. 6. Recommend changes in state law and local practices to improve the sale and servicing of local bonds. 7. Perform any other function required or authorized by law. 8. Pursuant to ORS Chapter 183, adopt rules necessary to carry out its duties. The MDAC strives to improve existing services and to initiate new programs aimed at lowering borrowing costs and improving debt management practices for local governments, particularly in the area of capital planning and debt administration. Staff publishes a schedule of upcoming municipal bond sales known as the Oregon Bond Calendar. The Bond Calendar lists state and local sales, enabling state agencies and local municipalities to minimize scheduling conflicts which may impact the marketability of their issues. The Bond Calendar also contains information regarding bond elections, and the Oregon Bond Index which charts Oregon municipal bond interest rates. The Bond Calendar is updated daily and is available online at: In 2004, the MDAC developed a number of technical legislative amendments to clarify existing state laws related to bonds to facilitate the improved issuance and sale of debt in Oregon. Of particular importance were clarifications of state law with regard to the definition of bonds, the calculation of local government debt limits, and the use of interest rate exchange agreements. These amendments were introduced and approved by the 2005 legislature. On behalf of the MDAC, the Debt Management Division periodically publishes the Oregon Bond Manual. The Manual is a handbook for Oregon local governments explaining issuing and managing debt. In addition, MDAC staff monitors local and national bond markets and economic trends, advise agencies of market developments, and make municipal bond policy and legislative recommendations to the State Treasurer. The Oregon State Treasurer/MDAC staff maintains a database on debt issuance and debt outstanding for all Oregon municipal bond issuers. 2

7 Debt Instruments An example of an Appropriation Credit is a Certificate of Participation. Payments on these type obligations that are subject to appropriation. It is not considered a default if an appropriation payment is not made. These obligations were more common before counties obtained the ability to issue "limited tax bonded indebtedness" or Full Faith & Credit Obligations. Conduit Revenue Bonds are "pass through" obligations of private parties that are secured solely by commitments of private entities. Examples: hospital facility authority revenue bonds, city conduit revenue bonds for nonprofit educational facilities. Dedicated Niche Tax Obligations are obligations that are secured solely by taxes other than property taxes that provide permanent (long term) financing. Examples: Tri-Met's payroll tax revenue bonds, urban renewal agency tax increment bonds, and city and county gas tax revenue bonds. Full Faith & Credit Obligations -Non-Self Supporting (FF&C (N)) are obligations that: (i) are secured by the issuer's full faith and credit or general fund; (ii) are not secured by any power to impose additional taxes outside constitutional limits; (iii) have no dedicated, sufficient source of payment; (iv) provide permanent (long term) financing; and (v) are legally binding obligations, rather than being "subject to appropriation." Examples: county full faith and credit obligations, some certificates of participation, or "limited tax revenue bonds." Full Faith & Credit Obligations -Self Supporting (FF&C(S)) are obligations that: (i) are secured by the issuer's full faith and credit or general fund; (ii) are not secured by any power to impose additional taxes outside constitutional limits; (iii) are expected to be 100% paid from sources other than property taxes; (iv) provide permanent (long term) financing; and (v) are legally binding obligations, rather than being "subject to appropriation.". Example: The City of Portland's limited tax revenue bonds that financed PGE park, paid from hotel/motel taxes. This category may include obligations historically referred to as: Limited Tax Revenue, or Full Faith and Credit Obligations. General Obligation -Non-Self Supporting (GO(N)) is any obligation that: (i) provides permanent (long term) financing, (ii) is secured by the power to levy unlimited, property taxes, and (iii) is expected to be paid from those property tax levies. Example: school district general obligation bonds. General Obligation -Self Supporting (GO(S)) is any obligation that: (i) provides permanent (long term) financing, (ii) is secured by the power to levy unlimited, property taxes, but (iii) is expected to be paid 100% from revenues other than property taxes. Example: city general obligation sewer bonds. Other is a financial obligation type that does not fit in any of the other categories currently tracked by the MDAC and is not expected to be used often. Revenue obligations that are secured and paid for solely by a stream of identified revenues (other than property tax or specific tax revenues) and provides permanent financing. Examples: sewer and water revenue bonds. Short Term Borrowings normally mature in less than 13 months from date of issue. Examples: TANs, RANs, TRANs and other short term borrowings in anticipation of revenues or long term take-out financing. 3

8 Interest Rates In early 2006, long term rates rose, but dropped back to lower than earlier levels by the end of the year. In 2005, rates fluctuated by 53 basis points, while in 2006 rates fluctuated 68 basis points Start End High Low Avg Bond Buyer 20-Bond Index 4.35% 4.38% 4.71% 4.03% 4.40% Oregon Bond Index A-rated % 4.22% 4.76% 4.16% 4.44% History of Bond Buyer 20-Bond Index The Bond Buyer 20-GO Index represents an average interest rate on 20-year maturities of General Obligation bonds of 20 state and municipal issuers with ratings ranging from Aaa to Baa (average rating is approximately single A ). 2 The OBI 20 yr. represents an average rate on 20-year maturities of Oregon municipal general obligation bonds rated A, as reported to the Debt Management Division of the Office of the State Treasurer by six regional/northwest traders of Oregon bonds. 4

9 Debt Issued ($M) $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 Local Government Debt Issued TRANSIT HOSPITAL FACILITIES SCHOOLS In 2006, the significant drop in issuance may have been due to the reduction in advance refundings caused by a combination of higher interest rates and many refundable issues already being refunded. Cities were the leading issuer of new obligations, with over $545 million sold. Schools were second with over $342 million in new issues, and third was hospital facility authorities which totaled nearly $282 million. $1,000 $500 $ * CITY ALL OTHERS CITY $545,674,241 29% As of * Includes $710 million Pension Obligation bonds issued by various entities grouped as Others, and does not include Cities, Schools, Hospitals, and Community Colleges. SCHOOLS $342,269,394 18% The largest category of local government debt issued in 2006 was revenue bonds with over $972 million; general obligation (non self-supporting) bonds were next at just over $407 million issued. (See page 3 for a description of the bond types). Local Debt Issued in 2006 Revenue Bonds $ 972,591,000 General Obligation (N) 407,013,004 Conduit Revenue Bonds 288,017,600 Full Faith & Credit Obligations (S) 152,953,241 Full Faith & Credit Obligations (N) 51,526,390 Appropriation Credits 4,375,000 Dedicated Niche Tax Obligations 2,470,000 Other 2,205,000 TOTAL $1,881,151,235 ALL OTHERS $481,360,000 26% TRANSIT $230,000,000 12% HOS PITAL FACILITIES $281,847,600 15% The local government debt of three Oregon counties account for over 45% of all local debt issued in Issuers in Multnomah County led with $916 billion for 30% of the total. Issuers in Washington and Marion Counties sold the next most debt by par amount equaling 9% and 6%, respectively. 5

10 Debt Outstanding ALL O THERS $4,811,322,767 27% Billions $18 $16 $14 $12 $10 $8 $6 $4 $2 $- SCHOOL $5,703,713,012 32% CO UNTY $1,158,539,972 6% HOSPITAL FAC ILITIES $1,936,811,647 11% Volume Outstanding CITY $4,289,178,897 24% As of December 31, 2006, school districts and cities combined are responsible for over $9.6 billion of the total $17.9 billion in all outstanding local government debt and appropriation credits in Oregon. The largest category of outstanding debt as of was revenue bonds with over $5.6 billion outstanding, closely followed by Full Faith & Credit Obligations (self-supporting) with $5.2 billion outstanding. Outstanding Local Debt (as of 12/31/06) Revenue Bonds $ 5,546,933,481 Full Faith & Credit Obligations (S) 5,191,370,627 General Obligation (N) 4,305,454,266 Conduit Revenue Bonds 1,936,811,647 Dedicated Niche Tax Obligations 473,742,977 General Obligation (S) 201,301,143 Appropriation Credits 121,481,659 Full Faith & Credit Obligations (N) 120,265,495 Other 2,205,000 TOTAL $17,899,566,295 Growth in local outstanding debt has averaged 8% per year since This is mainly due to continued population growth in Oregon which necessitates investments in statewide infrastructure improvements, along with capital investments in schools and cities. 6

11 Advance Refunding Generally, advance refundings are executed to realize debt service savings when new bonds are sold at interest rates significantly below those of the original issue. An advance refunding may also be undertaken to effect a permanent reorganization of debt or to remove restrictive covenants. The Office of the Oregon State Treasurer is responsible for assessing the merits of proposed advance refunding issues and authorizing those having a significant beneficial impact. Refundings that result in clear public benefit and meet the requirements of OAR receive approval. ($M) 1,800 1,600 1,400 1,200 1, Local Government Refunding Par Amount Current Advance As the table below shows, advanced refundings dropped off sharply in the first half of 2006 due to the upturn in long-term interest rates. The table below illustrates the number of local government advanced refundings reviewed, approved and sold for the past 5 years. Local Government Advance Refundings Year Number Issued *Net PV Interest Sold (millions) Savings (millions) $ 308 $ , $ 215 $ 6.7 *Def: The value of future interest costs saved in today's money. PV Savings ($M) Net Present Value Savings of Advance Refundings Calendar Year Number Sold Savings Number Sold 7

12 Issue Purpose TOP ISSUERS BY PURPOSE IN 2006 Transportation Tri-Met $230,000,000 Education Hillsboro SD $156,955,000 Utilities City of Portland $177,845,000 Health Care HFA City of Salem $120,000,000 Public Facilities Washington County $ 49,475,000 General Purpose City of Eugene $ 24,990,000 Environmental Western Generation $ 23,390,000 Electric Power City of Portland $ 21,370,000 Development Clatsop Comm. College $ 7,500,000 In 2006, transportation was the largest purpose category of new local debt, with over $836 million issued in 7 series. The next category was utilities at over $423 Million, led by City of Portland s issuance for sewer system improvements. Pension obligations, sold to help fund retirement liabilities, continues to be the largest category of local debt outstanding, with capital construction for improvements to educational facilities close behind. $ Bond Par in Millions Par Amount & Number of Issues Sold in 2006 Education Par Amount Electric Power Environmental General Purpose Health Care Housing Number of Issues Public Facilities Transportation Utilities Number Sold OUTSTANDING BY PURPOSE (AS OF 12/31/06) Pension $ 4,079,739,041 Education 3,893,753,583 Health Care 2,529,123,314 Utilities 2,449,578,862 Public Facilities 1,335,624,033 Transportation 1,235,596,396 Electric Power 727,791,403 Development 611,134,602 Housing 456,495,072 General Purpose 383,367,947 Environmental 195,692,042 Cash Flow 1,670,000 TOTAL $17,899,566,295 8

13 Bond Counsel Oregon Volume 2006 (State & Local) K&L Gates 48.1% Bond Counsel firms are hired by local governments to advise them regarding the legal and tax aspects of a bond sale. Their work includes writing the legal opinion for the bond issue that describes its federal and state tax consequences and opinions that the bonds were legally authorized and issued. The table below summarizes Oregon municipal long-term financial obligation sales by volume for various Bond Counsel firms in Stoel Rives LLP 6.3% Others 0.9% Mersereau & Shannon LLP 6.0% Hawkins, Delafield & Wood 9.1% Orrick, Herrington & Sutcliffe 19.5% Number of New Issues by the Top 3 (in volume) Local Government Bond Counsels in 2006 Issuer Category K&L Gates Orrick Stoel Cities Comm. Colleges Counties Fire Districts Health / Hospitals Parks Ports Public Utility Schools / ESDs Special Districts Urban Renewal TOTAL Bond Counsel for Local Government by Volume, Volume No Volume No Volume No Volume No. Preston Gates & Ellis, LLP 3,081,323, Preston Gates & Ellis, LLP 1,870,255, Preston Gates & Ellis, LLP 2,635,505, K&L Gates 1,125,804, Orrick, Herrington & Sutcliffe 423,425, Orrick, Herrington & Sutcliffe 518,787, Orrick, Herrington & Sutcliffe 615,460, Orrick, Herrington & Sutcliffe 390,192, Mersereau & Shannon LLP 156,127, Mersereau & Shannon LLP 115,506, Mersereau & Shannon LLP 303,645, Stoel Rives LLP 174,406,711 3 Foley & Lardner 40,865,000 1 Gottlieb, Fisher & Andrews 100,000,000 1 Foster Pepper & Shefelman 44,130,000 3 Mersereau & Shannon LLP 101,956,010 9 Stoel Rives LLP 20,305,000 3 Stoel Rives LLP 96,120,000 4 Hawkins, Delafield & Wood 26,640,000 1 Hawkins, Delafield & Wood 55,565,000 3 Ater Wynne, LLP 10,158,183 7 Foley & Lardner 59,020,000 1 Nixon Peabody 23,115,000 2 Nixon Peabody 12,850,000 1 Municipal Finance Consulting 2,500,000 1 Foster Pepper & Shefelman 23,052,000 4 Stoel Rives LLP 9,105,000 2 Miller Nash LLP 7,500,000 1 Davis Wright Tremaine 3,375,959 4 Davis Wright Tremaine 4,020,000 3 Davis Wright Tremaine 2,626,549 4 Foster Pepper & Shefelman 6,170,000 1 Others 2,797,678 2 Privately Placed 1,156,300 3 Others 1,960,700 2 Privately Placed 4,346,

14 Financial Advisors ($M) The Financial Advisor (FA) is a consultant who advises an issuer on matters pertinent to the security, structure, timing, marketing, fairness of pricing, terms, and ratings on a bond issue. FAs may also serve as agent for the issuer during the pricing of negotiated bonds. In 2006, many local issuers chose not to use a Financial Advisor. For example, the City of Portland sold 4 of their 6 issues in 2006 without the use of an outside contracted financial advisor. Volume FA Used vs. Not Used on Local Debt Issuances 4,000 3,500 3,000 2,500 2,000 1,500 1, No FA FA 2006 Local Debt Issues by Sale Type Competitive Negotiated Private Placement Issuer Category FA Used FA Used No FA FA Used Total Cities Comm. Colleges Counties Fire Districts Health / Hospitals Housing Parks Ports Public Utilities Schools / ESDs Special Districts Urban Renewal TOTAL Financial Advisors for Local Governments by volume, Volume No Volume No Volume No Volume No. Regional Financial Advisors 1,559,256, Regional Financial Advisors 1,203,171, None 1,580,801, None 861,570, Western Financial Group 1,169,369, None 666,179, Regional Financial Advisors 649,524, Regional Financial Advisors 264,192, None 739,240, Charles Carter Company 513,637, Charles Carter Company 530,367, Public Financial Management 230,000,000 1 Charles Carter Company 145,482,242 9 Western Financial Group 317,542, Western Financial Group 298,275, Charles Carter Company 158,766,293 8 Seattle Northwest Securities 67,065,000 4 Kaufman Hall & Associates 27,220,000 1 Ponder & Company 170,000,000 2 Bond Logistix LLC 158,025,000 2 Privately Placed 27,463, Privately Placed 16,987, Harden Financial Services 124,115,000 2 Western Financial Group 73,125, Lee A. McCormick 15,000,000 1 A. Dashen & Associates 16,960,000 3 Wells Fargo Bank 79,320,000 1 J.P. Morgan Securities, Inc. 55,565,000 3 Municipal Finance Consulting 13,170,000 4 CSG Advisors 14,000,000 1 Privately Placed 62,939, Tom Lundberg 38,960,000 1 RBC Capital Markets 4,830,000 2 Others 12,220,000 4 Others 166,847, Others 38,586,

15 Lead Underwriters Local Government Issues Top 5 Underwriters by Volume State Agency Issues 1 The Lead Underwriter s (UW) role is to purchase securities from the issuer for resale to investors. The table below summarizes Oregon municipal long-term financial obligation 2006 sales by Lead Underwriter (sole credit to Lead Underwriters). Bear, Stearns & Co. $71,630,000 Banc of America Securities LLC $152,451,519 UBS Financial Services $183,995,000 Seattle Northwest Securities Corp. $456,254,394 Merrill Lynch $719,010,000 Citigroup Global Markets $177,975,000 Banc of America $97,005,000 Bear, Stearns & Co., Inc. $541,810,000 UBS Financial Services $86,295,000 Morgan Stanley $50,135,000 In 2006, there were 67 negotiated sales, 11 competitive sales, and 10 privately placed transactions for local governments. Local Government Underwriters by Sale Type in 2006 Private Rank by Volume Neg Comp Placement 1. Merrill Lynch Seattle NW Securities UBS Financial Services Banc of America Bear, Stearns, & Co All Others TOTAL Lead Underwriters for Local Government by Volume, Volume No Volume No Volume No Volume No. Seattle Northwest Sec 1,370,977, Seattle Northwest Sec 1,382,817, Seattle Northwest Sec 2,202,510, Merrill Lynch 719,010,000 9 Wells Fargo Bank, NA 898,922,959 5 Banc of America Sec 489,691, Banc of America Sec 259,814, Seattle Northwest Securities 456,254, Citigroup Global Markets 319,285,000 7 UBS Financial Services 330,635,000 8 Merrill Lynch 207,780,000 4 UBS Financial Services 183,995,000 4 Merrill Lynch 241,975,000 5 Merrill Lynch 293,400,000 3 First Albany 144,850,000 1 Banc of America 152,451, Salomon Smith Barney 174,770,000 2 Goldman Sachs & Co 85,590,000 2 Morgan Stanley 139,115,000 3 Bear, Stearns & Co., Inc. 71,630,000 1 Morgan Stanley 119,995,000 1 RBC Capital Markets 58,499, UBS Financial Services 116,976,000 4 Ziegler Securities 39,765,000 4 Banc of America Sec 99,475,000 7 Piper Jaffray, Inc. 35,690,000 2 JP Morgan Chase 92,115,000 2 A.G. Edwards & Sons, Inc. 38,960,000 1 Bank of America 78,071, Citigroup Global Markets 33,105,000 4 Bear, Stearns & Co., Inc. 79,320,000 1 Wells Fargo Bank, NA 37,390,000 2 UBS Financial Services 76,160,000 4 Cain Brothers & Company 28,660,000 1 RBC Capital Markets 58,570, Cain Brothers & Company 35,000,000 2 Other 304,678, Other 35,864, Other 305,808, Other 144,335, Excludes Housing Draw Down Bonds 11

16 Underwriter s Counsel An Underwriter s Counsel is an attorney or firm who is selected by, and represents, Underwriters in a negotiated bond sale. Their primary role is to assure adequate disclosure and to assist in the underwriter s due diligence process. While many of Oregon s Local Government bond sales do not list an Underwriter s Counsel, usage in 2006 appears to have increased. For example, in 2005, 55% of issuers used Underwriter s Counsel; in 2006, this usage grew to 63%. (%) Underwriter s Counsel Usage in Oregon Did Not Use Used Use of Underwriter s Counsel for Oregon (State & Local) Underwriters Counsel % Equal to Par Amount Mkt. Number of Each Manager (Proportionate) (US$ mil) Share Issues Orrick Herrington & Sutcliffe LLP K&L Gates LLP Foster Pepper PLLC Kutak Rock LLP Sidley Austin LLP Peck Shaffer & Williams LLP Stoel Rives LLP Jones Day Dorsey & Whitney LLP Gottlieb Fisher & Andrews PLLC Calfee Halter & Griswold LLP Subtotal with Underwriters Counsel 1, Subtotal without Underwriters Counsel 1, Total 2, Source: Thompson Financial,

17 The Debt Management Division (DMD) of the Oregon State Treasurer s Office serves as staff to the Municipal Debt Advisory Commission. The DMD implements policies and administrative rules promulgated by the Commission. The DMD staff consists of: Laura Lockwood-McCall Director Larry Groth Assistant Director Lee Anaya Debt Program Analyst Alice Bibler Debt Program Analyst Martha Kellams Debt Program Coordinator Julie Andersen Administrative Assistant In accordance with the Americans with Disabilities Act, this material is available in alternate format and media upon request. For more information: Phone: (503) TTY: (503) or write: Oregon Office of the State Treasurer Human Resource Manager 350 Winter Street NE, Suite 100 Salem, OR The Office of the State Treasurer (OST) makes all efforts to ensure the accuracy of the data, but it has not been audited and should be read with caution. OST assumes no liability for any inaccuracies. We cannot guarantee full compliance with state reporting requirements, so debt issue listings may not be exhaustive. Reported issue costs may not be final figures. 13