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8/7/2019 SB School Financing Options Power Point) July 27 2010 (2)
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School Financing Information
July 27, 2010
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School Construction Financinghttp://www.doe.virginia.gov/support/facility_construction/literary_fund_loans/funding_options.pdf
School Construction Financing Options~ . Fm
L ocal Public School D ivisions
January 2008
Virginia Public Schoo l Authority
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School Construction Financing
•
•
•
Introduction
Local school d iv isions have the responsibility for controlling, erecting, furnishing,equipping and maintaining necessary school buildings .
Schoo l divisions in Virginia do not have taxing power or th e ability to issue debt.
There are three principa l financing approaches available:
• Cash - Use current local revenues (cash) to fund a ll or a portion of the capitalprojects;
• Bonds - Borrow funds directly in th e debt market or with a Literruy Fund directloan, tlu'ough th e VPSA or through an IDA; or
• Bank Loan - Borrow funds via a direct bank loan .
Cost, funding availability and t iming considerations will influence th e approachfollowed.
1 Virginia Pu b lic Schoo l Au thority
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School Construction Financing
~ ;
Financing Options
lti I. General Obligation Debt (GO) - Secured by the full faith and credit of
an issuer with taxing power.
f· .~ :J. - : ~ • Direct Local Goverrunent Borrowing: Issue and sell GO bonds directly in
either the public or private markets (may require voter approval to secure
GO pledge);
,::. ~ , ;
• L iterary Fund Direct Loan: For qualified projects bon'ow at below marketinterest t"ates from the fund, administered by the Department of E ducation.
o Projects up to $7.5 million; $20 million ca p by locality
o Interest rates are derived from th e loca l composite index of ability to pay,an d
o Subject to availability of funds.
• Virginia Public School Authority (VPSA): Borrow indirectly through th epooled bond or subsidy programs of the VPSA.
2 Virginia Public School Au/hOl·ity
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School Construction Financing
Financing Options (cont'd)
II. Subject to Appropriation Bonds - The credit qua lity will depend on the
reliability of the borrowing entity, usually at least one notch lower than aGeneral Obligation rating. I t can result in a h igher cost of financing.
• Secured by the annual appl"Opriations of the borrowing entity instead o f apledge o f taxing power.
• Typically issued through local industrial development authorities (IDA) OT
economic development authorities (EDA).• The IDA borl"Ows the funds to construct the school and leases it to the school
division.
• There ar e added expenses with this borrowing source.
}» Additional fees include; IDA fees, trustee fees and possibly bond insurancepremiums in addition to the usual costs of issuance.
}» Additional debt may be required to provide capitalized interest during th e
period o f construction before lease payments start.
}» Market interest rates are generally les s favorable than with generalobligation debt of the same issuer.
3 Virginia Public School Authority
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School Construction Financing
Virginia Public School AuthorityIntroduction
• The Virginia Public School Authority ("VPSA") , established in 1962, is a bond
bank which pwvides low-cost :fmancing o f capital pwjects for primary an d
secondary public schools in Virginia localities.
• Pwvides financing to localities through th e sale of bonds. With th e proceeds
of it s bonds, the VPSA purchases general obligation bonds from localities.
• Assists localities through -
o Pooled bond program;
o Interest rate subsidy program for projects on the Board o f Education's
First Priority Waiting list (the "L ist");
o Stand alone bond pwgram; and,
o Educational Technology Notes.
4 Virginia Public School Authority
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School Construction Financing
"
Pooled Bond ProgralDKey Features For Local Participants
• VPSA can finance all types o f real and personal property for public schools
including land, buildings and equipment.
• Under the State Constitution, local issuers of general obligation school bonds
are not required to obtain voter approval for bonds sold to the VPSA .
• VPSA's "double-A plus" bond rating provides very attractive interest rates for
participating localities.
• Semi-Annual SpringlFall bond issues have scheduled debt servIce in the
subsequent fiscal year to conform to local budgetary cycles.
5 Virginia Public Schoo l Authority
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School Construction FinancingPooled Bond Program
Key Features For Local Participants (cont'd)
• VPSA provides str ucturing flexibility to respond to local Imancing needs.
o Maturity options, such as :
~ Standard 20 year maturity.
~ Intermediate range less than 20 years, as requested.
~ Extended 20+ year maturity to meet unique needs.
~ Leve l debt service or level principal.
~ Delayed principal repayment to meet unique needs.
• VPSA has initiated refunding activity when market conditions have beenfavorable for debt service saving . Since 2003 over $34 .6 million in savings hasbeen returned to local participants.
• VPSA charges a fee of 10 basis points to cover the Authority's cost o f issuanceand administrative expenses. They include: Financial Advisor; Bond Counsel;Rating Agency fees; printing costs; etc.
• Any excess fee revenues revert back to the Literary Fund or the General Fundas directed by th e Appropriation Act .
6 Virginia Public School Authority
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School Construction Financing
•."
., ,,I •
••
•
•
•
Interest Rate Subsidy Progr amCombination of VPSA and Literary Fund Loan
Developed in 1997 as a way to leverage amou nts available in the LiteralY Fundto address backlog of schoo l construction projects .
The subsidy program is available for localities with projects on the List for direct
Literary Fund Loans .
The purposeof
the subsidy program is to fund Literary Fund Loan requests witha combination of bond proceeds and a subsidy grant from the Literary Fund.
Proceeds from subsidy transactions ar e comprised ofVPSA bond proceeds and asubsidy grant fi·om th e Literary Fund adding to the total amount of th e approved
project .
Local participant debt service is structured to be equivalent to what they would
have paid for a direct Literary Fund Loan.
T he subsidy provides the difference between the market rate of interest and the
composite interes t rate .
Subsidy transactions are held in conjunction with VPSA pooled transactions
annually .
7 Virgin ia P ublic School Au thority
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School Construction Financing
, ' ~ , ~ ; •
.,-
';
Interest Rate Subsidy Prog ram
Combination ofVPSA and Literary Fund Loan (cont'd)
• Advantages:
• Bon-ow for school construction at below market interest ra tes, Le_ Literary
Fund loan rates typically of2% - 4%.
• A subsidy loan does not count toward the $20 million outstanding LiteraryFund cap per locality .
• Funds can be expended in accordance with the more flexible VPSA guidelines
fo r school capital expenditures.
• Item 135 o f the 2007 Approp riation Act for the 2006-2008 biennirun authorized theVPSA to provide interest rate subsidies to localities on the List_
• $15 .0 million available in fiscal year 2007 - $105.7 million of projects funded
on the List; and
• $20_0 million available in fiscal year 2008 - $149.9 million of projects fundedon the List.
8 Virg in ia Public Sc hoo l Autho rity
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School Construction Financing
Other Sources:
• Rural Development Funds – Not usually
available for schools and Montgomery
County does not qualify
• FEMA – collapse does not meet FEMA
threshold
• Actions by State or Federal Elected Officials
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County Debt
Montgomery County , o ; ; , ~ ~ ~ ! c o c J " ; ; , . , . Virginia r l \ l . . . , j Analysis of Proposed QSCB P rojec ts ~ ~ 0 ~ , " . 4 ~ on Debt Capacity and / : ~ ~ e ~ Debt Affordabi l i ty .- .
Apri l 26, 2010
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County Debt
Capital Projects Funding - Impact on Key Debt Ratios
Montgomery County, Virginia
14%
12%10%
8%
6%
4%
2%
Q1Yo
Debt Service as Percent of Expenditures Policy
Annua l debt service expenditures fo r tax-
supported debt sbould no t exceed 12 % oftotal
Genera l Fund Expenditures plus School
Component Unit Expenditures.
Debt Service vs. Expenditures
Year
2011
201 2
201 3
201 4
201 5
2000 2002 2004 2006 2008 2010 2012 2014
The highest point is estimated to be in 2012 at 11.9% ,
Total Expenditures
S 146,49 6 ,555
146,49 6 ,55 5
146,496 ,555
146 .49 6 .555
146 ,49 6, 55 5
If the QSCBs were no t at 0% the County wou ld be over the policy,
Prepared by: Davenport & Company LLC
% Growth
0%
0%
0%
0%
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County Debt
Future Debt CapacityMontgo mery County, Virginia
Future Debt Caoacity
2011 2012 2013
Debt vs . AV 65,364,628 15,276 ,43 1 15 ,875,606
Debt Service vs. E ~ p e D d i t u r e s 2. 108.620 1.73 4 .700 7.080,533
DS to Expenditures - Cumu lative 2,108.620 3.84 3 ,320 10,923,853
2014
15,945,783
7.837.309
18,761 ,162
2015
16,384,404
10.778,400
29,539,562
» Using a 20 -year stTucture Debt Service vs . Expenditure is th e limiting factor. If the
growth in the budget slows further, the capacity will shrink.
» This assumes 0% growth 2012-2015 .
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County Debt
Rating RecalibrationMontgomery County, Virg inia
» In the Sununer of2008 Moody's Investors Service announced they were recalibrating their
municipal rating scale to a globa l rating scale.
» Due to the financial crisi s in the Fall of 2008 they put their effol1:s on hold.
» Recently they arul0wlced fuat they would be proceeding forward with this recalibration.
» Moody ' s is expected to have fueir Virginia ratings recalibrated in early May.
» Standard & Poor ' s has said their rating scale is on a global scale.
» Currently fue County enjoys ratings o f Aa3 from Moody's an d AA from Standard and
Poor's.
» For a rating of Aa3 Moody ' s has said it is possible to move up to a Aa2 . I f so , fuis would
be on th e same rating level as Standard & Poor 's .
» This is not a rating upgrade.
» I t is still unclear how tlus will affect fue trading le vels o f th e County's bonds .
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