The "Stimulus" and South Dakota Bonds. April 28, 2009

Transcription

1 The "Stimulus" and South Dakota Bonds April 28, 2009

2 Acknowledgments Thank you to our sponsors: And co-hosts: 2

3 Presenters Lynn Endorf, Dorsey & Whitney LLP Todd Meierhenry, Meierhenry Sargent LLP Alan Polsky, Dougherty & Company LLC Facilitated by Thomas Grimmond, Dougherty & Company LLC 3

4 ARRA Overview Signed into law February 17, 2009 Full text available at: Section-by-section summary available at: 4

5 New Taxable Bonds: Overview Tax credit bonds in brief - Investors receive interest + credits - Interest and credits taxable - New under ARRA credit vs. direct pay Three new kinds under ARRA - Qualified School Construction Bonds - Build America Bonds - Recovery Zone Economic Development Bonds 5

6 New Taxable Bonds: Overview New for federal (not state) law purposes May be issued in 2009 and 2010 Most requirements of tax-exempt bonds, including arbitrage rules (subject to certain exceptions) apply to all of the new taxable bonds 6

7 Qualified School Construction Bonds Authorized Uses - Build, rehabilitate, repair public schools - Acquire land for public schools - Acquire equipment for use in financed facility - Costs of issuance (up to 2%) Volume Cap - $11 billion for each of 2009 / 2010 nationwide - $29,884,000 for 2009 for South Dakota 7

8 Qualified School Construction Bonds Bondholder Credit Only (no direct pay option) - Maximum maturity and credit amount determined according to schedule published by Bureau of Public Debt as of sale date - Credit amount determined to allow no discount, 0% financing to issuer 8

9 Qualified School Construction Bonds Pending further guidance, issuance must be reported on Form 8038 Federal prevailing wage (Davis Bacon Act) requirements apply 9

10 Build America Bonds (BABs) Issuer may elect direct payment in lieu of bondholder credit - Direct payment or credit = 35% of interest payable Authorized Uses are same as tax-exempt governmental (non-private activity) bonds, except: - Direct pay BAB proceeds usable only for new capital expenditures, reasonably required reserve funds, COI (up to 2%) - Bondholder credit BAB proceeds useable for above purposes + working capital, refundings 10

11 Build America Bonds No national volume cap Direct payment mechanics - Issuers must file new Form 8038-CP for each interest payment date - Fixed rate BABs: Form 8038-CP must be filed days before applicable interest payment date; issuer receives payment within 45 days after IRS receives form - Variable rate BABs: issuer receives payments reimbursing quarterly interest costs; Form 8038-CP must be filed 1-45 days after the last interest payment date within the applicable quarterly period 11

12 Build America Bonds BABs may not be issued with more than a de minimis amount of premium Issuance of BABs must be reported on Form 8038-G in accordance with more detailed IRS guidance Federal prevailing wage (Davis Bacon Act) requirements do not apply 12

13 Recovery Zone Economic Development Bonds A subspecies of direct pay BABs - Direct payment = 45% of interest payable Proceeds must be spent for projects within certain geographic areas - Federally designated empowerment zones or renewal communities - Issuer-designated recovery zones : areas with significant general distress, home foreclosure, unemployment, or poverty rates, and areas economically distressed because of military base closure/realignment 13

14 Recovery Zone Economic Development Bonds Authorized Uses - Capital expenditures for property in zone - Public infrastructure and facilities in zone - Job training and educational programs - Reasonably required reserve funds - Costs of issuance (up to 2%) 14

15 Recovery Zone Economic Development Bonds Volume Cap - $10 billion for 2009 / 2010 combined nationwide - Allocation procedures expected to be released by IRS within next few weeks Federal prevailing wage (Davis Bacon Act) requirements apply 15

16 New Tax-Exempt Bonds Recovery Zone Facility Bonds - A new kind of private activity bond - Proceeds may be used for depreciable property within a recovery zone, used in connection with borrower s conduct of a qualified business Tribal Economic Development Bonds - Tribal governments may issue these bonds for the same purposes as state or local governments issue tax-exempt bonds 16

17 South Dakota Considerations: Overview Does it constitute debt for constitutional purposes - School Districts 10% - Cities 5% for any purpose, additional 10% for water & sewer with 50% voter approval

18 South Dakota Considerations: School Districts General Obligations - SDCL ch voter approval 60% Capital Outlay Certificates ($3 per $1000) -SDCLch A1 Under 1.5% by resolution Over 1.5% hearing and resolution (referable) Covenants of outstanding indebtedness 18

19 Slide 18 A1 Author, 4/23/2009

20 South Dakota Considerations: Cities General Obligations - SDCL ch & 6-B voter approval 60% Utility Revenue Bonds - SDCL ch (System Debt Voter Approval ) Sales Tax Bonds - SDCL ch (1%, 2% or 3% pledge) Special Assessment Bonds - SDCL ch. 9-43(Fronting and Abutting or benefit) 19

21 TYPE OF BOND VOLUME ALLOCATION ALLOCATOR PROCEEDS USED FOR BUILDING AMERICA BONDS (BAB) N/A N/A Capital Expenditures QUALIFIED ZONE ACADEMY BONDS (QZAB) $3,538, $3,538,000 SD-DOE Renovation and rehabilitation projects, as well as equipment purchases (including computers), training programs. QUALIFIED SCHOOL CONSTRUCTION (QSCB) $ 29,784, $ 29,784,000 SD-DOE Construction, rehabilitation or repair of public school facilities, including land acquisition. QUALIFIED ENERGY CONSERVATION BOND (QECB) $8,343,000 SD-GOV Energy improvement in public buildings and green community projects such as energy efficiency improvements in residential buildings. It also authorizes use of the bonds for rural renewable energy development, R&D and public education. CLEAN RENEWABLE ENERGY BONDS(CREB) Jan-06-Jan-08 - $800,000,000 New Allocation - $2.4 Billion There were 156 proposed projects in California, 57 in Minnesota, 23 in New Jersey, 17 in Washington, 13 in Nebraska, 12 in Montana, 11 in Illinois and 10 in Wisconsin. Applications ranged in size from $15,000 to $38.5 million. USTRES - The deadline for making an application was July 13, New Deadline: Clean Renewable Energy Bonds (CREBs) for facilities that generate electricity from: 1. wind 2. closed-loop biomass 3. open-loop biomass 4. geothermal 5. small irrigation 6. qualified hydropower 7. landfill gas 8. marine renewable RECOVERY ZONE BONDS(SD NO ZONES) N/A N/A N/A MIDWESTERN TAX CREDIT BONDS N/A N/A N/A GULF TAX CREDIT BONDS N/A N/A N/A

22 Expanded Bonding Authority Qualified Zone Academy Bonds (QZABs) - Provide no discount, 0% financing for qualified zone academies - Authorized uses: renovate buildings, acquire equipment, develop course material, train teachers and personnel - Impact of ARRA: raises nationwide 2009 volume cap to $1.4 billion ($3,538,000 for SD); authorizes $1.4 billion for

23 Expanded Bonding Authority New Clean Renewable Energy Bonds (New CREBs) - Finance facilities that generate electricity from renewable sources - Impact of ARRA: raises nationwide volume cap to $2.4 billion, to be divided equally among three purposes: state and local government projects; projects of public power providers; projects of electric co-ops 22

24 Expanded Bonding Authority Other ARRA provisions - Volume cap on Qualified Energy Conservation Bonds raised to $3.2 billion ($8,343,000 for SD) - Qualified small issue bonds: definition of manufacturing facilities expanded to include creation or production of intangible property; ancillary facilities treated as manufacturing facilities for proceeds of bonds issued in 2009 and

25 Incentives for Investors Additional interest expense deduction - 80% of interest expense allocable pro rata to taxexempt bonds now deductible for financial institutions (for investment of up to 2% of their assets in taxexempt bonds issued for new projects in 2009 / 2010) 24

26 Incentives for Investors New bank qualification rules for bonds issued in 2009 / Annual per-issuer limit raised from $10 million to $30 million - Limit passes through issuers to 501(c)(3) borrowers in conduit deals 25

27 Incentives for Investors Alternative Minimum Tax Changes for bonds issued in 2009 / Interest on private activity bonds not subject to AMT - Interest on tax-exempt bonds not included in corporate AMT adjustment - For above purposes, refunding bonds treated as issued on date of issuance of refunded bonds 26

28 Incentives for Investors Alternative Minimum Tax Changes for bonds issued in 2009 / 2010, continued - For bonds issued in 2009 and 2010 to refund bonds issued in 2004, 2005, 2006, 2007, or 2008, interest not subject to AMT and not included in corporate AMT adjustment based on current earnings 27

29 Live Q & A To ask a question, type it into the Chat box on the bottom left of the screen. Your question will only be visible to the presenters. 28

30 For More Information For more information on any of today s topics after the seminar, please contact: Lynn Endorf, Dorsey & Whitney LLP or endorf.lynn@dorsey.com Todd Meierhenry, Meierhenry Sargent LLP or todd@meierhenrylaw.com Alan Polsky, Dougherty & Company LLC or apolsky@doughertymarkets.com Thomas Grimmond, Dougherty & Company LLC or tgrimmond@doughertymarkets.com 29

31 Presenter Biographies LYNN ENDORF is an attorney in the public finance group at Dorsey & Whitney LLP. In addition to advising a variety of public bodies, banks, and other financial institutions for more than 35 years on public finance and economic development matters, Lynn serves as bond counsel and underwriter s counsel in connection with general obligation and utility revenue bonds, industrial revenue bonds, housing bonds, health care revenue bonds, and other obligations. Lynn represents clients in Minnesota, North and South Dakota, Wisconsin, Montana and Missouri and has drafted legislation in both Minnesota and South Dakota. 30

32 Presenter Biographies TODD MEIERHENRY is an attorney with Meierhenry Sargent LLP. In addition to advising South Dakota public bodies, banks, and other financial institutions for more than 20 years on public finance and economic development matters, Todd serves as bond counsel and underwriter s counsel in connection with every type of bonds issued in South Dakota. Todd is also general counsel for the South Dakota Building Authority and South Dakota Educational Enhancement Funding Corporation and is the drafter of the legislation which created the County Improvement Districts (Dakota Dunes) and Ellsworth Devolvement Authority South Dakota s newest governmental subdivision. 31

33 Presenter Biographies ALAN D. POLSKY, CFA, is a senior vice president at Dougherty & Company and is responsible for Dougherty s negotiated municipal underwriting and fixed income institutional sales and research. He was previously the senior research analyst in the firm s Capital Markets Department. Alan serves on the board of the Regional Bond Dealers Association. He was the 2001 Chairman of the National Federation of Municipal Analysts and past co-chair of the NFMA s Education Committee. He also served as president of the Minnesota Society of Municipal Analysts. Before joining Dougherty as a municipal trader in 1985, Alan was the controller at the University of Minnesota Foundation and held a senior accounting position with KPMG-Peat Marwick. 32

34 Presenter Biographies THOMAS GRIMMOND is a senior vice president at Dougherty & Company based in Sioux Falls. As an investment banker, Tom handles the financial modeling of issuers' capital requirements. Since joining Dougherty in 1992, Tom has structured financings for colleges, school districts, municipalities, and counties using certificates of participation, general obligation bonds, revenue bonds, and other obligations and revenue sources. His notable projects include financings for the Sioux Falls Convention Center and Sioux Falls Lewis & Clark Project. Tom is a past council member for the City of Tea and served on the Revenue and Taxation Policy Committee of the South Dakota Municipal league. He is also a member of the South Dakota Army National Guard and served an 11-month activation in support of Operation Enduring Freedom in