Cory Plager Director, School Financial Services NEWESD Spokane

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1 Presented by Cory Plager Director, School Financial Services NEWESD Spokane cplager@esd101.net 2016 BMC - Suquamish, WA

2 Overview of Bonds & Other Funding Options Planning Conducting a Bond Sale Responsibilities After the Sale 2

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4 Voter Approved Bonds (Unlimited Tax General Obligation Bonds {UTGO}) The primary method used by Washington school districts to finance the local share of major capital projects Repaid with property taxes Super majority (60%) with validation Cash is generated up front Payments can be spread over time (match life of asset) 40 year maximum term Voted debt capacity is 5% of assessed value 4

5 Non-voted bonds: Limited General Obligation (LGO) Bonds Repaid with existing revenue sources May not be used for new construction Non-voted debt capacity is 3/8 of 1% of assessed value LGO Bonds in amount of $250,000+ requires public hearing after notice 5

6 State Assistance: State School Construction Assistance Program (SCAP) Qualified Zone Academy Bonds (QZAB) Various other state grant programs Energy Grants Program Emergency Repair Pool Emergency Response System Grants Study and Survey Grants Local Option Capital Asset Lending program Capital Projects Levies* 6

7 Voted debt capacity is 5% of assessed value Assessed Valuation x.05 = Voted Capacity Non-voted debt capacity is 3/8 of 1% of assessed value Assessed Valuation x.0375 = Non Voted Capacity 7

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14 What is the total scope/cost of the project? Timing (rates, construction, match) What revenues are available: State match (SCAP)? Investment earnings? Impact fees? 14

15 District Administration District Board of Directors Bond Counsel Financial Advisor Underwriter Investment Banker Bond Rating Agency or Agencies Washington State School Bond Credit Enhancement Program 15

16 CFO / Business Manager Provides recommendations to Board and Superintendent Understand the financing Judge the ability of District to pay the bonds Certification District's information in Official Statement Compliance with all on-going tax and disclosure requirements* Budgeting, accounting and financial reporting 16

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18 Dodd-Frank Wall Street Reform and Consumer Protection Act Clarifies roles of financial advisors and underwriters SEC Municipal Advisor Rule Defines what constitutes municipal advice and regulates those providing advice It is not the issuer s direct responsibility to comply with the MA Rule it is the responsibility of underwriters, municipal advisors, bond counsel, and other professionals to make sure they are in compliance and/or registered. 18

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20 Bond raters consider the local economy, district finances, and other factors Options include: District s rating (ranging from A3-Aaa) State Guarantee (Aa1) Economy Debt Factors The Rating Governmental Factors Financial Performance 20

21 Washington State School District Credit Enhancement Program Voted bonds only Bond resolution Prepared by bond counsel and reviewed by finance team Sets all bond terms and conditions Approved by District Board Disclosure documents Preliminary and Final Official Statements 21

22 Preliminary and Final Official Statements Financial condition of the District Management biographies Terms and amounts of the bonds Security for repayment Taxing information of the District REGARDLESS of who prepares The DISTRICT is responsible for information provided Be sure to review carefully 22

23 2015 Business Managers Conference 23

24 Accounting entries Budget extensions? Debt Service Fund Capital Projects Fund Debt Service Fund levy planning and budgeting (cash flow) Federal tax and securities law compliance Continuing Disclosure filings 24

25 Journal Entries WS.xls 25

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27 Lind Bond Issue and Bond Refunding Worksheet Capital Projects Fund (Fund Receiving Proceeds) G/L Account # Title Debit Credit Source Item # 240 Cash w/county 4,000, XXXXXXX Par value of new bonds 240 Cash w/county 7, XXXXXXX Additional proceeds for bond issue costs 535 Other Financing Use XXXXXXX Original bond discount* 530 Bond Issue Costs 19, XXXXXXX Underwriters discount** 530 Bond Issue Costs 15, XXXXXXX Issue costs - bond counsel 530 Bond Issue Costs XXXXXXX Bond insurance premium 965 OFS - Proceeds from bonds XXXXXXX 3,905, Par value of new bonds 965 OFS - Proceeds from bonds XXXXXXX 136, Original issue premium 965 OFS - Proceeds from bonds XXXXXXX Bond issue costs contra account 4,041, ,041,

1) Review what was deposited into the Capital Projects Fund Lind Bond Issue and Bond Refunding Worksheet Capital Projects Fund (Fund Receiving Proceeds) G/L Account # Title Debit Credit Source Item #

28 1) Review what was deposited into the Capital Projects Fund Lind Bond Issue and Bond Refunding Worksheet Capital Projects Fund (Fund Receiving Proceeds) G/L Account # Title Debit Credit Source Item # 240 Cash w/county 4,000, XXXXXXX Par value of new bonds 240 Cash w/county 7, XXXXXXX Additional proceeds for bond issue costs 535 Other Financing Use XXXXXXX Original bond discount* 530 Bond Issue Costs 19, XXXXXXX Underwriters discount** 28

29 2) Next review the par amount of bonds and the premium on bonds (less any premium deposited into the Debt Service Fund) Lind Bond Issue and Bond Refunding Worksheet Capital Projects Fund (Fund Receiving Proceeds) G/L Account # Title Debit Credit Source Item # 240 Cash w/county 4,000, XXXXXXX Par value of new bonds 240 Cash w/county 7, XXXXXXX Additional proceeds for bond issue costs 535 Other Financing Use XXXXXXX Original bond discount* 530 Bond Issue Costs 19, XXXXXXX Underwriters discount** 530 Bond Issue Costs 15, XXXXXXX Issue costs - bond counsel 530 Bond Issue Costs XXXXXXX Bond insurance premium 965 OFS - Proceeds from bonds XXXXXXX 3,905, Par value of new bonds 965 OFS - Proceeds from bonds XXXXXXX 136, Original issue premium 965 OFS - Proceeds from bonds XXXXXXX Bond issue costs contra account 4,041, ,041,

30 3) If the underwriter discount or bond counsel expenses were reduced from the wire don t forget to record the expenditure. Lind Bond Issue and Bond Refunding Worksheet Capital Projects Fund (Fund Receiving Proceeds) G/L Account # Title Debit Credit Source Item # 240 Cash w/county 4,000, XXXXXXX Par value of new bonds 240 Cash w/county 7, XXXXXXX Additional proceeds for bond issue costs 535 Other Financing Use XXXXXXX Original bond discount* 530 Bond Issue Costs 19, XXXXXXX Underwriters discount** 530 Bond Issue Costs 15, XXXXXXX Issue costs - bond counsel 530 Bond Issue Costs XXXXXXX Bond insurance premium 965 OFS - Proceeds from bonds XXXXXXX 3,905, Par value of new bonds 965 OFS - Proceeds from bonds XXXXXXX 136, Original issue premium 965 OFS - Proceeds from bonds XXXXXXX Bond issue costs contra account 4,041, ,041,

Debt Service Fund Account # Title Debit Credit Source Item # 240 Cash w/county XXXXXXX Premium on Bond 240 Cash w/county 3,304.

31 Debt Service Fund Account # Title Debit Credit Source Item # 240 Cash w/county XXXXXXX Premium on Bond 240 Cash w/county 3, XXXXXXX Accrued interest 240 Cash w/county XXXXXXX Additional Funds 530 Bond Issue Costs XXXXXXX Payment of issue costs 530 Bond Issue Costs XXXXXXX Bond insurance premium 530 Bond Issue Costs XXXXXXX Underwriters discount 535 Other Financing Use XXXXXXX Refunding escrow 535 Other Financing Use XXXXXXX Refunding escrow 965 OFS - Proceeds from bonds XXXXXXX Par value of new bonds 965 OFS - Proceeds from bonds XXXXXXX 3, Original issue premium 604 Bond Interest Expense XXXXXXX Accrued interest 3, , Note: G/L 604 should be closed when first interest pymt on new bonds is made. 31

32 Tips Pitfalls Remember to use GL 965 instead of GL 960 for proceeds from bonds Don t forget your long term debt entries if you track in fund T GL 480 Amount to be Provided for Debt Retirement GL 690 Bond Payable Long Term For more information refer to the Accounting Manual - Chapter 7 Journal Entries Bond Issues and Bond Refunding 32

33 SEC Rule 15c2-12 Undertaking Agreement with the underwriter to periodically report certain financial information and events for the benefit of investors. Undertaking usually set forth in bond resolution or certificate when bonds are issued. Applies when bonds are sold via a negotiated sale or competitive bid (does not apply to Issues less than $1 million or certain private placements). Requirements Financial information and operating data filed with the Municpal Securities Rulemaking Board s (MSRB) Electronic Municipal Market Access System (EMMA) see Within specified period (9 months after fiscal year end - May 31). Audited financials once available. Timely notice of listed events, if material (within 10 days). 33

34 Continuing disclosure requirements MRSB s EMMA system 34

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36 Annual audited financial statements (or unaudited statements if audit is not available); provide audit when available The assessed valuation of taxable property in the district; Ad valorem taxes due and percentage of taxes collected; Property tax levy rates per $1,000 of assessed valuation; and Outstanding general obligation debt of the district. (Red print indicates data not included in audit; requires separate submittal) 36

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38 Also requires notification through EMMA, upon discovery Most frequent incident of non-compliance Responsibility was never understood or assigned Change in personnel assigned the responsibility Easy to forget annual reporting deadlines & requirements A brief letter describing the oversight along with the missing data is required 38

39 Heightened Attention SEC enforcement actions/increase in underwriter due diligence. Failure to comply may result in inability to issue bonds and securities violation. SEC s Municipalities Continuing Disclosure Cooperation (MCDC) Initiative (see subsequent slides and FAQ handout) Compliance Tools and Practices Consider adopting written procedures for disclosure (including continuing disclosure). Make sure employee s job description includes carrying out undertaking requirements (or hire a dissemination agent to do it). Periodic training. Sign-up for the EMMA reminder system. 39

40 Arbitrage and Rebate Rules Limits the amount that can be earned in excess of the arbitrage yield (yield restriction). OR Pay some of the earnings in excess of the arbitrage yield to the federal government (rebate). Don t worry about yield restriction or rebate if you can show that you did not invest above the bond s arbitrage yield. Applicability: Earnings on investments of bond proceeds prior to being spent from the Capital Projects Fund, and Earnings on investments of taxes collected and deposited in Debt Service Fund to repay bonds. 40

41 Capital Projects Fund Yield Restriction Avoid by (1) reasonably expecting on issue date to spend 85% of bond proceeds within 3 years and (2) entering into binding contract within 6 months after issue date to spend 5%. Rebate Avoid by meeting a issue size ($15M or less) or spending exception: 2 years, 18 months or 6 months. Over-issuance. Do not issue more bonds than you can spend in three years. This may not get you out of rebate, but it will keep your bonds from becoming taxable due to over-issuance. Debt Service Fund Must be cleaned out annually except for a de minimis carryover amount (usually 1/12 th of annual debt service). Call bond counsel if you have not been doing this. 41

42 Tax Code limits the use of bond-financed facilities by private business users. Examples of arrangements that can result in private business use include: Leases Management contracts Cell towers Naming rights Service contracts Call Bond Counsel if you anticipate such private business use. 42

43 IRS wants school districts to have written Post-Issuance Compliance Procedures Ensure the school district will be in compliance with requirements of the Code that must be satisfied with respect to bonds after the bonds are issued (e.g., arbitrage, rebate and private business use). Adopting and following written procedures helps you get most favorable settlement possible if something goes wrong with your bonds. Contents of Procedures: Identification and training of employees responsible for review. Arbitrage yield restriction and rebate requirements. Restrictions on private business use. Retention of adequate records to substantiate compliance life of bonds, plus life of any refunded bonds, plus 3 years. Identification and remediation of noncompliance. Education. 43

Recent additional scrutiny by IRS related to written policies Debt issuance policies Selection of professionals Method of sale Roles and responsibilities Refunding guidelines Investment

44 Recent additional scrutiny by IRS related to written policies Debt issuance policies Selection of professionals Method of sale Roles and responsibilities Refunding guidelines Investment management Inclusion in job descriptions Post-issuance tax compliance Arbitrage rebate Policy development and compliance Other ongoing debt management responsibilities Budget preparation Record retention 44

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46 Administrative Budgeting and Financial Reporting Handbook* Chapter VI 20xx-yy F-196 Annual Year-End Financial Statements 46

47 Administrative Budgeting and Financial Reporting Handbook* Chapter VI 20xx-yy F-196 Annual Year-End Financial Statements 47

48 Administrative Budgeting and Financial Reporting Handbook* Chapter VI 20xx-yy F-196 Annual Year-End Financial Statements Note 10 Continued 48

49 Administrative Budgeting and Financial Reporting Handbook* Chapter VI 20xx-yy F-196 Annual Year-End Financial Statements Note 10 Continued 49

50 Administrative Budgeting and Financial Reporting Handbook* Chapter VI 20xx-yy F-196 Annual Year-End Financial Statements Note 10 Continued 50

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2013 WASBO Annual Conference

2013 WASBO Annual Conference Refundings: The Before and After May 3, 2013 Jon Gores Senior Vice President D.A. Davidson & Co. (206) 389-4043 jgores@dadco.com Cory Plager Dir. Of School Financial Srvs.