Texas Community College District Financing Options and Process Jorge Rodriguez FTN Financial Municipal Advisors 17721 Rogers Ranch Parkway, Suite 145 San Antonio, Texas 78258 210.487.7000

Purpose To review the options for funding capital projects To review the various funding options and methodologies To identify current project funding requirements To recommend a methodology to address these needs

Financing Mechanisms General Obligation Debt Supported by local ad valorem taxes Debt must be approved by voters Maintenance Tax Notes Issued for maintenance and renovation of existing capital improvements Combined Fee Revenue Debt Supported by tuition and fees Board approval of financings Public Facilities Corporation Finance Supported by lease payments by the District

General Obligation Bonds General obligation debt of the District, voter approved at District-wide election Secured by ad valorem taxes, carry highest credit rating of any District

Maintenance Tax Notes Authorized by Texas Education Code Section 45.108 Secured by a pledge of Ad Valorem Tax revenues (I&S Tax if they mature beyond one year) Maturities limited to 25 years May only be utilized for “maintenance expenditures” which are defined in the statute to include expenditures in connection with the maintenance, repair, rehabilitation, or replacement of heating, air conditioning, water, sanitation, roofing, flooring, electric, or other building systems of existing school properties

Combined Fee Revenue Bonds Debt secured by certain fees of the District May be used for both in-district and out-of-district purposes Secured by tuition, fees, investment income Capacity is finite; statutorily limited by available pledged revenue Without corresponding increase in unrestricted revenues (i.e., taxes, tuition, fees) added debt may erode operational revenue

Public Facilities Corporation College Districts may create a Public Facilities Corporation (“PFC”) – conduit College District Trustees constitute the Board of Directors of the PFC Lease revenue bonds issued by PFC available for property acquisition and development in the service area District leases the new facility from the PFC The bonds are secured by annual lease payment of District; holds very high credit rating one step below District general obligation

Public Facilities Corporation (continued) District Board has final authority over use and issuance of new money debt District Board has final authority over refinancing outstanding debt Does not impair revenue bond capacity Structured properly, may provide for multi-staged development While a lease purchase transaction, avoids costly developer fees

Issuance Process and Participants

Working Group The following solely represent the interests of the College District Issuer: Bond Counsel Legal Counsel to District. Prepares and submits bond documents to the Attorney General Delivers an opinion upon the closing of an issue of bonds as to legality of issuance and other matters that may include the description of security pledge and an opinion as to the tax-exempt nature of the bonds Prepares and counsels Trustees on other corporate and real estate documents related to the transaction Attorney-Client Relationship Financial Advisor A consultant to the issuer, acting in a fiduciary capacity, who provides the issuer with advice regarding the structure, timing, terms, or other similar matters concerning a new issue of securities. Acts as negotiation agent on behalf of the issuer with underwriters, rating agencies and investors

Working Group – Underwriting Team The Underwriting Team in no way represents the interests of the College District Team Underwriter A broker dealer engaged to negotiate and market securities to investors based upon an offering approved by the issuer No fiduciary relationship to the issuer Underwriting Syndicate A group of underwriters formed for the purpose of participating jointly in the initial public offering of a new issue of municipal securities. One or more underwriters will act as manager of the syndicate and one of the managers will act as lead manager and run the books Underwriters’ Counsel Represents the underwriters Investors

Mandatory Disclosures for Underwriters MSRB Rule G-17 requires Underwriters (“UW”) to deal fairly at all times with both municipal issuers and investors UW primary role is to purchase the bonds with a view towards distribution in an arm’s-length commercial transaction with the issuer. As such, UW has financial and other interests that differ from those of the issuer Unlike a municipal advisor, UW does not have a fiduciary duty to the issuer under the federal securities laws and, therefore, is not required to act in the best interests of the issuer without regard to its own financial or other interests UW has a duty to purchase the bonds from the issuer at a fair and reasonable price, but must balance that duty with its duty to sell the bonds to investors at prices that are fair and reasonable UW will review the official statement in connection with the issuance of the bonds in accordance with, and as part of, its respective responsibilities to investors under federal securities laws, as applied to the facts and circumstances of each transaction

Working Group – Independent Third Parties Paying Agent Commercial bank where principal and interest payments are received from issuer and paid to bondholders Verification Agent An independent consultant or CPA in a refunding transaction that verifies the adequacy of receipts necessary for the defeasance of outstanding securities Attorney General of the State of Texas Reviews and approves all legal and financial documents of an issue of securities to assure legal compliance with all applicable State law Rating Agencies Assess credit quality and assign credit ratings

Steps Necessary to Sell Bond Issue Staff works with Financial Advisor to determine needs and the best means to fund capital projects Board discussion and tentative approval of bond sale Staff, Financial Advisor, and Bond Counsel draft documents necessary for issuance of bonds Board appointment of underwriting syndicate Board approval of Preliminary Official Statement Ratings process

Steps Necessary to Sell Bond Issue Sales process/pricing Board approval of bond sale Submission, review and approval by the Attorney General of Texas Closing and delivery of funds

College Financing Constraints The various general obligation and revenue bond issuance vehicles available to the District require funding of facilities for junior college purposes There is no current authority to fund acquisition and construction of facilities for entities partnering with the District which may not fit the definition of educational facilities

Renovation Projects Texas Education Code, Subsection 45.108(a) provides in part that the term “maintenance expenditures” includes expenditures “in connection with the maintenance, repair, rehabilitation, or replacement of heating, air conditioning, water, sanitation, roofing, flooring, electric or other building systems of existing school properties” District may issue Tax Notes for the purpose of addressing these cost items