Deferred Financing Overview

Bond Oversight Committee

August 19, 2009
Current Program Objectives
Measures BB,, K,, R And Y

ƒ Two-Semester Neighborhood School For Every Student

ƒ Eliminate Multi-Track Calendars
ƒ Eliminate Involuntary Busing

ƒ Implement Full-Day Kindergarten Districtwide

ƒ Modernize Aging And Deteriorating Schools
ƒ Provide Small Learning Communities
ƒ Every Existing High School
ƒ All New Secondary Schools

2
Program Status
ƒ 131 New K-12 Schools By 2012/13
ƒ 80 New K-12 Schools Completed

ƒ 65 K-12 Additions By 2012/13

ƒ 59 Completed

ƒ 21, 028 Modernization Projects By 2011

ƒ 18,511 Completed

ƒ 90 Schools On A Multi-Track Calendar In 2009-2010

ƒ Full
F ll Day
D KiKindergarten
d t Implemented
I l t d Districtwide
Di t i t id
ƒ 5 MW+ Of Renewable Energy Installed This Fiscal Year
 Assessed Value Forecast
$ Millions
900,000

800,000

700,000

600 000
600,000

500,000

400,000
,

300,000

200,000

100,000

Fiscal Year Ending June 30

Low Forecast Baseline Forecast High Forecast
General Themes – Tax Rate vs. Tax Bill

Tax Rate = Debt Service

Assessed Value

ƒ When new bonds are issued,, the amount of Debt Service

increases

ƒ When Debt Service goes up, OR

ƒ When AV goes down, the Tax Rate Increases

ƒ However, the actual tax bill for a parcel owner may either go
up or down, depending on that property’s AV change

ƒ Tax Bill = Tax Rate x Property Assessed Value

Debt Service and Tax Rate vs. Tax Bills
Example (not real data)

ƒ Effect of Assessed Value decreasing on tax rate(sample data

only):
Year 1 Debt Service $700,000,000 = 0.0015028 Tax Rate
Assessed Value $465,806,005,470

Year 2 Debt Service $700,000,000 = 0.0017582 Tax Rate

Assessed Value $398,124,791,000

ƒ Each Tax Bill depends on the AV for an individual property

ƒ If a Assessed Value of a parcel goes down (sample data):

Year 1 Tax Rate 0 00150277
0.00150277 X AV $250,000
$250 000 = $376 Debt Service
Year 2 Tax Rate 0.00175824 X AV $207,500 = $365 Debt Service

ƒ If pparcel’s Assessed Value remains the same:

Year 1 Tax Rate 0.00150277 X AV $250,000 = $376 Debt Service
Year 2 Tax Rate 0.00175824 X AV $250,000 = $440 Debt Service
Process for G.O. Bond Tax Assessments

ƒ Voters pass a G.O. bond authorizing District to issue debt

ƒ District issues bonds according to requirements of the

construction program

ƒ District reports planned debt issuance to County

ƒ County calculates tax rate each year based on

ƒ Debt Service requirement

ƒ Aggregate assessed valuation in LAUSD boundaries

ƒ Countyy calculates tax due on each pparcel as “Tax Rate x AV”

Debt Service and Tax Rate
Projected Debt Service
$1,200
$1,112

$963
$1,000
$901
otal Projected Debt Service ($Mil)

$859
$782
$800
$673
$778 $782 $786 $781 $779
$697
$600

$400
To

$200

$0
FY 2009-10 FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15
Fiscal Year

Previous Forecast Debt Service (with Q) Current Forecast Debt Service

 Economic Impacts On Bond Issuance

Projected Issuance At Time Of Measure Q Election Projected Issuance After Beacon Baseline

$Millions $Millions
$Milli
$4,500 $4,500

$4,000 $4,000

$3,500 $3,500

$3 000
$3,000 $3 000
$3,000

$2,500 $2,500

$2,000 $2,000

$1,500 $1,500

$1,000 $1,000

$500 $500

$0 $0

Fiscal Year Fiscal Year

Measure K Bonds Measure R Bonds Measure Y Bonds Measure Q Measure K Measure R Measure Y Measure Q
Cash Shortfall Status

ƒ Planned issue of $3.9 billion In K, R, & Y Bonds In FY 09-10

ƒ By Spring 2010, state applications for $800 Million will be

pending apportionment for new construction projects
ƒ Currently state is not apportioning, but issuing unfunded
approvals

ƒ 20+ large construction projects remaining to bid

ƒ Approximately $1.0 B in construction value
ƒ Average size = $50M
ƒ Next award anticipated in August 2009
ƒ 17 between now and June 2010
Funding Strategy – Deferred Payment Plan

$ in Billions $800M represents construction

contracts for approximately 17
$5.0 projects

$4.5
0.8 0.8 0.9
$ Financed +
$4 0
$4.0 Est. Costs

$3.5 State Cash

Gap
$3.0 State Bond
3.9 3.9 3.9
$2 5
$2.5 Local Bond

$2.0
Cash Cash Known Cash with
Required Available Financing
Cash Shortfall Approach / Options

ƒ Generate $3.9 Billion In K, R, & Y bonds in FY 09-10

ƒ Secure $1.1 Billion from State as soon as possible

ƒ Interim fundingg approach

pp options
p pending
p g state funds:
ƒ 1.) Use Certificates of Participation (COPs) financing to
ensure cash availability, OR
ƒ 2.) Use 3rd party financing for projects to defer payments
until State $ received, OR
ƒ 3.) Delay project awards until state funds are certain and
timing known
Option #1-Deferred Financing Details - COPs

ƒ COPs issuance backed by future bond issuance

ƒ 10-year or longer COPs term with ability to pay early
ƒ Does not count against 2.5% debt limit on G.O. bonds

ƒ Advantages:
ƒ Can obtain Board authorization for COPs without issuingg
ƒ Can issue COPs only AS NEEDED to fund projects
ƒ If state match cash is received before COPs cash is needed,
needed
the COPs are never issued and there is no additional
financing cost
ƒ Issue: District capacity to issue COPS
Option # 2 – 3rd Party Financing for Contracts

ƒ Third-party financing via 17406 Lease-Leaseback

ƒ 10-year
10 l
lease term
t with
ith pre-paymentt option
ti
ƒ 17406 entity would include financing component
ƒ Contractor to submit proposal with financing component

ƒ Security for debt is future bond issuance in 2015

ƒ In event state funds are not realized
ƒ Mostly future Measure R / Y
ƒ Could need Measure Q if ALL awards with deferred
payment

ƒ In reality, debt will likely be paid off by receipt of state funds

Program Impact of Financing

ƒ Either financing option comes with financing cost

ƒ Award contracts in near-term favorable market conditions

ƒ Financingg cost mayy be mitigated
g byy bid savings
g in current
market

ƒ If needed, proposed financing cost covered by future bond

issuance
ƒ Measure R or Y cash forecast to be available in 2015

ƒ Financed approach maintains school opening schedule and

timelyy completion
p of program
p g
Option #3 – Delay Contract Awards

ƒ Delay contract awards until state match is certain

ƒ Could mean 1-2 year (or more) delay in school openings

ƒ Disadvantages:

ƒ Cost to children – still on multi-track and Concept 6

calendars
l d

ƒ Likely increase in bid prices due to future escalation

ƒ Additional cost of program / project management due to

extension of program

ƒ Economic / jobs impact of delaying $1 billion of contracts

Next Steps

ƒ Targeted rollout of financing program for Sept/Oct RFPs

ƒ Awards scheduled for December/January

ƒ Board action on Sept. 22 requesting action to approve

financing strategy (COPS)

ƒ Parallel path / backup plan for third-party financing

ƒ Industry forum with contractors and financing entities

ƒ Develop changes to RFPs and 17406 contracts as needed

Questions????
Bond Impact on Tax Bills

ƒ LAUSD issued estimates as required by Prop 39 requirements

ƒ Indicated increase in debt service resulting in increasing tax

rates

ƒ Best efforts at estimate made prior to bond election

ƒ Global economic crisis and serverity of housing crunch has

exceeded pre-election forecasts