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SCHOOL BONDS UNDERSTANIDNG YOUR LOCAL DEBT. TALKING POINTS  Who all is involved?  Understanding how forecasting works  Typical timeline  Other key.

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Presentation on theme: "SCHOOL BONDS UNDERSTANIDNG YOUR LOCAL DEBT. TALKING POINTS  Who all is involved?  Understanding how forecasting works  Typical timeline  Other key."— Presentation transcript:


2 TALKING POINTS  Who all is involved?  Understanding how forecasting works  Typical timeline  Other key details  Types of bonds  TEA presentation on CABs  Region 6 Bonds Stats  50-cent test  Ongoing matters  Tax rate trends  84 th Legislative Session  Municipal Advisor Regs SCHOOL PERSPECTIVEFINANCIAL ADVISOR THOUGHTS

3 WHO ALL IS INVOLVED?  Financial advisor  Critical that ISD makes decisions and verifies assumptions  FA should provide advice  Bond counsel  Provides legal opinion  Facilitates IRS paperwork  Rating agency(ies)  Underwriters  Underwriter counsel  Only applicable for negotiated bond sales

4 CASH FLOW FORECASTING  Assessed valuations  Be conservative  Consider only forecasting out 5 years  Debt service schedule  Existing debt coupled with new money sale  Repayment structure - escalating or level debt service  State aid estimates  Permanent School Fund (PSF) Insurance  Tax collection rate  Tax rate implications

5 TYPICAL TIMELINE  Preliminary analysis/discussion with FA  FA and ISD decide type of bond sale  Competitive  Negotiated  Board approves parameters (negotiated)  Bond sale/refunding amount  Designate pricing officer  Interest rate  Term of bonds

6 TYPICAL TIMELINE  Preliminary official statement review  Audited financial statement  Current enrollment, financial, and tax data  Conference calls with rating agency(ies)  1-2 days before you will receive questions  Trends and key indicators are focal points  Due diligence call with underwriter counsel  Pre-pricing call  Review market conditions  Pricing of the bonds

7 OTHER KEY DETAILS  Bond purchase agreement  Pricing certificate  Verification report  Official statement review  Closing agreement  Wire funds to FA, bond counsel, rating agency, etc.  Pledged securities  Don’t forget to contact the bank about the transaction

8 OTHER KEY DETAILS  The ISD has choices throughout the process  Call dates for the bonds  Decision on bond type(s) to use  Decision on debt structure  Selection of paying agent  Selection of underwriters  New money sales can result in capitalized interest  Cash payment to the issuer to be used to pay future interest (intended to keep tax rate down)


10 Current interest bond (CIBs) are bonds which principal and interest are due periodically. Capital appreciation bonds (CABs) are bonds basically issued at a discount which have no principal or interest payments due until bond matures. Some facts about CABs are as follow:  Depending on term of the bond, it can cost more than twice as much as a CIB of the same term  CABs do not count against debt limit until the year payment is due

11 TYPES OF BONDS During the 83 rd Session, Sen. Juan “Chuy” Hinojosa, D- McAllen, and Rep. Dan Flynn, R-Van, were trying to curtail the use of CABs by enacting the following:  Limit CAB percentage of bonded debt to 20%  Limit maturity date to no more than 20 years  Require school districts to post proposed bond sale details on their website and possibly board agenda

12 TYPES OF BONDS Last year California Governor Jerry Brown approved a bill to limit CABs in the future.  Reduced term from 40 to 25 years  District repayment ratio must be less than 4:1 (interest to principal)  Requires an early repayment option

13 TYPES OF BONDS While it is not a certainty, it is likely another CAB bill will surface during the 84 TH Legislative Session. HB 114 is in the works to be introduced The TEA was asked to present to the SBOE in late September, 2013 and the following slides were major talking points during this meeting.






19 REGION 6 ESC BOND STATS  84% of Region 6 districts currently hold I&S debt  63% of Region 6 districts currently holding I&S debt have held CABs within the last five years  53% of Region 6 districts currently holding I&S debt are currently holding CABs

20 REGION 6 ESC BOND STATS  Average I&S rate is $0.1855 Number of DistrictsNumber of Districts I&S Rate

21 50-CENT TEST  When new debt is issued, I&S tax rate can’t exceed 50 cents per 100 dollar valuation  CABs are not subject to the 50 cent test until they reach maturity  Provides relief to districts needing to build before the valuations can support the debt  Districts are allowed to use EDA/IFA funds and eligible Tier I funds to pass the 50 cent test

22 ONGOING MATTERS  Annual Continuing Disclosure reports are required to keep investors informed on financial and operating information  Arbitrage – You can not earn higher interest on investment of your bond proceeds than you are paying in interest  3 year working capital exemption  Small Issuer Exemption for <$5,000,000/yr.  An amount not exceeding the lesser of 5% of the sale proceeds of the issue or $100,000



25 84 TH LEGISLATIVE SESSION 83 rd Legislative Session (2013)  Limit amount of CAB debt  Limit term of CABs  Increased information at voting locations and on the ballot 84 th Legislative Session (2015)  50 cent test  GO Bonds to require 50% turn-out of registered voters  GO Bonds require super-majority to pass  Elimination of CABs entirely?

26 Municipal Advisor “MA” Regulations  Generally, a municipal advisor is defined as a person who solicits or provides financial advice to municipal entities, or obligated persons, with respect to municipal financial products or the issuance of municipal securities.  Rule is an extension of the Dodd-Frank Act intended to increase transparency and protect issuers.  Verify that your MA is licensed here: 


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