10866 Wilshire Boulevard, Suite 1650 Los Angeles, CA Tel. (310) , Fax (310) Montgomery Street, 19th Floor San Francisco, CA Tel. (415) , Fax (415) Presentation to the& RDA Legislation Impact on Redevelopment Bonds August 4, 2011 Ralph J. Holmes Principal Tel: Fax:

TAB Issuance At-A-Glance A tremendous supply of tax allocation bonds (TABs) were issued in early 2011 as many RDAs sought to issue bonds ahead of any State action Total issuance of California TABs in the first half of 2011 doubled the issuance in – 82 TABs totaling $1.4 billion 2010 – 34 TABs totaling $685 million Approximately 73% of the TABs were tax-exempt

2 What Does the Legislation Mean for Bonds? With the passage of ABx1 26 and ABx1 27, the issuance of redevelopment bonds has virtually halted in California Three principal questions regarding redevelopment debt: 1.How does the legislation affect existing debt? Are bondholders harmed by the new legislation? 2.Can agencies issue new bonds? If you do not opt in, you clearly cannot. What if you opt in? 3.How do the increased pass through payments affect bonding capacity? Where do the remittances fall in terms of debt service? If redevelopment bonds are not an option, what other options are available to cities to fund economic development and infrastructure?

3 Redevelopment Bonds Under ABx1 26 ABx1 26 suspends an agency’s ability to issue additional debt Existing bond debt service is protected Absence of a housing set aside deposit moves debt service up a level and likely improves debt service coverage

4 Redevelopment Bonds Under ABx1 27 Under ABx1 27, new money and refunding bonds are permitted General consensus among bond attorneys is that no one will deliver a clean opinion for new bond issues while the CRA lawsuit is outstanding The concern is that ABx1 27 is invalidated but ABx1 26 remains This includes all new financings New money bonds Refunding bonds Take-out of notes However, lease-back structure may be possible Would require General Fund Pledge Even if a stay is granted, it is unlikely that bond attorneys will give a clean opinion

5 Redevelopment Bonds Under ABx1 27 If the courts uphold ABx1 27, tax increment, and thus bonding capacity will be significantly constrained remittance is approximately 28% of gross tax increment Ongoing remittance is approximately 7% of gross tax increment Remittances are a city obligation and are subordinate to debt service An Additional School Payment is required if an agency incurs new debt Preliminary analysis for some agencies suggests a 30% surcharge on new debt This effectively raises the cost of a 6% borrowing to 8% Additional School Payment is likely senior to new debt service

6 Rating Agency and Investor Views Standard and Poor’s released a report based on the Governor’s budget that suggests no negative impact on redevelopment ratings Existing bondholders were protected in legislation No additional debt would be a credit positive Investors expressed some concern but became more comfortable as more TABs were sold Interest rates improved over time New investors entered the TAB market Investors have shown some concern with ABx1 27 With no new debt investor s have not had to digest the effect of ABx1 27 Existing deals are trading at strong levels in the secondary market

7 How Will Cities Fund Projects? A principal concern is how cities will fund projects Limited options for funding economic development and general infrastructure Potential infrastructure funding sources may include Governor suggested that the legislature decrease the requirement for GO bonds for cities from 2/3 to 55% Infrastructure financing districts are a potential tax increment tool for regional development that is supported by both the city and county Mello Roos and assessment districts may serve as financing tools for development projects During the time when the CRA lawsuit is outstanding, a hybrid structure with a pledge of tax increment with a backup CFD might work for developer sponsored projects

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