Financing Tools for Capital Projects Marshall Public Schools School Board Work Session 1 February 2, 2015

Financing Tools Authorized for School Districts School Building Bonds Operating Referendums Capital Project Levy Alternative Facilities Bonds & Levy Capital Facilities Bonds Capital Notes Lease Purchase Financing Lease Levy Qualified Zone Academy Bonds 2

Financing Tools Authorized for School Districts Today’s presentation includes background information on all of the tools which we believe the Marshall School District may consider using in the next year We have provided your administration with copies of a booklet which includes more detailed information on all of the tools listed on the previous slide 3

School Building Bonds Voter approval required Projects in excess of $2 million require Review and Comment process with MDE Provides up front cash for project Can be used for any type of capital project costs related to both & facilities & equipment Issued for up to 30 years –Minimum length of 20 years (or average maturity of 12.5 years) to qualify for debt service equalization aid 4

School Building Bonds (continued) Low interest rates –General obligation bonds –MN credit enhancement program (State guarantees payments on bonds) Debt service levy is spread on Net Tax Capacity (NTC) Elections can be held any date except those blacked out by statute 5

Operating Referendums Board may adopt resolution authorizing up to $300 per pupil without voter approval for maximum term of 5 years For additional authority, voter approval required and maximum term is 10 years –Generally, one election per year on the general election day –Specific ballot language dictated by statute –Can include inflationary language

Operating Referendums (continued) Used to finance operating costs as well as capital costs Revenue is “capped” at approximately $1,870 per pupil for , with exceptions Sparsity districts Districts that have been “grandfathered” at higher dollar amounts District’s FY authority is $300 per pupil –$ voter approved (net of $424 Local Optional Revenue) –$32.51 board approved No debt issued 7

Operating Referendums (continued) Equalization aid – three tiers –First tier equalized at the highest level up to $300 per pupil; District receives 54% of authority from state aid –Second tier equalized at a lesser degree from $300 to $760 per pupil; District is eligible for 21% state aid –Third tier equalized to an even lesser degree above $760 per pupil; any authority in this tier would be 100% local levy for Marshall Public Schools Referendum levy is spread on Referendum Market Value (RMV) –Seasonal recreational residential (cabins) and agricultural land and building do not pay 8

Capital Project Levy Voter approval required No interest or borrowing costs Used to finance capital costs (e.g. technology, maintenance) Maximum length is ten years No limit on dollar amount No equalization aid Levy is spread on Net Tax Capacity (NTC) –If District’s NTC increases, will generate more revenue and vice versa 9

Alternative Facilities Bonds & Levy No voter approval required Bonds issued and/or annual pay-as-you-go levy Full program (available to a small number of districts) –Minimum of 1,850,000 square feet of space, with average building age of 15 years or more, or 1,500,000 square feet of space and average building age of 35 years or more Limited program (all other districts) –Health & Safety qualifying projects, if project cost is greater than $500,000 per site 10

Alternative Facilities Bonds & Levy (continued) Multi-year plan must be completed, updated regularly and approved by MDE –Full program districts – 10 year plan –Limited program districts – 5 year plan Requires approval by Commissioner of Education Publication requirement – “Notice of Intent” to sell bonds or make an annual tax levy Low interest rates for bonds –General obligation bonds –State credit enhancement program 11

Alternative Facilities Bonds & Levy (continued) Uses of funds –Deferred maintenance, health & safety, or disabled access – depending on how District qualifies for program Cannot be used for new construction Debt service levy or pay-as-you-go levy spread on Net Tax Capacity District receives additional revenue to make the levy 12

Capital Facilities Bonds No voter approval required; Board approves resolution & is required to publish a notice –If 15% of registered voters submit a petition within 30 days, bonds cannot be sold without first holding a referendum Requires approval by Commissioner of Education Used for costs of improvements and repairs to buildings and sites Provides up front cash for projects; allows District to spread payments over a number of years 13

Capital Facilities Bonds (continued) Revenue neutral – district does not receive new revenue to make bond payments –Payments are made from operating capital or other general fund revenue Maximum length of bonds is fifteen years Bond payments limited to District’s annual operating capital revenue (about $860,000 for Marshall Public Schools) Low interest rates –General obligation bonds –State credit enhancement program 14

Capital Notes (Equipment Certificates) Similar to Capital Facilities Bonds No voter approval required Provides up front cash for equipment Maximum length of note is ten years –Restricted to useful life of equipment being financed –if used to prepay special assessments, maximum of 20 years 15

Capital Notes (continued) Revenue neutral – district does not receive new revenue to make payments Debt service payments limited to District’s annual operating capital revenue Low interest rates –General obligation debt –State credit enhancement program 16

Lease Purchase No voter approval needed Provides upfront cash Funds can be used for any real or personal property Length of lease determined by useful life of asset 17

Lease Purchase (continued) Tax exempt financing Subject to annual appropriation – higher interest rates Leases can be set up through various ways –Competitive proposals –Direct negotiation with bank or leasing company –Equipment vendors During the term of the agreement, leasing company technically owns asset In most cases, payments must be made from existing resources 18

Lease Levy Funds can be used for “capital portion” of leases for instructional purposes Cannot be used for –New buildings used primarily for “regular” K- 12 instruction –Additions for regular K-12 instruction, if space if > 20% of existing building –District-owned buildings leased to another program in same district –Stadiums Requires approval from MDE 19

Lease Levy (continued) Levy is limited to $212 per pupil unit Levy is spread on Net Tax Capacity In many cases, no debt is issued In some cases, levy can be used to finance payments on lease purchase 20

Qualified Zone Academy Bonds (QZABs) Federal program – submit application to MDE to get approval/allocation –District submitted application to MDE in March 2014 Funds can be used to rehabilitate, renovate, repair or provide equipment for a qualifying school Eligibility requirements –At least 35% of students at site qualify for free or reduced lunch –10% contribution by private business partner(s) or individuals –Education plan 21

Qualified Zone Academy Bonds (continued) Must be issued using a debt instrument authorized under state law (e.g. alternative facilities bonds issued as QZABs) Low effective interest rates Investors receive a annual credit on their federal income taxes in lieu of interest Maximum maturity is determined by formula in federal regulations and is revised periodically Only 2% of bond proceeds can be used for costs of issuance 22

Qualified Zone Academy Bonds (continued) Allocation process and status –Congress allocates a specific amount nationally each year –Federal government determines allocation to each state –In December of 2014, Congress reauthorized program for 2014 –2014 allocations by state have not yet been announced –For 2011 through 2013, allocation for Minnesota was just under $5 million per year 23

Potential Alternative Facilities Bonds District asked us to prepare preliminary estimates for an alternative facilities bond issue that would finance about $6.6 million in project costs for HVAC improvements Schedules we prepared are included on following slides –“Sources and Uses of Funds” table shows estimated issuance costs and bond amounts for both conventional tax-exempt bonds and QZABs –Payment schedule and tax impact schedule for tax-exempt bond Based on a “wrap-around” bond structure, with interest only for the first 9 years, and principal paid off after existing bonds are retired; we would be happy to discuss other potential bond structuring options If District received a QZAB allocation, tax impact would likely be similar, but payments in last 3 years would be lower 24

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(651) Jodie Zesbaugh Financial Advisor Ehlers 29