1. General Obligation Bonds and Developer Fees and Agreements 2008 School Finance Conference January 19, 2008 Presented by John R. Baracy Vice President Stone & Youngberg LLC

2. 1  General Obligation Bonds  Developer Fees and Agreements Discussion Items

3. 2 GO Bonds Secured by an Ad valorem tax on all taxable property within the School District’s boundary Ad valorem taxes create a new revenue stream for the School District Requires voter approval of tax

4. 3 Unlimited ability to raise taxes provides investors with greatest security and lowest borrowing cost School Facilities Improvement District (SFID) can be formed by School Districts to tax only a portion of their territory GO Bonds

5. 4 Bond Approval Method Two methods available under State law  Proposition 46 (1986) Required 2/3rds favorable vote  Proposition 39 (2000) Requires 55% favorable vote

6. 5 Prop 46 v. Prop 39  Types of Facilities  Maximum Tax Rates  Election Dates  Accountability Measures

7. 6 Prop 46 Bonds may fund  land acquisition  purchase or construction of new school facilities  renovation and repair of existing school buildings  permanent improvements to school grounds Prop 39 Bonds may fund  All the above PLUS  Furnishing and equipping of school facilities  Lease of real property for school facilities GO Bond Uses

8. 7 Prop 46 No maximum tax rate Prop 39 Establishes a maximum tax rate (per $100,000 of assessed value)  $30 for elementary and high school districts  $60 for unified school districts  $25 for community college districts GO Bonds

9. 8 Election Dates Prop 46 Any Tuesday – 89 Days in Advance of Election Prop 39 February 5, 2008 and June 3, 2008 – Primary Elections November 4, 2008 – General Election Other dates only if coincide with regularly scheduled district-wide election

10. 9 Accountability Measures Prop 46  Annual Report (1) Prop 39  Annual Report (1)  Citizens Oversight Committee (COC)  Performance and Financial Audits (1) Required under the Government Code.

11. 10 AB 1368, also known as the Mullin Bill, went into affect on January 1, 2008 allowing Bond Anticipation Notes (“BANs”) to amortize over 5 years New Legislation Effecting GO Bonds AB 1482, also known as the Canciamilla Bill, went into affect on January 1, 2007 Prior to the bond sale, the Board must adopt a resolution that:  Designates / approves method of sale  States reasons for the method of sale selected  Discloses the bond counsel, and the underwriter and financial advisor if either or both are used for the sale  Estimates the costs associated with the issuance After the bond sale, the actual costs associated with the issuance must be:  Presented to the Board  Disclosed at the next scheduled public meeting  Submitted to the California Debt and Investment Advisory Commission (CDIAC)

12. 11 Total Amount: $14.9 Billion Total Transactions: 323 Source: California Debt and Investment Advisory Commission (CDIAC) (in $Billions) 72 Issues 212 Issues39 Issues California’s 2006 GO Bond Issues 45% $6.70 21% $3.10 34% $5.14 K-12 School Facilities Community College Facilities General Government (1) (1) Includes: Flood Control & Storm Drainage, Healthcare Facilities, Multifamily Housing, Multiple Capital Improvements, Correctional Facilities, Parks, Public Building, Public Transit, Seismic Safety Improvements, Wastewater & Water.

13. 12 Source: California Debt and Investment Advisory Commission (CDIAC) 1997-2006 Total Amount: $42 Billion Total Transactions: 1,837 212 Issues Annual K-12 GO Bond Volume

14. 13 Developer Fees  General  Level One: fees are defined as general school facilities fees  Level Two: Nominally 50% of construction costs with fees to be used for new school construction  Level Three: Nominally 100% of construction costs, authorized when the State does not have available funds (option is currently suspended).  More unpredictable than Mello-Roos districts due to absence of a formal tax structure  Securitization of Developer Fees  If a school district selects to securitize the developer fees, generally a Certificates of Participation (“COP”) long term debt instrument is issued  Unless a school district pledges both general fund and developer fees (double- barrel pledge), securitizing the revenue stream will be very costly

15. 14 Developer Fees + Can supplement other financing sources in areas of consistent growth. + Best use in diversified areas (multiple developers in growing school district) + No tax restrictions on expenditures (bond proceeds are restricted). -Must be for new construction only. -During times of slower growth, less revenue available to pay off debt is the stream is securitized. - Unpredictable revenue stream. Advantages Disadvantages

16. 15 Developer Agreements  Background – Public school districts are required to provide facilities to house students within their respective jurisdiction.  Senate Bill 50 (“SB 50”)  Creates 50/50 split construction costs of new schools.  Over time, hasn’t kept up with escalated construction costs.  Current environment requires school districts to engage in aggressive mitigation negotiations for utilizing other financing vehicles (CFDs) and streams of revenue (special tax).

17. 16 Developer Agreement Timeline  Developer typically contacts school district.  Information is gathered regarding developer’s project needs, likely student generation factors and determines potential revenue stream identified.  Special tax consultant and underwriter work identified with developer and school district during negotiations of the School Facilities Impact Mitigation Agreement (“SFIMA”)  Once terms are settled, school district board adopts the SFIMA  The SFIMA is recorded on title and becomes an obligation of the respective property

18. 17 Great Questions and Answers

19. 18 The Presenter John R. Baracy Vice President John R. Baracy is a Vice President in our Los Angeles office. He brings over thirteen years of experience to California and Arizona education finance. John has expertise in the structuring of new money and refunding issues, analysis of debt capacity, tax rate analysis, rating agency credit presentations, arbitrage rebate requirements, derivative financings, and investment of bond proceeds for general obligation bonds, certificates of participation, Mello-Roos bonds, and all other education financing vehicles. Most recently, John has been assisting K-12 clients with financing solutions pertaining to GASB 45. He is currently structuring transactions totaling nearly $500 million for school districts looking to fund GASB 45-related obligations with bond proceeds. John is a member of the 2008 CASH Statewide General Obligation Bond Committee. He comes from an education family: his parents are long- standing administrators for a school district and community college in Arizona. John has a bachelors of science degree from Arizona State University. He also enjoys playing golf and is an active snowboarder. Stone & Youngberg LLC Stone & Youngberg was founded in San Francisco in 1931The firm was established to advise, structure, underwrite and sell California municipal bonds. In addition to its headquarters office in San Francisco, the firm maintains public finance and sales offices in Los Angeles, San Diego, New York, Chicago, Phoenix, Richmond and Annapolis. Today, Stone & Youngberg is California’s largest regional investment bank devoted to municipal bonds. Over the past five years, Stone & Youngberg has led all investment banks and financial advisors by structuring the most long-term government financings in California. Stone & Youngberg’s leading status in local California municipal finance reflects the firm’s 75-year dedication to helping local public agencies achieve their financial goals. In 2005, Stone & Youngberg underwrote 222 financings for California public agencies. Since 2001, Stone & Youngberg has participated on over 1,270 transactions representing $23.9 billion of California financings as sole or senior managing underwriter or financial advisor in all areas of municipal finance. The firm’s website is www.syllc.com.www.syllc.com CONTACT INFORMATION: 515 South Figueroa Street, Suite 1060 Los Angeles, California 90071 Phone (213) 443-5025 Fax (213) 443-5023 Email jbaracy@syllc.comjbaracy@syllc.com