Funding Transportation Improvements

Transcription

1 Funding Transportation Improvements Nick Anhut, Municipal Advisor Ehlers & Associates December 8, 2015

2 Introduction Transportation / Transit in Minnesota Funding Environment Financing Basics Authority and Implementation Questions / Discussion 2

3 Minnesota s Transportation System Federal roadway system of over 140,000+ miles Over 33% County direct share (plus over 7,600 bridges) State maintained Trunk Highway system Local road jurisdiction = local governments State Aid: CSAH 30,000+ mile system 15,000+ county road system Growth in local transit systems Transportation an Economic Driver 3

4 County System Funding Federal Aid - Direct Grants State Constitutional and statutory dedicated revenues Formula-based framework Minimal general fund support (mostly transit / public safety) County roads funded through above plus: Property taxes Local option taxes 4

5 State Revenue Sources Highway User Tax Distribution Fund (HUTDF) Gas tax (100% constitutionally dedicated to roads) 28.5 cents per gallon wholesale (Federal at 18.4) Motor Vehicle sales tax 6.5% tax on new and used sales no general sales tax Statutorily allocated (60% highways / 40% transit) Vehicle Registration tax By vehicle type: passenger auto $10 plus 1.25% of base value - $35 minimum (100% dedicated to roads) Others: Motor Vehicle Lease Sales Tax (FY 15: $47m) 5

6 State Revenue Sources 6

7 State Revenue Sources HUTDF formula 5% set aside town bridge (16%), town road (30.5%), flex highway (53.5%) 95% Regular Distribution Trunk Highway (62%) CSAH (29%) MSAS (9%) CSAH allocation formula 68% Apportionment sum (10% equal / 10% registrations / 30% miles / 50% construction need) 32% Excess sum (Split between population / construction needs) 7

8 HUTD Fund Framework 8

9 CSAH Construction and Maintenance (incl. within small cities) $569m total funding in FY 2015 $521m Direct Aid 9

10 Funding Horizon Federal FAST Act: multiyear bill Fuel consumption State Bonding Trunk Highway: Corridors of Commerce, TED Reaching 20% debt service cap General Obligation: LRIP, Earmarks Rural Transit: farebox recovery limited by scale 10

11 Cost Index Construction Materials 11

12 Cost Index Nonresidential facilities 12

13 County Revenue Sources Property Taxes Assessments CSAH or County Highway improvements Local Options Sales tax identified transportation projects; transit Non CTIB County: Up to 0.5% on retail sales and $20 per vehicle excise CTIB: Up to 0.25% Wheelage tax highway purposes $10 per vehicle charge with registration Other Levies 13

14 Evaluating Project Financing Options Utilize Multi-year Capital Planning (scan the horizon) Increased reliance on local sources for funding: forecasting debt/expenditure can mitigate concerns Include: Transportation Improvement Program Equipment: Vehicles, IT, Public Works New Facilities / Renovations Identify Resources Grants State Aid Levy Capital Assets Planning Fund Revenues Debt 14

15 How To Finance Capital Ability to save vs. Current need Pay-as-you-go (Cash) or Pay-as-you-use (Debt)? Not an either-or decision; counties use both cash and debt in funding capital plans, and often for the same project. 15

16 How To Finance Capital Pay-Go (Cash) or Pay-Use (Debt)? Which approach is financially feasible given: project costs current levy current fund balance, and budget / tax base trends Which approach is equitable for current and future taxpayers? What is the economic life of the asset (recurring need)? Opportunity Cost? Compare estimated bonding cost to the estimated cost inflation and lost benefit of postponing the project in order to save and cash fund it 16

17 Debt Issuance Successful when you, the Issuer: Understand financing options Identify implications Cash flow Revenues Existing and future debt Know basics Rules and regulations Key players and who they represent Debt placement and marketplace Manage existing obligations Develop and Institute a Financing Plan 17

18 Debt Capacity Three Measures of County Debt Capacity Statutory Authorizations Tax Impact Credit Rating Agency Statutory Authorizations General G.O. Bond Limit: 3% of Estimated Market Value Capacity will grow as County continues to retire existing debt and as County s market value increase over time G.O. CIP Annual Debt Service Limit: 0.12% of EMV 18

19 Debt Capacity Three Measures of County Debt Capacity Statutory Authorizations Tax Impact Credit Rating Agency Tax Impact County s Total FY 2015 Levy Rate Debt Service Levy Rate: (% of total) Tax Impacts for Median Residential Homestead Operating and Fund Balance pressures 19

20 Tax Impacts BOND ISSUANCE INFORMATION Bond Issue Amount Number of Years Average Interest Rate PROPERTY TAX INFORMATION $3,500, % Actual Net Tax Capacity - Payable ,000,000 Debt 105% - Average 412,342 Estimated Tax Capacity Rate: Payable Without Proposed Bonds % Payable With Proposed Bonds % Estimated Tax Rate Increase 2.291% TAX IMPACT ANALYSIS Estimated Market Value Taxable Net Tax Current Proposed Proposed Type of Property Market Value Exclusion Market Value Capacity City Tax Tax Increase* County Tax Residential 100,000 28,240 71, Homestead 200,000 19, ,760 1, Commercial/Industrial 200, ,000 3,250 1, , , ,000 9,250 3, , Apartments 500, ,000 6,250 2, , Agricultural 250,000 23, ,260 1, Homestead ** 600,000 23, ,260 3,631 1, , Agricultural $ 1,500 $ - $ 1,500 $ 15 $ 6.00 $ 0.34 $ 6.34 Non-Homestead 2,000-2, (dollars per acre) 6,000-6,

21 Debt Capacity Three Measures of County Debt Capacity Statutory Authorizations Tax Impact Credit Rating Agency Credit Rating Agency: G.O. Bonds Rating Criteria County fund balances are key to strong rating Unassigned General Fund balance Assigned Balances in Road and Bridge/ Human Services Stable management practices and policies Debt profile: Tax-supported debt as % of market value Debt Service as % of expenditures 21

22 Building a Bond Issue Capitalized Interest Project Costs Debt Reserve Costs of Issuance Sources and Uses Include grant or cash contribution Consider all costs Design, construction, legal, and financing Capitalized Interest Revenue availability Buffer fiscal impacts Debt Service Reserve Non- G.O. Bonds Investment earnings can pay debt service 22

23 General Considerations Cost of Financing Interest: lowest for short term and highest rated General Obligation (most secure) Potential Fees: Underwriter or Bank Purchaser, Bond Counsel, Municipal Advisor, Rating Agency, Trustee or Paying Agent, Others Reserve requirement Structuring Payments Revenue Bonds limited to funding stream ( Bond Covenants ) Repayment Term Useful life of the asset / up to 30 years Call feature 23

24 Example of Current Security Interest Rates Oct. 2 Nov. 6 Dec 4 AAA Yields* 5 Years 1.23% 1.29% 1.27% 10 Years 1.98% 2.16% 2.01% 20 Years 2.76% 2.92% 2.70% 30 Years 3.02% 3.17% 2.96% 10yr U.S. Treas. 1.99% 2.33% 2.28% Current Bond Buyer 20 Bond Index** 3.57% Source: *Thomson Reuters Municipal Market Data ** The Bond Buyer. Average yield on a portfolio of municipal bonds maturing in 20 years, with an average rating of AA/Aa2. 24

25 Timing a Bond Issue 25

26 Structuring a Bond Issue 26

27 Structuring a Bond Issue 20 year capacity - $15.96 million at 3.5% present value rate 27

28 Structuring a Bond Issue 2016: $5.24 million issued with 10 year structure; Future 2020 issue: $13.25 million remaining 15 year capacity 28

29 Types of Debt General Obligation Bonds Revenue Bonds Bond/Grant Anticipation Notes Facility Revenue Bonds Certificates of Participation Refunding Bonds Others 29

30 General Obligation Bonds Debt secured by the full faith and credit of the issuer Repayment Sources: Ad Valorem property taxes on all property within the boundaries of the issuer Other general revenues, as available to offset property tax requirement (e.g. assessments, sales tax revenues) Rating criteria: evaluates the County s full economic, financial and managerial capacities to repay 30

31 Revenue Bonds Sometimes referred to as special or limited obligations Debt secured by a pledged revenue source Repayment from a specific source Sales tax revenue, abatement, lease payments Limits liability to the fund Rating reflects the economic and financial conditions of the revenue stream 31

32 Facility Revenue Bonds Revenue Bond with payments subject to annual appropriation Lease purchase financing secured by specific asset(s) those to be financed and/or others Rating agencies prefer assets that service the essential purpose of the municipality Generally one or two steps below G.O. Rating Repayment Sources General Fund Other revenues 32

33 Sources of Financing Borrowing Options: Bonds sold in commercial market Bank financing or private placement State Public Facilities Authority (PFA) Transportation Revolving Loan Fund Method of Sale Competitive offering: predetermined terms with bids solicited Negotiated offering: selection of underwriter to market the transaction in advance of the sale 33

34 Other Considerations County may bundle several projects into a single G.O. issue Different repayment terms, structures, and repayment sources Bigger bonds sell better Bundle financing costs Consider impact to Bank Qualification County may hold public hearing or seek voter approval once for project(s) to be financed over several years and/or bond issues Leave time to fix procedural steps Planning and explaining County s use of debt vs. current and future cash resources to fund projects Current interest rates, cost inflation trends 34

35 Other Considerations MN: together with available revenues, tax levy must provide 105% annual debt service coverage for general obligations Watch statutory debt limits ~ 3% market value Most debt does not apply to limitation Debt levies have been outside levy limits Watch out for cumulative effects Consider keeping term short (rapid amortization) Better rates and capacity turnover Bond ratings are important, but not always net benefit 35

36 Statutory Authority Debt General Obligation Referendum Capital Improvement Plan Bonds Improvement Bonds Tax Increment Bonds Abatement Bonds Temporary Bonds / Notes Initiate construction until permanent financing or funds available Debt Revenue / Annual Appropriation Public Facility Lease Revenue Revenue Bonds 36

37 Financing Timeline Typical milestones in a typical County debt financing: Planning/Feasibility with Engineer, Municipal Advisor and legal Staff and MA present draft CIP financing plan to County County holds public hearing and approves CIP financing plan Staff and MA prepare offering document and complete the credit rating process Solicit underwriter bids through competitive sale or RFP County awards bonds to winning bidder Close transaction and reimburse funds or invest bond proceeds Repayment: first principal payment within 3 years Prepayment or refinancing 37

38 Post Issuance Debt Management Taxable vs. Tax-Exempt Arbitrage and yield restriction on proceeds Private Activity Disclosure Continuing Disclosure to Bondholders / Creditors Managing debt portfolio Call dates and early redemption Monitor refinancing opportunities Levy and revenue adjustments (105% coverage req.) 38

39 Summary Transportation / Transit in Minnesota Funding Environment Financing Basics Authority and Implementation 39

40 Nick Anhut Municipal Advisor

41 G.O. Capital Improvement Bonds M.S Capital Improvement. Acquisition and betterment of public lands, buildings or improvements for: Facilities Roads and Bridges Minimum 5 year useful life, inclusion in 5-yr CIP Payable from tax levy Subject to Reverse Referendum Board approval: 3/5 (or 2/3 Metro) Maximum annual debt service of 0.12% of market value 41

42 G.O. Capital Notes M.S Payable not more than 10 years or useful life Payable from tax levy Capital Equipment: Public safety, ambulance, road construction and maintenance, and medical equipment Computer hardware/software Alternative: Lease new and used public safety equipment up to 15 years (M.S ) not G.O. 42

43 G. O. Improvement Bonds Also known as special assessment debt and Chapter 429 bonds 20% of project assessed Other costs can be removed for 20% test if separately financed and paid Can combine projects for 20% in certain cases Payable from assessments and tax levy Exempt from debt limits Cannot issue debt until project is ordered 4/5th s vote required for certain steps Can use for anticipation of federal grant County can use for CSAH or County road improvements 43

44 G. O. State Aid Road Bonds (CSAH) M.S. Section Bond payments can be up to 90% of last year s construction account allotment (CSAH) Structuring: payments usually timed after February receipt of CSAH from MnDOT Exempt from debt limit Must certify to MnDot the amount of principal and interest Differs from borrowing internally from MnDot 44

45 G.O. Abatement Bonds M.S. Section to Allocation of county property tax revenue rather than forgiveness of taxes Identified by property; can be all or portion of taxes All annual abatements capped at 10% of net tax capacity Public hearing required Can use only county taxes or combine with other jurisdictions Not subject to debt limits Property whose taxes reallocated must be benefited 45

46 Local Option Taxes for Transportation Updated November 2015 Wheelage Tax Local Option Sales Tax Local Option Sales Tax for Transit Only Aggregate Materials Tax McLeod

47 TRANSPORTATION REVOLVING LOAN FUND (TRLF) Open Solicitation Announcement Please be advised that the Minnesota Department of Transportation (MnDOT) is soliciting for candidate projects for funding through the Transportation Revolving Loan Fund (TRLF). This is an ongoing open solicitation on a first come first serve basis until all TRLF available funds are committed. Type of Eligible Projects Road and Bridge Projects Approximately $13.1 million is available in the Highway Non- Restricted Account Transit Projects Approximately $2.3 million is available in the Transit Account. For those unfamiliar with the TRLF program, it operates much like a commercial bank, providing lowinterest loans and other types of financial assistance on a competitive basis to the state, counties, cities, and other governmental entities for eligible transportation projects. Although private entities are not currently eligible for TRLF financing, they may enter into agreements with eligible borrowers to finance eligible transportation projects. Additional funding may be available subject to the scope, number of applications and financial needs of the applications received through the solicitation process. Candidate projects must be eligible under Title 23 or Title 49 of the United States Code and Mn. Stat. 446A.085, subd. 2 (1998) to apply. However, the SAFETEA-LU Technical Corrections Bill (HR 1195) enacted on June 6, 2008 extended this eligibility to roads functionally classified as minor collectors. Selected projects will be required to follow State Aid and/or MnDOT project development requirements. Each District/ATP has a TRLF Coordinator to answer specific questions and to provide application packets. Please contact your TRLF Coordinator if you are interested in the program. For further information about TRLF loan and application, please contact Kha Vue at or visit our website at: