Irritable Bond Syndrome (and how to avoid it)

Transcription

1 Irritable Bond Syndrome (and how to avoid it) GREG ISOM, PRINCIPAL, ISOM ADVISORS ALEXZIS FUKE, SENIOR VICE PRESIDENT, RAYMOND JAMES MICHAEL KRAUSE, ASSISTANT SUPERINTENDENT, BUSINESS SERVICES, SOUTH SAN FRANCISCO USD

2 Overview GREG ISOM 12 years working with California School Districts as a Financial Advisor, helps School Districts through campaigns and selling bonds; worked with over 150 school districts and over $6 billion of bond transactions. Enjoys dressing up for Halloween with his kids and used to have a full head of hair before said four kids. ALEXZIS FUKE 10 years working with California School Districts as an investment banker, specializes in quantitative analysis; worked with over 100 school districts and $5 billion of bond transactions. Enjoys cooking, traveling and singing karaoke. In 2014, she reigned as the WNBA Slam Dunk Champion but has since shrunk 12 inches. MICHAEL KRAUSE 10 years working in School District Finance, prior to which he was a stockbroker for Edward Jones, and is a veteran of the US Army. Currently has a Master s Degree in Educational Leadership, Tier II Clear Administrative Credential, Certified Chief Business Official. Enjoys long walks on the beach, knitting and collecting rare and exotic pugs. Greg Isom Principal Isom Advisors greg@isomadvisors.com Alexzis Fuke Senior Vice President Raymond James alexzis.fuke@raymondjames.com Michael Krause Asst. Supt. Business Services South San Francisco USD mkrause@ssfusd.org Greg, Alexzis and their respective firms have worked in 53 of the 54 Counties that have had a school GO Bond passed and collectively, have worked with over 270 school districts throughout the State 1

3 Thinking about a bond? (Wait what is a bond?) Voter-approved long-term debt secured by property taxes MAY fund capital facilities, purchase of land/equipment/furnishings MAY NOT fund operational expenditures (salaries, books, supplies, programs) PROP. 39 BOND 55% Vote Regularly Scheduled Election Taxing Limitations ($30.00/$60.00) 2/3 Board Approval Project List, CBOC PROP. 46 BOND 2/3 Vote Any Tuesday Unlimited Tax Majority Board Approval May not fund equipment/furnishings 2

4 How Else Can I Fund Facilities? General Fund Direct contributions from General Fund Takes away from Operational and Educational Funding Parcel Tax Voter approved (2/3%) tax levied per parcel in District boundaries Higher requirement to pass and generally less efficient in generating substantial proceeds for construction/modernization Most Districts use Parcel Tax revenue to supplement operational funds Developer Fees, Redevelopment Revenue, Mello-Roos/CFD Taxes May use as a payment stream for Certificates of Participation (COPs) Consult legal counsel regarding appropriate expenditures General Obligation Bonds provide the lowest voting threshold for a voter-approved tax and provide the lowest borrowing cost of any financing vehicle available because they are secured by the taxing power of the school district 3

5 How Do Bonds Work? PHASE 1 Determine Facilities Needs Call Election Vote on Election DISTRICT COMMUNITY PHASE 2 Buy Bonds Sell Bonds Receive Project $ INVESTOR DISTRICT COMMUNITY PHASE 3 Receive Principal & Interest Payments Builds Projects Improved Educational Facilities Pay Bond Tax 4

6 Creating a New Bond Program Construction/Issuance Schedule (timing) Projected Tax Rates ($ per $100,000 of AV) Bond Financing Plan Tax Rate Structure Assessed Valuation Growth (%) Bond Par Amounts ($) Interest Rates (%) Term of Bonds (years) 5

7 How Much Can I Get? Finance team will work to create optimal bond structure District Needs Voter Appetite GILROY UNIFIED SCHOOL DISTRICT (SANTA CLARA COUNTY) Measure E Successful June 2016 Bond Election (60.86%) $170,000,000 Total Bond Authorization Assessed Value: $9.5 billion Tax Rate: $60.00 per $100,000 of AV GARVEY SCHOOL DISTRICT (LOS ANGELES COUNTY) Measure GA Successful Nov Bond Election (79.96%) $40,000,000 Total Bond Authorization Assessed Value: $3.9 billion Tax Rate: $30.00 per $100,000 of AV 6

8 Pre-Election Make your own path to an election each district and community is unique! Finance (what is the bonding capacity, potential bond amount and tax rate options?) Survey (what type is most appropriate?) Public Outreach (district can use money, time, and resources for anything that is considered to be non-advocacy) Revise the Plan to Reflect Community Feedback SAMPLE FEEDBACK At this time, the District is looking to make classroom and school facility improvements and is considering placing a school improvement bond measure before voters in your community on an upcoming ballot. If the election were held today, would you vote YES in favor of the measure or would you vote NO to oppose the measure? Legal A Bond Counsel will need to be hired in order to assist in the preparation of the bond resolution Creating a Winning Bond Program The projects The tax rate The date The messengers Lean No 1% Undecided 8% Lean Yes 3% No 25% Yes 63% Attorney General Opinion in 2016 states that no pre-election services can be paid out of bond proceeds. Pre-election services can be done on a contingent basis or a pay me regardless of what happens basis 7

9 Pre-Election Voter Turnout Turnout can have a significant bearing on success Actual historical voter turnout has ranged from a low of 18% in June of 2014 to a high of 54% in November % 80% Recent District Voter Turnouts 70% Voter turnout varies considerably by election date and type of election and must be considered as different voters show up for different elections June 2018 turnout is estimated to be 25%; November 2018 turnout is estimated to be 45% 60% 50% 54% 42% 38% 39% 40% 19% 21% 20% 18% 0% Presidential Elections Gubernatorial Elections Primary Elections Source: Political Data When is the best time for a district to do a bond measure you ask? The time when you will win. 8

10 Facilities Master Plan/Needs Analysis Not necessary, but can be quite helpful When contemplating going for a bond, facility needs generally must exist Facilities Master Plans are very thorough and very expensive Includes community meetings, school site meetings, engineers, etc. Needs Analysis is generally less expensive but less thorough Needs Analysis can be completed by utilizing an architect, construction manager, project manager, facilities department, superintendent, or an occasional janitor FACTORS TO CONSIDER WHICH OPTION IS BEST: DISTRICT TIME AND DISTRICT DIME 9

11 Bond Campaign There s no wrong way to run a campaign wait, actually there is Set up a campaign committee volunteers, key positions Committee members can be district staff or local community members; it all depends on what type of campaign you are going to run Hire a political consultant Fundraise Create message and communication Get your message out to supporters Mail Walks Phone Social media Signs Avoid Opposition (that is the key to being a loser apologize a non-winner) THE BEST TYPE OF CAMPAIGN TO RUN IS USUALLY THE ONE THAT IS GOING TO WIN 10

12 Role of District Staff CANS... Provide information and facts to teachers/staff/community members Have the ability to assist on the campaign during non work time Help community members understand the bond, how it works, and what it s for Use your lunch break to work on campaign efforts as long as you re not using district resources Spend District money on letters and mailers informing the community or stakeholders about the bond and why the district is considering a bond CAN NOTS x x x x x x Tell teachers/staff/community members to vote yes while you re on the clock Use your district to coordinate anything campaign related Use the district printers for campaign materials Go to a neighboring community at 10am on a work day to print off campaign literature and assume that no one will see you because guess what.someone will Do a back-to-school night activity and plug the bond and why it s needed and all the great things it can do for you Put up signs on school property telling people to vote yes PLEASE USE COMMON SENSE. PLEASE VOTE YES DURING WORK HOURS = BAD PLEASE VOTE DURING WORK HOURS = GOOD 11

13 Bond Passed! Now What? Months 1-2 Draft Legal Documents District Board Adopts Bond Resolution Months 2-4 County Board Adopts Bond Resolution* Meet with Rating Agencies Receive Rating, Decide on Insurance Months 3-6 Post Preliminary Official Statement (POS) Sell Bonds Project Funds Deposited in Building Fund held at County *Some Counties do not require adoption of bond resolution by County Board of Supervisors AFTER AN ELECTION IS PASSED, FINANCING TIMELINE IS 3-6 MONTHS DEPENDING ON DISTRICT AND COUNTY 12

14 Financing Participants School District Staff Legal Counsel Bond/Disclosure Counsel Underwriter Financial Advisor Paying Agent County Treasurer County Office of Education 13

15 Method of Sale of Bonds COMPETITIVE Bonds are advertised for sale, broker-dealers or banks bid on the bonds on the designated date and time All bonds are awarded to the bidder offering the lowest cost No negotiation on terms of the purchase Ideally for: higher-rated, recognizable names, standard/ straightforward structures and calmer markets NEGOTIATED Underwriter works with Financial Advisor ahead of bond sale to tailor bond structure for both school district goals and investor preferences During bond sale, investors put in orders for each bond maturity and terms may continue to be negotiated Any unsold bonds may be underwritten by Underwriter Ideally for: lesser-rated, lessknown issuers, unique or complicated structures and volatile markets 14

16 Credit Ratings Guide Moody's Standard & Poor's Fitch Description Aaa AAA AAA Aa1 AA+ AA+ Aa2 AA AA Aa3 AA- AA- A1 A+ A+ A2 A A A3 A- A- Baa1 BBB+ BBB+ Baa2 BBB BBB Baa3 BBB- BBB- Best credit quality; highest likelihood of debt repayment Very high credit quality; strong likelihood of debt repayment High credit quality; strong likelihood of debt repayment Moderate credit quality; adequate likelihood of debt repayment 15

17 Citizen s Bond Oversight Committee (CBOC) Within 60 days of Board s certification of election results, seven members must be appointed to an independent citizens oversight committee (for Prop 39 bonds) Prior to the first bond sale and until the final bond proceeds are spent, meet quarterly (or more often if necessary) with the CBOC to provide ongoing information on project construction and bond related expenditures The CBOC will continue to meet so long as there are remaining bond proceeds to spend or unissued but authorized bonds to be sold The CBOC is the internal control that ensures that expenditures are undertaken on approved projects and that cost saving construction methodologies are considered 16

18 Bond Audits Bond Audits & Arbitrage Calculations In accord with the Education Code, conduct annual financial and performance audits of the bond program These two audits support and document the representations made to and the findings of the COC in their monitoring function over the bond proceeds expenditures Arbitrage Rebate Calculations Consult with your bond counsel Calculates the difference between the yield of the bonds sold versus the rate at which proceeds were invested If the investment earnings are greater than the yield of the bonds, the difference (arbitrage) is rebated back to the IRS 17

19 Bond Continuing Disclosure During the bond sale, investors are provided relevant and pertinent disclosure information such as: Tax base information District financial data Debt burden (other outstanding obligations) Bond issuers (like a school district) are required to provide annual disclosure to investors updating them with items like audits, budgets, demographic information and tax base information as well as provide ongoing relevant information such as rating changes Each issuer s requirements is different Many issuers hire a firm to submit annual disclosures 18

20 Construction Bond Management Firm or District Bond Manager? Monitoring the Budget Monitoring Site Work Schedules Community Meetings Weekly Updates to Cabinet Closing Out 19

21 Questions 20