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

2. 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

3. 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

4. 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

5. Maintenance Tax Notes
Authorized by Texas Education Code Section
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

6. 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

7. 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

8. 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

9. Issuance Process and Participants

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. Renovation Projects
Texas Education Code, Subsection (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