1. GFOAZ ABC’s of Municipal Financing May 11, 2007 Presented By:

2. Types of Debt  Bonds  General Obligation (GO)  Revenue  Annually Appropriated Debt Service  Certificates of Participation (COPs)  Lease Purchases/Municipal Property Corporation (MPC)  Special Taxing Districts  Community Facilities Districts  Municipal Improvement Districts  State Programs  Greater Arizona Development Authority (GADA)  Highway Expansion and Extension Loan Program (HELP)  Water Infrastructure Finance Authority (WIFA) Page 1

3. General Obligation (GO) Bonds  Authorization: Election  Security: Full faith and credit of the City with a promise to levy secondary property taxes as necessary to repay debt.  Repayment Source: Debt service may be repaid with property taxes, or other revenues sources of the City.  Debt Capacity: Net Secondary Assessed Valuation  20% Limit ~ Projects involving lighting, open space, parks, public safety, recreational facilities, transportation, water, and wastewater.  6% Limit ~ Other general purpose improvements. Page 2

4. Revenue Bonds  Authorization: Election  Security: Pledge of specific revenues including:  Highway User Revenue Funds  Utility Revenues (Water, Sewer, other Enterprise Funds)  Repayment Source: Usually matches security pledge.  Debt Capacity: Coverage-driven ~ pledged revenues must exceed debt service by a certain factor. Varies by type of pledge. Page 3

5. Certificates of Participation (COPs)  Authorization: Council Resolution  Security: Annual appropriation to pay debt service from City’s General Fund.  Repayment Source: General Fund or other available funds of the City (other than property taxes).  Debt Capacity: Limited by general creditworthiness of the City and existing debt. Page 4

6. Lease Purchases/Municipal Property Corporation (MPC)  Authorization: Council Resolution and MPC Resolution  Security: MPC issues debt. City annually appropriates lease payments to the MPC with a pledge of specific revenues:  Excise Taxes  State shared revenues  Utility Revenues  Repayment Source: Usually matches security pledge.  Debt Capacity: Coverage-driven ~ pledged revenues must exceed debt service by a certain factor. Varies by type of pledge. Page 5

7. Community Facilities Districts (CFDs)  Authorization:  District Formation: Property Owners petition to form CFD. CFD voters authorize CFD formation. Council forms CFD.  GO Bonds ~ CFD voters must authorize.  Special Assessment Bonds ~ CFD forms assessment area.  Security & Repayment Source:  GO Bonds ~ CFD Secondary Property Taxes.  Special Assessment Bonds ~ Assessments on CFD property owners.  Debt Capacity: Based on credit-worthiness of project.  GO Bonds ~ 60% * [Market Value of Property + Public Infrastructure]  Special Assessment Bonds ~ Value to Lien Ratio; example 3:1 Page 6

8. Municipal Improvement Districts (MIDs)  Authorization:  District Formation Council adopts Resolution of Intent to form MID. Property Owners may protest MID formation. Council adopts Resolution Ordering Work.  MID issues Special Assessment Bonds  Security & Repayment Source:  Assessments on property owners within MID.  Contingent Liability of City’s General Fund if no other purchaser at foreclosure sale.  Debt Capacity: Limited by general creditworthiness of the City and project details. Page 7

9. Greater Arizona Development Authority (GADA)  Eligible Projects: All public infrastructure and facilities.  Program Features:  Subsidy of costs of issuance  “Pooled” with other loans  Intercept of State shared revenues in the event of default  Authorization:  Population 50,000 or More ~ Election  Population 50,000 or Less ~ Depends on security pledged.  Security:  Bonds (GO & Revenue Bonds authorized via election)  Annually Appropriated Debt Service (COPs & MPCs authorized by Council)  Special Taxing District (CFDs & MIDs via district formation)  Debt Capacity: Depends on repayment source. Page 8

10. Highway Expansion and Extension Loan Program (HELP)  Eligible Projects: Highway projects on the Federal Aid System, National Highway System, State Highway System, or designated as a state route. Project must be on ADOT’s State Highway Construction Program, ADOT’s State Transportation Improvement Plan, or Regional Transportation Improvement Plan.  Program Features:  Acceleration of highway projects  Shorter term loans – generally 5 to 7 years  Interest cost may be shared with Program  Intercept of HURF monies in the event of default  Authorization: Depends on security pledged.  Security: Depends on security pledged  Repayment Source: Depends on security pledged.  Debt Capacity: Depends on repayment source. Page 9

11. Water Infrastructure Finance Authority (WIFA)  Eligible Projects: Water and wastewater projects on WIFA Priority List.  Program Features:  Subsidization of interest cost  No closing costs charged by WIFA  Authorization:  Population 50,000 or More ~ Election  Population 50,000 or Less ~ Depends on security pledged.  Security:  Bonds (GO & Revenue Bonds authorized via election)  Annually Appropriated Debt Service (COPs & MPCs authorized by Council)  Special Taxing District (CFDs & MIDs via district formation)  Repayment Source: Depends on security pledged.  Debt Capacity: Depends on repayment source. Page 10

12. Public-Private Partnerships (PPP or P3’s)  What are Public-Private Partnerships?  Historically, any public infrastructure that included governmental and private financial involvement  More recently, often involve private developments with public participation to help economics/provide incentives (e.g. hotels, mixed use developments, etc.)  The newest wave … privatizations of publicly owned infrastructure (e.g. toll roads, parking garages, utilities, etc.)  Typical Elements of Development Driven Public-Private Partnerships  Debt issued by public entity for all or portions of related public infrastructure Generally excise tax bonds, ID’s and CFD’s  Rebate of various transaction taxes such as sales, hotel or occupancy taxes Usually a percentage of taxes generated Usually for a set period, a maximum amount or both Page 11

13. Public-Private Partnerships (PPP or P3’s)  Typical Elements of Development Driven Public-Private Partnerships  Often constructed on land owned by public entity  Often look to use property tax abatement  May involve lease of portion of development by government entity Provides both cash flow and credit benefit  Examples of Recent Privatizations  Chicago Skyway – 99-year lease by City of Chicago for 9-mile stretch of bridge and toll road generating an up-front payment of $1.8 billion to municipality  Indiana East-West Toll Road – 75-year agreement with $3.85 billion in upfront payment to State of Indiana  Chicago Parking Facilities – 99-year lease of four underground parking garages in downtown Chicago Page 12

14. Debt Versus Pay As You Go  A balancing act  No interest cost on pay as you go  But … also need to weigh: Opportunity cost of use of current monies Construction cost inflation Value of accelerating projects and service delivery Spreading the burden of long-term assets  Financial analysis/political philosophy is great  But in most case comes down to availability of current cash Page 13

15. Factors in Selecting the Right Debt Vehicle  Debt Capacity  What are the available capacities by debt type  Impact on credit  Leveraging balance  Cash Flow Considerations  Revenue sources available to pay debt service  Existing revenues versus new revenues  Voter Authorization  Willingness to seek authorization (or already in place)  Voter acceptance of project Page 14

16. Factors in Selecting the Right Debt Vehicle  Timing Needs  How quickly is the money needed?  How quickly can debt issue be completed?  Are bridge monies available?  Year end/expenditure limitation issues  Project Type  Revenue generating/enterprise related?  City-wide benefit or local?  Borrowing Cost  Interest rate considerations  Costs of issuance Page 15

17. Sealed Bid Versus Negotiated Bid  Two approaches to sales issuance from issuer standpoint  Sealed bid to purchase bonds  Negotiated bid to purchase bonds  Sealed Bid  Pick a date  Receive bids within set parameters  Best price among bids received  Negotiated Bid  Pick a firm or firms to underwrite purchase  Set initial market pricing  Actively determine a market level or market clearing price Page 16

18. Sealed Bid Versus Negotiated Bid  Reasons to Consider a Negotiated Bid  Particularly large or small transaction  Unusual or “story” credit  Infrequent or new issuer  Weak credit  More volatile interest rate market or rising market conditions  Targeting or broadening investor base  Ability to select underwriting team  Complete flexibility in timing  Reasons to Consider a Sealed Bid  State law requirement  May get “steal” in falling rate environment  For large issuers, may occasionally use a technique to judge underwriters Page 17

19. Sealed Bid Versus Negotiated Bid  The Market  Far more negotiated bids than sealed bids Nationally And in Arizona  Trend has been moving more in the direction of negotiated bids Page 18

20. Case Study – Bullhead City Wastewater System  Problem  Need to fund construction of City-wide wastewater system to replace individual septic system tanks to address DEQ consent decree  Issues  Significant capital funding need  Limited funding sources No property tax No significant wastewater enterprise revenues Growing, but limited, sales tax revenues No significant cash available for capital projects Page 19

21. Case Study – Bullhead City Wastewater System  Issues  Limited debt issuance opportunities No interest in General Obligation Bonds –No property tax –Difficult voter authorization issues No pledged revenues available for Wastewater Revenue Bonds Limited excise tax bond capacity and competing needs for capacity  Financing Solution  Multi-phased/multi-pronged solution  Improvement District financings for main and collector system lines 3 separate financings over multiple years for 3 areas of the City Consistency among Districts in assessment methodology and amounts Significant public outreach effort Non-rated debt; difficult for public sale Page 20

22. Case Study – Bullhead City Wastewater System  Financing Solution (con’t.)  WIFA as ID Bond purchaser Significantly lowered interest cost due to subsidy Knowledgeable “private placement” purchaser of ID debt  Contribution of City HURF funds For street improvements associated with installing sewer lines  City Excise Tax Revenue Bonds for wastewater plant improvements Broader City contribution toward backbone wastewater system serving whole community Limited use permitted retaining bonding capacity for other City capital needs  CDBG Grant monies For on-lot improvements (removal of septic tanks on privately owned property) Page 21

23. Case Study – Pima County Spring Training Stadium Facility  Problem  Need to fund construction of Cactus League Spring Training Facility for Arizona Diamondbacks and Chicago White Sox  Issues  Significant capital funding need  Limited funding sources No significant cash available for project Anticipated negative cash flow from operations No general sales tax Page 22

24. Case Study – Pima County Spring Training Stadium Facility  Issues  Limited debt issuance opportunities No interest in General Obligation Bonds –No time for election/public vote –Difficult voter authorization issues Limited alternative financing structures Certificates of Participation, subject to annual appropriation, only viable approach –But poor project collateral  Financing Solution  Sale/lease-back of existing County facility Need for essential project as collateral County jail as selected facility Page 23

25. Case Study – Pima County Spring Training Stadium Facility  Financing Solution (con’t)  Public auction (sale) of County’s jail asset Subject to lease-back under parameters established by County Trustee submits bid on behalf of financing team Title to property transfers back to County at end of financing term  Lease-back of facility by County securitized through issuance of Certificates of Participation Subject to annual appropriation Jail facility as collateral  Proceeds of Certificates of Participation paid by Trustee to County Used by County to construct Cactus League facility Page 24

26. Contact Information  For questions or follow-up on these materials or to address any of your financing needs, please contact any of our Arizona-based specialists listed below:  Kurt Freund, Western Region Manager(602) 381-5365  Shawn Dralle, Arizona Manager(602) 381-5362  John Snider, Managing Director(602) 381-5361  John Moore, Managing Director(520) 571-0626  William Wildman, Managing Director(602) 381-5364  Bruce Kelley, Managing Director(602) 381-5366  Jeffrey Wagner, Managing Director(602) 381-5369  Timothy Nelson, Director(602) 381-5342  Nicholas Dodd, Vice President(602) 381-5360  Jay Spector, Vice President(602) 381-5379  Phong Pham, Associate Vice President(602) 381-5370  Megan Wienand, Associate Vice President(602) 381-5367  Rene Moreno, Associate Vice President(602) 381-5376  Kathy Salcido, Associate Vice President(602) 381-5371  Michael Vásquez, Analyst(602) 381-5373 Page 25