Walking a Straight Legal and Financial Line in 2018 California Local School Finance - CASBO

 
Walking a Straight Legal and Financial Line in 2018 California Local School Finance - CASBO
John R. Baracy
Managing Director
Stifel
Adam Bauer
President & CEO
Fieldman & Rolapp & Associates
David G. Casnocha
Managing Shareholder
Stradling Yocca Carlson & Rauth

                Walking a Straight Legal and
              Financial Line in 2018 California
                   Local School Finance
                             The views and opinions expressed in this presentation are those of the authors and do not
                                                      necessarily reflect those of CASBO.
Walking a Straight Legal and Financial Line in 2018 California Local School Finance - CASBO
Table of Contents
   Section                                                                                                                                                                                                 Page Number

   Section I:          Prudent and Effective GO Bond Program Mechanics                                                                                                                                                          3

   Section II: 2017 Tax Cuts and Jobs Act Bill Summary and Other 2017 California Legislation                                                                                                                                  24

   Appendix: California K-12 School Finance Resource Materials                                                                                                                                                                34

Disclosure
Stifel, Nicolaus & Company, Incorporated (“Stifel”) has prepared the attached materials. Such material consists of factual or general information (as defined in the SEC’s Municipal Advisor Rule). Stifel is not hereby providing a
municipal entity or obligated person with any advice or making any recommendation as to action concerning the structure, timing or terms of any issuance of municipal securities or municipal financial products. To the extent
that Stifel provides any alternatives, options, calculations or examples in the attached information, such information is not intended to express any view that the municipal entity or obligated person could achieve particular
results in any municipal securities transaction, and those alternatives, options, calculations or examples do not constitute a recommendation that any municipal issuer or obligated person should effect any municipal securities
transaction. Stifel is acting in its own interests, is not acting as your municipal advisor and does not owe a fiduciary duty pursuant to Section 15B of the Securities Exchange Act of 1934, as amended, to the municipal entity or
obligated party with respect to the information and materials contained in this communication.

Stifel is providing information and is declaring to the proposed municipal issuer and any obligated person that it has done so within the regulatory framework of MSRB Rule G-23 as an underwriter (by definition also including the
role of placement agent) and not as a financial advisor, as defined therein, with respect to the referenced proposed issuance of municipal securities. The primary role of Stifel, as an underwriter, is to purchase securities for
resale to investors in an arm’s- length commercial transaction. Serving in the role of underwriter, Stifel has financial and other interests that differ from those of the issuer. The issuer should consult with its’ own financial and/or
municipal, legal, accounting, tax and other advisors, as applicable, to the extent it deems appropriate.

These materials have been prepared by Stifel for the client or potential client to whom such materials are directly addressed and delivered for discussion purposes only. All terms and conditions are subject to further discussion
and negotiation. Stifel does not express any view as to whether financing options presented in these materials are achievable or will be available at the time of any contemplated transaction. These materials do not constitute
an offer or solicitation to sell or purchase any securities and are not a commitment by Stifel to provide or arrange any financing for any transaction or to purchase any security in connection therewith and may not relied upon as
an indication that such an offer will be provided in the future. Where indicated, this presentation may contain information derived from sources other than Stifel. While we believe such information to be accurate and complete,
Stifel does not guarantee the accuracy of this information. This material is based on information currently available to Stifel or its sources and is subject to change without notice. Stifel does not provide accounting, tax or legal
advice; however, you should be aware that any proposed indicative transaction could have accounting, tax, legal or other implications that should be discussed with your advisors and /or counsel as you deem appropriate.

                                                                                                                                                                                        2
                                                                        2018 CASBO Annual Conference & California School Business Expo                                                                              2
Walking a Straight Legal and Financial Line in 2018 California Local School Finance - CASBO
SECTION I:
PRUDENT AND EFFECTIVE GO BOND PROGRAM MECHANICS

              2018 CASBO Annual Conference & California School Business Expo
Walking a Straight Legal and Financial Line in 2018 California Local School Finance - CASBO
Factors Affecting California K-12 GO Bond Programs
GO bond programs are structured based on projections of:
 Facility needs of District
  The timing and amount of bond sales is influenced by the expenditure cash flow for the project
  Other funds available to the district for facility purposes

 District assessed value (“AV”)
  Projected AV growth has a significant effect on the bond issuance schedule and amounts
  Along with the amount of outstanding bonds, AV determines the statutory bonding capacity in any future fiscal year

 Tax rates
  Tax rate is calculated by dividing the aggregate annual bond payments by the District’s assessed value
  Future tax rates are based on AV, timing of bond issuances, issuance amounts, and debt service payments

 Municipal bond interest rates
  Function of:
    − National and international financial market factors
    − District credit ratings
    − Bond structure, including bond type, financing term and redemption features
    − Tax‐exempt or taxable bonds

                                                                                                             4
                                            2018 CASBO Annual Conference & California School Business Expo              4
Walking a Straight Legal and Financial Line in 2018 California Local School Finance - CASBO
Role of Assessed Value & Property Taxes
 Assessed valuation drives access to bond dollars
 Voter Approved Authorization ≠ Cash Available Now
 Faster AV growth allows earlier issuance
 Slower AV growth or declines slow or reduce issuance
 Ad Valorem Property Taxes
 Ad valorem property taxes are typically represented as a rate per $100,000 of a property’s assessed value
 Example: You own a house with a market value of $600,000 and an assessed value of $400,000, and the ad valorem tax is $30 per
   $100,000 of assessed value. Your property tax will be $120. The ad valorem tax rate is applied to your assessed value ($400,000 ÷
   $100,000) x $30=$120.

 Relationship between assessed valuation growth and tax rates

             Annual Assessed Valuation Growth at 2.00%                        Annual Declining Assessed Valuation at 2.00%
                  Debt         Assessed            Tax Rate                           Debt          Assessed           Tax Rate
        Year                                                              Year
                 Service        Valuation       per $100,000                         Service         Valuation      per $100,000
        2017    $900,000      $3,000,000,000            $30.00            2017        $900,000     $3,000,000,000           $30.00
        2018     900,000        3,060,000,000            29.41            2018         900,000      2,940,000,000            30.61
        2019     900,000        3,121,200,000            28.84            2019         900,000      2,881,200,000            31.24
        2020     900,000        3,183,624,000            28.27            2020         900,000      2,823,576,000            31.87

                                                                                                               5
                                        2018 CASBO Annual Conference & California School Business Expo                         5
Timing of Bond Sales and Effect
 Identify facility needs
 Expected timeframe for spending bond proceeds (3-year spend-down rule of IRS)
 Useful life of projects funded with bond proceeds
 Inflation risks
 Inflation deteriorates the purchasing power of bond proceeds
 The average annual increase in California’s Consumer Price Index for all urban consumers from 1955 to 2017 was 3.86%

                                                            Sample Impact of Construction Cost Inflation on Bond Proceeds
                                                                                                         Purchasing Power in
                                                                                                       2016 Dollars of Principal
                      Name of                                 Year of       Estimated Total Bond        Amount of Bonds with                                                                      Purchasing Power
                    Bond Series                              Issuance         Principal Amount         3.86% Annual Inflation(1)                                                                     Difference
                      Series A                                 2016                    $100,000,000                  $100,000,000                                                                                         --
                      Series B                                 2018                      100,000,000                    92,428,996                                                                              ($7,571,004)
                      Series C                                 2020                      100,000,000                    85,431,193                                                                              (14,568,807)
                     All Bonds                                 Total                   $300,000,000                  $277,860,189                                                                              ($22,139,811)
       (1)   Average annual increase in California Consumer Price Index for all urban consumers from 1955 to 2017 was 3.86%. Average annual increase in Marshall & Swift Eight California Cities Index for Class B Construction from
             1999 to 2018 was 4.27%.

                                                                                                                                                                                       6
                                                                  2018 CASBO Annual Conference & California School Business Expo                                                                                     6
Election Dates
Proposition 46
 Generally any Tuesday
Proposition 39
 Statewide primary, general or special elections

                       Election Date                                             Filing Date
                        June 5, 2018                                         March 8 , 2018
                     November 6, 2018                                        August 9, 2018

 Other dates only if it coincides with regularly scheduled districtwide election

                                                                                               7
                              2018 CASBO Annual Conference & California School Business Expo       7
Statutory Debt Capacity
 A school district’s bonding capacity is a statutory limit on the amount of additional general
  obligation bonds that can be issued at a given point in time
 State Education Code limits the amount of general obligation bonds that can be sold by a
  unified school district and school district in a single fiscal year to a certain percentage of its
  assessed valuation minus the amount of any outstanding general obligation bonds
  2.50% of its assessed valuation for a unified school district
  1.25% of its assessed valuation for elementary and high school districts

                                                                                Statutory Bonding Capacity(1)

                                                                                         Fiscal Year 2017-18
                                                                Total Assessed Valuation                                          $14,000,000,000
                                                          times 2.50% equals
                                               Gross Bond Issuance Capacity for 2017-18                                             $350,000,000
                                                                minus
                                                  Outstanding Principal of Previously
                                                                                                                                    $258,375,000
                                                   Issued General Obligation Bonds
                                                                Equals
                                                Net Bond Issuance Capacity for 2017-18                                               $91,625,000
                                        (1) Does   not reflect a specific school district and is only for illustrative purposes

                                                                                                                                                    8
                                           2018 CASBO Annual Conference & California School Business Expo                                               8
Sample GO Bond Program
                           Sample Proposition 39 Election in November 2018 for a Unified School District

   Financing Assumptions                                  $30 Tax Rate                    $48 Tax Rate        $60 Tax Rate

   Amount of Bonds                                          $169,000,000                   $274,000,000       $345,000,000

   Future AV Growth Rate                                       3.75%                           3.75%             3.75%

   Number of Bond Issues                                          4                               4                4

   Bond Amount and Issuance Date
    Series A – February 2019                                $42,500,000                     $70,000,000        $85,000,000
    Series B – August 2021                                  $42,500,000                     $70,000,000        $85,000,000
    Series C – August 2023                                  $42,000,000                     $70,000,000        $85,000,000
    Series D – August 2025                                  $42,000,000                     $64,000,000        $90,000,000

   Repayment Period per Series                                30 Years                        30 Years          30 Years

   Aggregate Repayment Ratio                                  2.08-to-1                       2.09-to-1         2.09-to-1

   Compliant with AB 182                                        Yes                             Yes               Yes

   Estimated Ad Valorem Tax Rates

    Median AV for Typical Home ($285,000)
      Highest Annual Tax Rate                                  $85.50                         $136.80           $171.00

                                                                                                          9
                                       2018 CASBO Annual Conference & California School Business Expo                        9
Timing of Bond Sales and Effect
                                                                                                                                  $274 Million Authorization, $48 Tax Rate
   Tax Rate Per $100,000 of Assessed Valuation   $60.00

                                                 $48.00

                                                 $36.00

                                                 $24.00

                                                 $12.00

                                                  $0.00
                                                          2018
                                                                 2019
                                                                        2020
                                                                               2021
                                                                                      2022
                                                                                             2023
                                                                                                    2024
                                                                                                           2025
                                                                                                                  2026
                                                                                                                         2027
                                                                                                                                2028
                                                                                                                                       2029
                                                                                                                                              2030
                                                                                                                                                     2031
                                                                                                                                                            2032
                                                                                                                                                                   2033
                                                                                                                                                                          2034
                                                                                                                                                                                 2035
                                                                                                                                                                                        2036
                                                                                                                                                                                               2037
                                                                                                                                                                                                      2038
                                                                                                                                                                                                             2039
                                                                                                                                                                                                                    2040
                                                                                                                                                                                                                           2041
                                                                                                                                                                                                                                  2042
                                                                                                                                                                                                                                         2043
                                                                                                                                                                                                                                                2044
                                                                                                                                                                                                                                                       2045
                                                                                                                                                                                                                                                              2046
                                                                                                                                                                                                                                                                     2047
                                                                                                                                                                                                                                                                            2048
                                                                                                                                                                                                                                                                                   2049
                                                                                                                                                                                                                                                                                          2050
                                                                                                                                                                                                                                                                                                 2051
                                                                                                                                                                                                                                                                                                        2052
                                                                                                                                                                                                                                                                                                               2053
                                                                                                                                                                                                                                                                                                                      2054
                                                                                                                                                                                                                                                                                                                             2055
                                                                                                                                                                                                                                                                                                                                    2056
                                                     2019 Series A Debt Service                                   2021 Series B Debt Service                                 2023 Series C Debt Service                                    2025 Series D Debt Service                                     $48.00 Tax Rate

                                                                                                                                                                                                                                                                                            10
                                                                                                                         2018 CASBO Annual Conference & California School Business Expo                                                                                                                                             10
Technology Financing Tools and Options
   Proposition 39 General Obligation Bonds – Short Term Amortization (3-10 Years)
     Provides a debt service repayment planned around the useful life of devices purchased
     Allows for the District to take advantage of low interest rates
     Available issuance amount will be determined by tax base, credit rating, outstanding parity debt, authorization, funding needs, and
      interest rate environment

   Technology Endowment Fund
     3-10 year issuances that deposit money into an investment fund
     The investment fund disperses money annually or periodically over the life of the bond
     Since bond proceeds are invested, rather than spent, interest earning are constrained per Federal tax regulations
     Funding amount and disbursements are heavily dependent on market rates

   Other Methods of Issuance
     District’s that do not have remaining authorization under Proposition 39 or do not have immediate plans to proceed with a
      Proposition 39 election can issue Tech Bonds with other available revenue streams
     Certificates of Participation (General Fund Obligation)
     Mello-Roos Special Tax Bonds (Special Tax Obligation)
     These methods are limited as many districts may not have available funds to pay debt service out of the General Fund and/or may
      not have community facilities districts within district boundaries

                                                                                                            11
                                           2018 CASBO Annual Conference & California School Business Expo                 11
Illustrative Technology Bond Scenario

   A new bond measure with an estimated tax of                                                                                                                              Issue               Issue Date          Proceeds
    approximately $23 per $100,00 of AV, $2.0 million in                                                                                                                 Series A               February 2019         $6,300,000
                                                                                                                                                                         Series B                August 2022           6,900,000
    inflation-adjusted technology needs could be financed by                                                                                                             Series C                August 2025           7,500,000
    the annually                                                                                                                                                         Series D                August 2028           8,200,000
     Assumptions:                                                                                                                                                       Series E                August 2031           9,000,000
                                                                                                                                                                         Series F                August 2034           9,800,000
       − 100% current interest bonds, 30 year program
                                                                                                                                                                         Series G                August 2037          10,700,000
       − Interest rates: 3.0% - 4.0%(1)                                                                                                                                  Series H                August 2040          11,700,000
       − Annual AV growth: 3.0%                                                                                                                                          Series I                August 2043          12,800,000
                                                                                                                                                                         Series J                August 2046          14,000,000
       − Assumes 9% project cost escalation
                                                                                                                                                                                                                     $96,900,000

                                                                                                               Estimated Tax Rates
                                                $180
                Tax Rate (Per $100,000 of AV)

                                                $160
                                                $140
                                                $120
                                                $100
                                                 $80
                                                 $60
                                                 $40
                                                 $20
                                                  $-

                                                                    Series A     Series B    Series C     Series D     Series E     Series F    Series G      Series H    Series I   Series J
               (1) Assumes                             higher than market interest rates. Interest rates are subject to market fluctuations until bonds are sold.
                                                                                                                                                                                                12
                                                                                     2018 CASBO Annual Conference & California School Business Expo                                                             12
A Technology GO Bond Case Study
         In September 2013, Stifel assisted the Rosemead School District (the “District”) to issue bonds under
          an existing Proposition 39 authorization (the “2008 Authorization”)
     In preparing for the second issuance of bonds under the 2008 Authorization, the District determined a portion of the proceeds
      would be dedicated to fund technology

         To avoid the scrutiny of funding technology with long term bonds, the District issued two series of
          bonds, Series B and Series T-1
     Series B was issued as a 30 year bond to repay an outstanding bond anticipation note and Series T-1 was issued as a five year
      bond to fund the cost of technology improvements
     Series T-1 was able to fund $760,000 in technology improvements

                                                                                   Rosemead School District (Los Angeles County, California)
                                                               Election of 2008, General Obligation Bond Program – Debt Service Schedule / Estimated Tax Rates
    Estimated Tax Rate per

                             $35.00
                             $30.00
         $100K of AV

                             $25.00
                             $20.00
                             $15.00
                             $10.00
                              $5.00
                                $-
                                       2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043

                                     Election of 2008 Prior Bonds                 Election of 2008, Series B (Infrastructure)          Election of 2008, Series T-1 (Technology)

                                                                          2018 CASBO Annual Conference & California School Business Expo                                           13
What Type of Bond Securities Are Issued?
                                                                Primary Purpose
                     Provide access to LOWER annual tax revenues in the early years (1 to 25 years) available for
                     repayment for each Bond series

                                                                Primary Features
                     Investors receive SEMI-ANNUAL interest and ANNUAL principal payments
                     Represents lower bond interest rates available at issuance
                     Represents lower total bond payments to principal amount issued ratio

                                                                Primary Purpose
                     Provides access to HIGHER annual tax revenues in LATER years (25 to 40-years) available for
                     repayment of each Bond series

                                                                Primary Features
                     CABs pay both the INTEREST & PRINCIPAL on scheduled dates (Limited to 25 years after
                     January 1, 2014)
                     CCABs defer INTEREST for a period (10 to 20-years) and then convert to CIBs

                                                                                             14
                       2018 CASBO Annual Conference & California School Business Expo                      14
Difference in Bond Interest Rates by Types of Bonds

                                                        Current Interest Bonds and Capital Appreciation Bonds
                                                                Hypothetical Interest Rates as of March 22, 2018
                                                                    General Obligation Bonds rated A+/A1

         Maturity                     Current Interest Bonds                                Non-Callable                                 Callable            Convertible Capital
          Year                                                                               Maturities                                 Maturities          Appreciation Bonds*
                                                                                                                                 Capital Appreciation Bonds
                5                                    2.45%                                        2.81%                                            n.a.                                             n.a.
              10                                     2.97%                                            %                                            n.a.                                             n.a.
              15                                     3.23%                                          n.a.                                        4.17%                                             3.83%
              25                                     3.46%                                          n.a.                                        4.45%                                             4.11%
              30                                     3.51%                                          n.a.                                           n.a.                                             n.a.
  *Conversion from CABs to CIBs in 10 years from closing date of bonds.

  All numbers are preliminary and are subject to change. Tax-exempt interest rates were derived from spreads to the 'AAA' rated MMD Index of comparable recently priced financings and secondary market trades as of March 22,
  2018. In no way does Stifel represent that the bonds would receive such pricing results.

                                                                                                                                                                                    15
                                                                   2018 CASBO Annual Conference & California School Business Expo                                                                               15
Recent History of CABs Issued by California School Districts
        CABs as Percent of All School District
             General Obligation Bonds                                   CABs have been a component of school general
         Number of                                                       obligation bonds for many years
         All School            Number of            Percentage of
         New Money            Issues with             All Issues        Increased use of CABs corresponds with approval
 Year
 1995
         GO Bonds
              94
                                 CABs
                                   21
                                                     with CABs
                                                        22.3%
                                                                         of Proposition 39 in November 2000
 1996         92                   19                   20.7%
 1997        139                   41                   29.5%           Use of CABs rose in response to slowdown or
 1998        193                   51                   26.4%            decline of assessed valuation during recession
 1999        177                   49                   27.7%
 2000
 2001
             175
             164
                                   53
                                   50
                                                        30.3%
                                                        30.5%
                                                                        Frequency of CAB maturities longer than 30 years
 2002        213                   82                   38.5%            increased during the recession and legislative
 2003        179                   64                   35.8%
 2004        250                   91                   36.4%
                                                                         approval of AB 1388 in 2009
 2005        194                   87                   44.8%
 2006        196                   93                   47.4%           CAB issuance fell in late 2012 through the present
 2007        198                   96                   48.5%            partly due to media attention, political criticism and
 2008        168                   83                   49.4%
 2009        211                  123                   58.3%            passage of AB182 in 2013
 2010        142                   77                   54.2%
 2011        169                  101                   59.8%
 2012        120                  49                    40.8%
 2013        188                  40                    21.3%
 2014        116                  19                    16.3%
 2015        170                  29                    17.0%
 2016        122                   13                   10.7%
 2017        259                   20                    7.7%

                                                                                                             16
                                            2018 CASBO Annual Conference & California School Business Expo         16
Comprehensive School Bond Election Results

                                      School District General Obligation Election Results:
                                               January 1986 – November 2017

                           Proposition 46                                                                            Proposition 39
       451 Issues                                                                                    189 Issues
  ($19.9B Authorization)                                                                        ($13.9B Authorization)

                                                                                                                         14.8%

                               45.7%

                                                  54.3%
                                                                       536 Issues                                                85.2%
                                                                  ($23.8B Authorization)                                                     1,087 Issues
                                                                                                                                         ($13.9B Authorization)

                                                                             PASS                   FAIL

       (1)
         Proposition 39 elections commenced in Spring 2001.
        Source: School Services of California                                                                                       17
                                                        2018 CASBO Annual Conference & California School Business Expo                            17
Common Alternatives for Structuring GO Bonds, COPs, LRBs, BANs, and CFDs
All of These Financing Tools Can be Designed:

 With special prepayment provisions that allow early prepayment from one or more sources in
  exchange for a somewhat higher interest rate;
 As taxable or tax-exempt bonds or notes;
 Potentially as federal subsidy or tax credit bonds such as BABs, QZABs, QSCBs, etc;
 As adjustable or fixed rate bonds or notes;
 As bond insured or credit enhanced bonds or notes;
 Various maturity dates according to the repayment plan;
 As either CIBs or notes or Capital Appreciation Bonds (CABs) or notes;
   Current interest bonds pay the investor interest every six months;
   CABS provide a period of Non-Payment where interest accrues and compounds until maturity like a U.S. savings
    bond;

                                                                                                      18
                                     2018 CASBO Annual Conference & California School Business Expo        18
Using A Bridge Financing to Fund Capital Projects
 Short-term loan issued by school districts and can be repaid from any legally available revenues
 State School Facility Program funds, developer fees, District’s General Fund, etc.
 Customizable repayment structure
 Deferred payments, interest only payments, long-term loan payable in short-term, etc.
 Can mitigate construction cost escalation
 Payment of borrowing costs
 Minimize costs
 Delay bridge financing until amount and proceeds are needed
 The table below provides a comparison of a sample bridge financing issuance versus project inflation costs
                                            Sample Bridge Issuance vs. Project Inflation Cost Analysis
                                                                                                      Estimated Total Principal
                     Year of                Financed                 Financed Amount                   Amount of Bonds with                      Estimated Benefit
                     Takeout                 Amount                    plus Interest(1)               3.86% Annual Inflation(2)                 of Bridge Financing
                      2018                  $10,000,000                       -                                  $10,000,000                              -
                      2020                       -                        $10,917,123                            $10,786,900                            ($130,223)
                      2021                       -                        $11,255,873                            $11,203,274                             ($52,599)
                      2022                       -                        $11,516,123                            $11,635,720                              $119,598
                      2023                       -                        $11,693,873                            $12,084,859                              $390,986
                      2024                       -                        $11,784,873                            $12,551,335                              $766,462
                   (1)   Interest rate assumptions are based on current market conditions and similar credits for an ‘A+’ rated, insured COP.
                   (2)   Average annual increase in California Consumer Price Index for all urban consumers from 1955 to 2017 was 3.86%.
                                                                                                                                                              19
                                                  2018 CASBO Annual Conference & California School Business Expo                                                      19
Bond Anticipation Notes (“BANs”)
 Notes and renewals thereof must be payable not more than five years from the date of the
  original issuance of the note

 Total amount of notes or renewals thereof issued and outstanding may not exceed the total
  amount of unsold (authorized) bonds

 The proceeds from the sale of the notes must be used only for authorized purposes of the
  bonds or to repay outstanding notes previously issued

 Rating agencies have recently changed their criteria rating BANs which may lead to less
  issuance

                                                                                               20
                              2018 CASBO Annual Conference & California School Business Expo        20
How Debt Is Sold

                               Negotiated Sale                                   Competitive Sale
       Pre-Marketing    Allows a week or more to answer                               Typically none -
                               investor questions                                   “Call me if you buy it”

        Couponing       Underwriter can present different                 Goal is to win bid with the lower TIC;
                       options to weigh cost/benefit of TIC                 no ability to address optionality
                                  vs. optionality

        Sale Timing     Sale date can be moved ahead or                    Sale date is determined at least a
                         pushed back depending on the                      week ahead of time and is hard to
                                     market                                  change without losing market
                                                                                         interest
        Risk/Price      Underwriter faces less risk and so                 Underwriter faces more market risk
                          can often charge lower fees

                                                                                                  21
                       2018 CASBO Annual Conference & California School Business Expo                           21
Comparison of Sale Methods
 Issuer received better pricing on negotiated financing for two comparable sales within
  two weeks
 AAA/AA+ rated Newport-Mesa Unified School District general obligation bonds
 $18mm negotiated refunding and $32mm competitive new money
 Spreads 5 to 8 bps less on negotiated issue vs. competitive issue
 Underwriting fees for competitive issue more than $10/bond; less than $5/bond for negotiated sale
                                                         Negotiated                                                Competitive
                        Issuer             Newport-Mesa Unified School District                      Newport-Mesa Unified School District                  Spread
                       (Issue)         General Obligation Refunding Bonds, Series 2017        General Obligation Bonds, Election of 2005, Series 2017     Difference
                      Par Amt                           $17,580,000                                                $28,130,000                           (Negotiated
                    Pricing Date                        July 13, 2017                                             August 1, 2017
                                                                                                                                                        Lower Yields)
                         Year        Par      Coupon       Yield    AAA MMD        Spread      Par      Coupon       Yield     AAA MMD         Spread
                         2018                                         0.920           -92      700,000 5.000         0.790       0.850             -6
                         2019                                         1.060          -106                                        0.940            -94
                         2020                                         1.150          -115                                        1.030           -103
                         2021                                         1.250          -125                                        1.120           -112
                         2022                                         1.350          -135       70,000 2.000         1.120       1.210             -9
                         2023                                         1.480          -148      120,000 5.000         1.250       1.340             -9
                         2024                                         1.600          -160      170,000 5.000         1.430       1.500             -7
                         2025                                         1.740          -174      225,000 5.000         1.610       1.660             -5
                         2026      3,445,000 5.000         1.840      1.890            -5    1,550,000 5.000         1.800       1.800             +0         -5
                         2027      6,385,000 5.000         1.980      2.040            -6    1,935,000 5.000         1.950       1.950             +0         -6
                         2028      7,750,000 5.000         2.110      2.140            -3    2,180,000 5.000         2.100       2.050             +5         -8
                         2029                                         2.240          -224      565,000 5.000         2.200       2.150             +5
                         2030                                         2.330          -233      650,000 5.000         2.290       2.240             +5
                         2031                                         2.400          -240      740,000 3.000         2.720       2.310            +41
                         2032                                         2.470          -247      830,000 3.000         2.890       2.380            +51
                         2033                                         2.530          -253      910,000 3.000         3.000       2.440            +56
                         2034                                         2.590          -259    1,000,000 3.000         3.050       2.490            +56
                         2035                                         2.630          -263    1,120,000 3.000         3.080       2.520            +56
                         2036                                         2.660          -266    1,230,000 3.000         3.110       2.550            +56
                         2037                                         2.680          -268    1,340,000 3.000         3.130       2.570            +56
                         2038                                         2.700          -270    1,470,000 3.000         3.150       2.600            +55
                         2039                                         2.720          -272   11,325,000 3.000         3.170       2.620           +55
                                                                                                                                                         22
                                                 2018 CASBO Annual Conference & California School Business Expo                                                         22
California School Districts Overwhelmingly Use Negotiated Sales for GO Bonds
                                        2015 to Present CA K-12 General Obligation Bond Issuances
                                                 Underwriter's Discounts ($ per 1,000 Bond)
                                                                  Negotiated Competitive                Difference
                                       Average:                         $5.44     $9.07                       ($3.63)
                                       Weighted Average:                $3.61     $5.27                       ($1.66)

                                       Source: Thomson Reuters

           2015 to Present CA K-12 General Obligation Bond Issuance                      2015 to Present CA K-12 General Obligation CAB Issuance
          Negotiated and Competitive Market Share by No. of Issuances                   Negotiated and Competitive Market Share by No. of Issuances

                                                                                                1
                                                                                               1%

                                                                 Negotiated                                                                Negotiated
                          185                                                                                                              Competitive
                                                                 Competitive
                          18%
                                          823,                                                                          109
                                          82%                                                                           99%

Source: Thomson Reuters                                                       Source: Thomson Reuters

                                                                                                                              23
                                              2018 CASBO Annual Conference & California School Business Expo                                 23
SECTION II:
2017 TAX CUTS AND JOBS ACT BILL SUMMARY AND OTHER
2017 CALIFORNIA LEGISLATION

               2018 CASBO Annual Conference & California School Business Expo
Tax Reform’s Potential Impact on Municipal Market
 Both House and Senate passed different versions of the bill in early December, budget
  conferences made revisions in mid-December, and President Trump signed on December
  22, 2017. These changes take effect January 1, 2018:

              Provision                                Description                              Impact on Municipal Issuers and Market
                                                Modifies seven brackets
     Individual Income Tax Rates                                                              May reduce attractiveness of tax-exempt bonds
                                                       (10% - 37%)
                                           $10,000 cap for combination of state
                                                                                         May induce investors in high-tax states to seek more tax-
 State and Local Tax Deduction (SALT)       property tax, income and sales tax
                                                                                                             exempt bonds
                                                         deduction
                                                                                      May lower attractiveness of tax-exempt bonds for corporations
         Corporate Tax Rate                           Reduce to 21%
                                                                                                         and insurance companies
                                            Eliminates ability to issue QZABs,          No changes to subsidy payments for bonds issued before
          Tax Credit Bonds                 CREBs, QSCBs, BABs, and other tax            December 31, 2017; may reduce incentive to fund energy
                                                       credit bonds                                       efficiency projects
                                                                                       Limits issuers to current refundings; may reduce feasibility of
                                              Eliminates tax-exempt advance
         Advance Refundings                                                             refundings and encourage use of taxable bonds or forward
                                                        refundings
                                                                                                             delivery structures

                                                                                          Deficit of more than $150 billion in any year may trigger
                                             Estimated to generate $1.5 trillion        additional sequestration of Federal Subsidies for BABs and
            Fiscal Impact
                                                deficit over the next decade             similar products; may increase Treasury borrowing needs
                                                                                                   which may increase bond interest rates

                                                                                                                     25
                                        2018 CASBO Annual Conference & California School Business Expo                                  25
Tax Reform’s Potential Impact on Municipal Market
      2018 bond issuance volume is expected to be 20% - 25% lower in the aftermath of significant Q4
       2017 issuance coupled with elimination of advance refundings and tax credit bonds
      The bill does not cap or repeal municipal bond exemption, remaining one of the few tax-
       advantaged vehicles available for taxpayers
      The reduction of corporate tax rate to 21% will likely reduce the appetite of bank portfolios and
       property/casualty insurance companies for tax-exempt municipals
                                                                              Changing Landscape of Municipal Bond Investors
                                                     Individuals*           Mutual Funds (1)                Banking Institutions (2)                Insurance Companies (3)                  Other (4)

                                                                $1.3 Trillion                           $3.5 Trillion                            $3.8 Trillion
                                         100%                       4%                                      4%                                       5%
                                                                    16%                                    12%                                      14%
                                          80%                                                                  7%

                                                                                                                                                                                      ?
                                                                      8%                                                                              15%
                                                                                                              27%
                                                                     38%
                                          60%                                                                                                         25%

                                                                                                              50%
                                          40%
                                                                                                                                                       41%
                                                                      34%
                                          20%

                                            0%
                                                                     1997                                     2007                                  2017 Q3                                  2018+
Source: SIFMA and the Federal Reserve System
(1) Includes mutual funds, money market funds, closed-end funds and exchange traded funds.
(2) Includes U.S. chartered depository institutions, foreign banking offices in the U.S., banks in U.S. affiliated areas, credit unions, and broker dealers.
(3) Includes property-casualty and life insurance companies.
(4) Includes nonfinancial corporate business, nonfinancial non-corporate business, state and local governments and retirement funds, government-sponsored enterprises and foreign holders.
* Household holdings is revised up by about $840 billion, on average, from 2004 forward.                                                                                                         26
                                                                                2018 CASBO Annual Conference & California School Business Expo                                                           26
Tax Reform’s Potential Impact on CA K-12 School Districts
    The limitation to $10,000 of the State and Local Government Tax Deduction and/or property tax
     deduction cap and the mortgage interest deduction cap ($750,000 max mortgage) could put
     negative pressure on California local taxpayers and impact school districts’ ability to pass local
     bond measures and parcel taxes
    The elimination of the tax credit bond programs increase the cost of borrowing for California
     school district facilities (QZABs and CREBs have been a tool for solar & energy efficiency
     projects in recent years)
    The elimination of tax exempt advance refundings reduces the ability to restructure or refinance
     for savings on securities previously issued
       May create new call provision structure for selling new bond issues (i.e. going from 10 year call provisions to shorter call protection, 7, or
         5 years)
                                                 Share of California K-12 Bond Issues by Type
                    100%
                                                                                         7%
                                                 18%                                                          22%         20%
                               32%
                    80%                                              46%
                                                 18%                                     43%                              18%
                    60%                                                                                       38%
                               27%
                                                                     18%
                    40%
                                                 63%                                                                      62%
                                                                                         49%
                    20%        41%                                   37%                                      40%

                     0%
                               2012              2013                2014                2015                 2016        2017
                                                        New Money   Advance Refundings   Current Refundings

                                                                                                                         27
Source: Thomson Reuters.                         2018 CASBO Annual Conference & California School Business Expo                           27
New Legislation Impacting New CA K-12 Bond Elections
Assembly Bill 1194 (Dababneh)
 Tax Rate Statements must now include:
  The best estimate of the average annual tax rate that would be required to be levied to fund the bond issue over the entire
   duration of the bond debt service
  The final fiscal year in which the tax is anticipated to be collected
  The best estimate of the highest tax rate that would be required to be levied to fund the bond issue, and an estimate of the
   year in which that rate will apply
  The best estimate of the total debt service, including the principal and interest, that would be required to be repaid if all the
   bonds are issued and sold

Assembly Bill 195 (Obernolte)
 75-Word Ballot Statement:
  Must include the amount of money to be raised annually and the rate and duration of the tax to be levied for the bonds
  Must be a true and impartial synopsis of the purpose of the proposed measure
  Must be in language that is neither argumentative nor likely to create prejudice for or against the measure

                                                                                                        28
                                       2018 CASBO Annual Conference & California School Business Expo                28
New Legislation Impacting New CA K-12 Bond Elections
Unintended Consequences of AB 195
 Confusion
 Possible emergency legislation (AB 2848 (Obernolte))
 Requirement consumes 16-20 words of the 75 available ballot question words

                                        Sample School District Ballot Statement
“To ______________________, shall this measure of the ______ School District issuing $______ in bonds at legal rates
be adopted, levy on average ______ cents per $100 assessed value, $______ annually for ______ [e.g. modernization of
school facilities], while bonds are outstanding, with annual audits, etc.?”

                                   2018 CASBO Annual Conference & California School Business Expo          29
CONCLUSION:
QUESTIONS AND DISCUSSION

   2018 CASBO Annual Conference & California School Business Expo
Bio

                           John R. Baracy
                           Managing Director
                           Stifel, Nicolaus & Company, Incorporated
                           Los Angeles, California
                           tel: 213-443-5025
                           e-mail: jbaracy@stifel.com

John R. Baracy is a Managing Director in the Los Angeles public finance office of Stifel. Mr. Baracy began his public finance career in 1994 and has
experience in all facets of the municipal finance business. He specializes in the management, structuring and sale of California K-12 Education new
money and refunding general obligation bonds, certificates of participation, tax credit bonds, Mello-Roos bonds and tax and revenue anticipation
notes. In addition to managing the introduction of these financings into the market, Mr. Baracy performs debt capacity, general obligation bond tax rate
and credit analyses, California K-12 education finance legislation analyses, and evaluates the investment of bond proceeds. Throughout his career, he
has completed more than 500 financings totaling over $9.5 billion.

Mr. Baracy graduated with a Bachelor of Science degree from Arizona State University with an emphasis in Finance. Mr. Baracy maintains his Series 7,
50 and 63 licenses with FINRA and frequently presents for California K-12 school district advocacy groups such as C.A.S.H., CASBO, and CSBA. Mr.
Baracy is currently a board member of the Coalition of Adequate School Housing (CASH).

                                                                                                                                                  31
                                                2018 CASBO Annual Conference & California School Business Expo
Bio

                           Adam Bauer
                           President &CEO
                           Fieldman, Rolapp & Associates
                           Irvine, California
                           tel: 909-660-7203
                           e-mail: abauer@fieldman.com

Mr. Adam S. Bauer, CIPFA, President and Chief Executive Officer, joined the firm in September 2004. Mr. Bauer has been involved with a variety of
public agencies throughout the State of California, assisting them with their debt transactions and policy development. Mr. Bauer has two primary areas
of expertise: public financings for school districts and land secured negotiations and financings. Mr. Bauer has specific expertise in public financings for
school districts where he has developed capital facilities funding plans that incorporate General Obligation Bonds, Certificates of Participation,
Community Facilities District Special Tax Bonds, and State funding. In addition to assisting School Districts with their debt transactions, Mr. Bauer has
also negotiated mitigation agreements on behalf of school districts throughout the State of California. Mr. Bauer assists school districts with identifying
the true cost of new developments and then negotiates on their behalf to structure mitigation agreements to meet their needs. Mr. Bauer also has
specific emphasis in land secured financings. Mr. Bauer has been involved in all aspects of the formation of Community Facilities Districts and the
issuance of debt, including those with multiple improvement areas, series of bonds and property owners. Furthermore, prior to joining the firm, Mr. Bauer
acted as a Financial Advisor, Special Tax Consultant and Community Facilities District Administrator. While working as a Special Tax Consultant and
Community Facilities District Administrator, Mr. Bauer served as project manager for more than 60 Community Facilities Districts for a variety of public
agencies. Mr. Bauer is a regular speaker at California's Coalition for Adequate School Housing (CASH) and has been a speaker for California Debt
Investment Advisory Commission (CDIAC). Mr. Bauer is co-chair of the Fiscal Management Strand of the Planning Committee for CASH, is a member of
California School Board Association (CSBA), California Association of School Business Officials (CASBO) and Committee on Assessments Special
Taxes and other Financing Facilities (CASTOFF). In addition, Mr. Bauer is a Registered Investment Advisor Representative (Series 65) and he holds the
CIPFA designation as a Certified Independent Public Finance Advisor from the National Association of Independent Public Finance Advisors

                                                                                                                                                     32
                                                  2018 CASBO Annual Conference & California School Business Expo
Bio

                           David Casnocha
                           Managing Shareholder
                           Stradling Yocca Carlson & Rauth
                           San Francisco, California
                           tel: 415-283-2241
                           e-mail: dcasnocha@sycr.com

Mr. Casnocha is the managing shareholder of Stradling’s San Francisco office and a former member of the firm’s board of directors. David has practiced
in public finance for more than 40 years and serves as bond and disclosure counsel to public agencies and underwriter’s counsel to both national and
regional investment banking firms. He also has served as bond counsel to more than 600 school and community college districts in California. He has
experience in primary and secondary school district financings, general obligation bonds, bond anticipation notes, certificates of participation, lease
financings and tax and revenue anticipation notes. In addition, David has represented the California Education Facilities Authority on numerous private
university financings and represents a range of nonprofit corporations that incur tax-exempt debt to finance their charitable purposes. As bond counsel to
the California League of Community Colleges, he has helped design tax-exempt pool financings for tax and revenue anticipation notes, lease revenue
bonds solar energy projects, and student housing. David also served as bond counsel on Other Post-Employment Benefit bond issues. He is
experienced in a range of revenue bond financings for water, sewer and a variety of other enterprise systems.

                                                                                                                                                    33
                                                 2018 CASBO Annual Conference & California School Business Expo
APPENDIX:
CALIFORNIA K-12 SCHOOL FINANCE RESOURCE MATERIALS

             2018 CASBO Annual Conference & California School Business Expo
Comparison of GO Bonds, COPs and Mello-Roos Bonds

   CHARACTERISTICS                              GO BONDS                                           COPS                               MELLO-ROOS
Vote Required?                    Yes.                                                                  No.         Yes.
Minimum Affirmative Votes         Two-thirds of votes cast, or 55% of votes cast pursuant               N/A         Two-thirds of votes cast.
                                  to Proposition 39.
Qualified Electors                Registered voters residing in entire school district (or              N/A         Registered voters in community facilities
                                  only portion of school district if establish school facilities                    district (CFD), if 12 or more voters reside in
                                  improvement district pursuant to Ed. Code § 15300).                               CFD. If fewer than 12 registered voters
                                                                                                                    reside in CFD, vote is of landowners, one
                                                                                                                    vote per acre.

Boundary of Area to be Taxed      Entire school district (or only portion of school district if         N/A         Territory of CFD, as defined by school
                                  establish school facilities improvement district pursuant                         board. CFD could be entire school district
                                  to Ed. Code § 15300).                                                             or a portion of district, including non-
                                                                                                                    contiguous areas.

Basis of Tax                      Assessed value of property.                                           N/A         Any reasonable method, except assessed
                                                                                                                    value.

Method of Tax Collection          Annual property tax bill.                                             N/A         Annual property tax bill.
Can Seniors be Exempt from Tax?   No.                                                                   N/A         Yes.

Typical Use of Technique          Finance school facilities.                                       Finance school   Finance school facilities.
                                                                                                      facilities.

                                                                                                                            35
                                           2018 CASBO Annual Conference & California School Business Expo                                        35
Comparison of GO Bonds, COPs and Mello-Roos Bonds

     CHARACTERISTICS                                 GO BONDS                                           COPS                                MELLO-ROOS
Facilities Eligible for Financing      With 2/3 vote, purchase or improvement of real            Any lawful purpose.               Any facility with useful life of five
                                       property (purchase of land or construction of                                               years or more (including school
                                       buildings). With 55% vote pursuant to Proposition 39,                                       furnishings and buses).
                                       construction, reconstruction, rehabilitation, or
                                       replacement of school facilities, including furnishings
                                       and equipment, and the acquisition or lease of real
                                       property.

Can School Furnishings and             No with 2/3 vote. Yes with 55% vote pursuant to           Yes, without limitation.          Yes, provided the equipment has
Equipment be Financed?                 Proposition 39.                                                                             a useful life of five years or longer.

Can Tax Revenues be Used for           No.                                                       No.                               Yes. Bond debt service and pay-
Purposes Other than Debt Service on                                                                                                as-you-go expenses.
Bonds?
Are Operating Expenses Eligible for    No.                                                       No.                               Yes. Maintenance of school sites
Financing with Tax?                                                                                                                and structures. Also, annual cost
                                                                                                                                   of administering the financing and
                                                                                                                                   the CFD.
Separate Authority Required to Issue   No.                                                       School Board and County Office    No.
Bonds?                                                                                           approval.
Maximum Annual Tax Request             Not limited with 2/3 vote. With 55% vote pursuant to      N/A                               Voters must approve a maximum
                                       Proposition 39, annual tax is limited to $30 per                                            annual tax amount per taxable
                                       $100,000 of assessed valuation in elementary or high                                        unit and a method for levying and
                                       school district and $60 per $100,000 of assessed                                            apportioning the tax.
                                       valuation in unified school district

                                                                                                                                  36
                                                2018 CASBO Annual Conference & California School Business Expo                                        36
Comparison of GO Bonds, COPs and Mello-Roos Bonds

   CHARACTERISTICS                      GO BONDS                                             COPS                                  MELLO-ROOS
Type of Bond Sale          Negotiated or competitive sale.                   Negotiated or competitive sale.       Negotiated or competitive sale.

Debt Limit                 Amount of bonds outstanding at any time           None.                                 Value of property in the CFD subject to
                           cannot exceed 2.5% of total assessed value                                              special tax must be at least three times
                           in a unified school district or 1.25% of                                                the amount of outstanding bonds. Under
                           assessed value in a non-unified school                                                  certain conditions the school board can
                           district.                                                                               approve an amount of bonds exceeding
                                                                                                                   this limit.

Bond Security              School district's unrestricted ability to raise   All legally available funds,          Mello-Roos special tax is a lien on
                           property taxes to meet debt service               including the General Fund,           property. School district has authority to
                           requirements. Property tax is a lien on           usually earmarked to State            initiate accelerated foreclosure on
                           property. County has authority to foreclose       revenue, redevelopment pass-          property for payment of delinquent taxes,
                           on lien for payment of delinquent taxes.          through, or other sources.            so long as bonds have been issued by
                                                                                                                   the CFD.

Maximum Term of Tax Levy   As long as necessary to repay bonds               N/A                                   As long as necessary to repay bonds or
                           authorized by voters.                                                                   to pay directly for facilities authorized by
                                                                                                                   voters. Final year of tax must be
                                                                                                                   specified.

Maximum Term of Bonds      Up to 25 years under Education Code, or up        Up to useful life of facility being   40 Years.
                           to 40 years under Government Code.                financed.

                                                                                                                         37
                                   2018 CASBO Annual Conference & California School Business Expo                                             37
Proposition 46 vs. Proposition 39 GO Bond Authorization

            Bond Type Feature                              Proposition 46                                Proposition 39
  Voter Approval Requirement                                    66.7%                                           55%
  Election Date Restrictions                    All election dates, including special       Regularly scheduled elections, primarily in
                                                elections on any Tuesday                    even numbered years

  Use of Bond Proceeds                          Acquisition and improvement of              Acquisition and improvement of real
                                                real property                               property; including furniture, equipment and
                                                                                            leases

  Limits on Amount of Annual Tax Rate           None                                        $30 per $100,000 (Elem/High)
                                                                                            $60 per $100,000 (Unified)

  Limits on Amount of Bonds Outstanding         1.25% of AV (Elem/High)                     1.25% of AV (Elem/High)
                                                2.50% of AV (Unified)                       2.50% of AV (Unified)

  Citizens Oversight Committee                  Optional                                    Mandatory
  Performance and Financial Audits              Optional, except for annual report          Mandatory
                                                regarding expenditures of funds
                                                and status of projects

                                                                                                                38
                                     2018 CASBO Annual Conference & California School Business Expo                              38
Basic Legal Documents
Resolution of Issuance
Provides Parameters of Sale (amount, max interest rate, term, cost of issuance)
Authorized Officers
Bond Purchase Contract or Notice of Sale
Competitive vs. Negotiated Method
Sets forth terms and conditions of debt sale to Underwriter including interest rates and
 fees
Security Covenants (School District duties and obligations)
Denominations & Interest and Principal Payment Dates
Project Fund Requisition Process for releasing funds
Investment of Funds
Remedies to investors defaults and non-performance
Prepayment or Redemption terms

                                                                                              39
                             2018 CASBO Annual Conference & California School Business Expo        39
School District Disclosure Documents and Duties
Official Statement
Preliminary: Marketing/ Disclosure to Potential Investors
Final: Delivered to Purchasers
Marketing/ Sales/ Disclosure document
Issuer’s Document

Continuing Disclosure Agreement
Required by Securities and Exchange Commission’s Rule 15c2-12
Issuer’s Duty to file Annual Reports and to report Material Events

SB 1029 Debt Policy
Create and manage submission requirements annually for all debt issuances after
 January 1, 2017

                                                                                              40
                             2018 CASBO Annual Conference & California School Business Expo        40
Steps to Debt Issuance

         Step 1: School District                                                Step 2: Finance Team is
       decides to finance a project                                             selected and assembled

      Step 4: Staff and Finance                                                  Step 3: Revenue stream
        team determine debt                                                        securing the debt is
              structure                                                            identified/ analyzed

       Step 5: Election/ formation
     proceedings docs are prepared                                               Step 6: Voter Approval*
            and approved*
                                                                             * If Applicable
                                                                                               41
                           2018 CASBO Annual Conference & California School Business Expo                  41
Steps to Debt Issuance

     Step 7: Legal and disclosure                                               Step 8: Credit ratings/ bond
        documents are drafted                                                       insurance secured*

     Step 10: Underwriter begins                                           Step 9: Board approves the legal
    marketing the debt to investors                                         and disclosure documents and
          (Negotiated Sale)                                                   authorizes debt issuance

     Step 11: Underwriter commits to
    buy debt from School District/Debt                                        Step 12: Transaction is closed
         Awarded to Underwriter                                                 and the project is funded
           (Competitive Sale)
                                                                          * If Applicable

                                                                                              42
                            2018 CASBO Annual Conference & California School Business Expo               42
Board Approval
Proposition 46
 Requires simple majority approval of school board members
Proposition 39
 Requires 2/3rds approval of school board members

                                                                                            43
                           2018 CASBO Annual Conference & California School Business Expo        43
Assessed Value Trends
 The recession had a significant effect on the assessed value of most California school
  districts
 During the recession assessed values grew much slower or declined, but have returned to stronger growth in recent years
 As shown below, 14 of the 15 largest counties in California experienced an increase in assessed valuation from 2014-15 to 2015-16

                 County                2008-09            2009-10     2010-11        2011-12        2012-13         2013-14    2014-15   2015-16
       Alameda                          4.77%              -2.51%     -1.58%          0.05%          2.14%           5.02%      5.96%     7.80%
       Contra Costa                     0.31%              -6.97%     -3.05%         -0.37%          0.86%           3.73%      9.03%     7.53%
       Fresno                           1.49%              -2.95%     -0.76%          0.47%          0.00%           5.62%      3.75%     4.15%
       Kern                             5.89%              -6.20%      4.63%          2.43%          7.50%           3.31%      5.98%    -8.78%
       Los Angeles                      6.95%              -0.53%     -1.81%          1.41%          2.24%           4.61%      5.47%     6.08%
       Orange                           3.89%              -1.38%     -0.54%          0.98%          1.92%           3.43%      6.36%     5.89%
       Riverside                        1.44%             -10.49%     -4.40%         -1.25%         -0.02%           4.21%      8.31%     5.85%
       Sacramento                       1.81%              -7.15%     -1.84%         -3.65%         -2.66%           4.10%      6.40%     4.64%
       San Bernardino                   5.20%              -6.01%     -4.32%         -0.47%          0.80%           6.20%      5.93%     5.07%
       San Diego                        4.42%              -2.40%     -1.42%          0.40%         -0.14%           6.02%      5.78%     5.60%
       San Francisco                    8.63%               7.08%      4.32%          0.49%          4.20%           4.60%      5.46%     6.50%
       San Joaquin                     -0.81%             -10.22%     -3.81%         -3.70%         -0.33%           5.79%      8.93%     2.86%
       San Mateo                        7.99%               0.68%     -1.44%          0.96%          3.33%           6.01%      5.61%     7.64%
       Santa Clara                      6.98%               0.14%     -2.40%          0.90%          3.25%           8.35%      6.80%     8.67%
       Ventura                          3.17%              -2.42%     -0.26%          0.00%          0.60%           3.20%      5.70%     4.10%
        (1) Source: County Assessor Websites and Urbics

                                                                                                                              44
                                                   2018 CASBO Annual Conference & California School Business Expo                         44
Credit Quality of Facility Funding

                             Higher Credit                                                                   Lower Credit
                                Quality                                                                        Quality

                                                                Leases & Certificates of
     Security Type     General Obligation Bonds                                                           Land-Secured Bonds
                                                                     Participation

                                                                                                       Annual special tax or assessment
                                                              Secured by annual appropriations      levied on property. Bonds are secured
                      Secured by an unlimited ad valorem
     Revenue Pledge              property tax
                                                                from general fund or specific          by the value of taxable property in
                                                                         revenues.                       defined area and the ability to
                                                                                                    foreclose on property for unpaid taxes.

                                                                                                    Yes. A 2/3 vote of registered voters or
                                                               No. Governing Board approval is        property owners for Community
                      Yes, either with a 2/3 vote or a 55%
     Vote Required?                   vote.
                                                              required without vote of registered   Facilities Districts (CFDs) and simple
                                                                  voters or property owners.        majority vote for assessment districts
                                                                                                                      (ADs).

                                                                                                              45
                               2018 CASBO Annual Conference & California School Business Expo                                     45
The Rating Process
Rating Agency
An independent service that provides a credit quality evaluation of bonds
Recently changed rating scale to correspond with corporate ratings
Duties:
   1.Reviews four broad factors to determine ratings.
         The financial strength of the Issuer
         The economic health of the community
         Managerial and governance practices
         Debt position – direct and overlapping debt, overall debt to wealth position

   2.Interviews Issuer, others
   3.Assigns a letter of rating to bonds

                                                                                                       46
                                      2018 CASBO Annual Conference & California School Business Expo        46
Bond Credit Rating Spectrum
                        Rating Description                                     Moody's                Standard & Poor's        Fitch

                     Highest credit quality; issuer has a strong ability
                                                                                 Aaa                        AAA                AAA
                                  to meet its obligations.

                                                                                 Aa1                        AA+
                       Very high credit quantity low risk of default.            Aa2                        AA                  AA
                                                                                 Aa3                        AA-
      Investment
                                                                                  A1                         A+
         Grade          High credit quality, but more vulnerable to
                                                                                  A2                         A                  A
                           changes in the business economy.
                                                                                  A3                         A-

                                                                                 Baa1                       BBB+
                     Adequate credit quality for now, but more likely
                                                                                 Baa2                       BBB                BBB
                         to be impaired if conditions worsen.
                                                                                 Baa3                       BBB-

                                                                                 Ba1                        BB+
                     Below investment grade, but a good chance the
                                                                                 Ba2                        BB                 BBB
                             issuer can meet commitments.
                                                                                 Ba3                        BB-

                                                                                  B1                         B+
                       Significant credit risk, but issuer is presently
                                                                                  B2                         B                 BBB
    Non-investment               able to meet obligations.
                                                                                  B3                         B-
        Grade
                                                                                 Caa1                       CCC+               CCC
                                     High default risk.                          Caa2                       CCC                 CC
                                                                                 Caa3                       CCC-                 C
                                                                                                                               DDD
                        Issuer failed to meet schedules interest or
                                                                                  C                          D                  DD
                                    principal payments
                                                                                                                                 D

                                                                                                                          47
                                           2018 CASBO Annual Conference & California School Business Expo                              47
School Facilities Improvement District
 School Facilities Improvement District (SFIDs)
 General obligation bond authorization for limited area within a school district
 Bond election required among voters residing in the proposed SFID
 General obligation bond authorization can be conducted using Proposition 46 or Proposition 39

 Why form an SFID?
 School attendance area
 Exclusion of existing CFDs
 Feeder districts
 Geographical / political jurisdictions
 Areas of separate community identity

                                                                                                     48
                                    2018 CASBO Annual Conference & California School Business Expo        48
You can also read
NEXT SLIDES ... Cancel