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Item Q4 .,-""-', ....-.-."'. - . ''ff.'''''i".. ~:" BOARD OF COUNTY COMMISSIONERS AGENDA ITEM SUMMARY Time Approximate: Meeting Date: July 17.2002 Division: County Administrator Bulk Item: Yes No ---X- Department: County Administrator AGENDA ITEM WORDING: Presentation of report in reference to the potential for debt financing of capital projects and request for guidance from the County Commission. ITEM BACKGROUND: In May 2002, the Board of County Commissioners discussed additional capital items that are beyond the scope of the infrastructure sales tax capital program. The Administrator was instructed to have a financing feasibility report prepared for presentation to the Board in July 2002 so that guidance could be developed for the future. PREVIOUS RELEVANT BOCC ACTION: As above. CONTRACT/AGREEMENT CHANGES: N/A STAFF RECOMMENDATIONS: Discussion of report and guidance from the County Commission. TOTAL COST: -0- BUDGETED: Yes No COST TO COUNTY: -0- REVENUE PRODUCING: Yes No AMOUNTPERMONTH_ Year APPROVED BY: County Atty _ OMB/Purchasing _ Risk Management_ DIVISION DIRECTOR APPROVAL: ~~-~ James L. Roberts DOCUMENTATION: Included X To Follow_ Not Required_ AGENDAlTEM#~ DISPOSITION: fA CD > -- ... m s:: s- eD ... - <( C) s:: -- (.) s:: m s:: -- u. - m ... -- c. m o N ~........lt)O. O.Q C~~~ O~Q)Q)"""""" ..... .... E ='= N d> ..... c:: :::l ...... M ~CI) Q)CJ)0l0l ,.... CI) ..... . M ...... ~ ~ .."~M",,, o..COO...JOl ~ Cex:u.~ _ CO ErIi'!-. ~ ~~'-O'> ~ IIIl: ~ ~g - c::2:M co :::l t::. d> .- ex: 0 M U ... u. Ol 5 3l ~ ,'" 0 Ol Co .- 0 1.1.(; u...... .- - .c ~ D. N . - - > > > .0 co I- fn CI) > -- .., ns c: I.. CI) 'U .., C - ::J en C <( 0 Q) 0 L.. C) C) +-' en C) ~ c en ~ c: () CO C 0 CO ..r::. 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I () ~I 01 . -------~ ~- Suite 201 10100 Deer Run Farm Road Fort Myers, FL 33912-1045 239 939.3009 239 939-1220 fax www.pfm.com ...=- Public Financial Management Financial and Investment Advisors July 17, 2002 MEMORANDUM TO: J ames Roberts, County Administrator Monroe County, Florida FROM: Hal Canary Kyrle Turton Public Financial Management, Inc. RE: Refunding Scenarios Public Financial Management, Inc. ("PFM") has completed a refunding analysis for Monroe County's Refunding Improvement Revenue Bonds, Series 1991 ("Series 1991 Bonds"), and Refunding Revenue Bonds, Series 1993 ("Series 1993 Bonds"). In both refunding scenarios we have chosen - based on preliminary analysis - to current refund all callable bonds, excluding 2002 maturities. Municipal bonds may be current refunded after 90 days prior to the earliest call date. Once the call date has passed, the potential for savings decreases with each debt payment. Therefore, we would recommend current refunding bonds whenever savings may be realized. The following are additional assumptions/findings for this scenario: Refundinf! Assumptions for Series 1991 and 1993 Bonds Category Assumption Dated/Delivery Date July 1, 2002 Costs of Issuance-Series 1991 Refunding $100,000 Costs of Issuance-Series 1993 Refunding $50,000 Underwriter's Discount (per bond) $6.00 Structure Level Savings Proiected Results Refunding of Refunding of Cate20rv Series 1991 Bonds Series 1993 Bonds Par Amount of Bond s Issued $5.97 million $3.60 million Par Amount of Bonds Refunded $5.66 million $3.41 million True Interest Cost 3.61% 3.24% Total Issuance Costs $178,410 $96,548 Present Value Savings ($)/% $695,362 12.29% $71,637 2.1% Mr. James Roberts Monroe County, Florida July 17, 2002 Page 2 We have included PFM's proprietary Call Option Value analysis for the refunding of the Series 1991 Bonds (pg. 13) and Series 1993 Bonds (pg. 24) to detail the opportunity associated with the County's refunding each maturity of the Series 1991 Bonds and Series 1993 Bonds at this time. We have also included a Refunding "Monitor" report for the Series 1991 Bonds (pgs. 11-12) and Series 1993 Bonds (pgs. 22-23) to detail the percentage savings associated with refunding each maturity of Series 1991 Bonds and Series 1993 Bonds. Recommendation Based on the current conditions of the market and PFM's knowledge and experience in the issuance of tax-exempt debt, it is our opinion that the projected $695,000 or 12.3 percent in present value savings is compelling and should be pursued. We understand the Series 1991 issued by the Municipal Service District have not been refunded because of their involvement in a lawsuit. We propose to investigate further eliminate what obstacles may exist. The 2.1 % or $71,600 savings on the Series 1993 Bonds is negligible and would not be recommended. The savings (after paying the costs) are less than the cost. In our opinion, such a bond issue is not worthwhile. We propose looking into a bank loan in order to minimize the issuance costs. Any cost savings would flow to the County's savings, possibly achieving a balance that is more attractive, such as $120,000 savings after paying $50,000 costs. Upon review, please call to discuss. Thank you. SOURCES AND USES OF FUNDS Refunding of Revenue Refunding Bonds, Series 1993 Revenue Refunding Bonds, Series 2002A Monroe County, Florida (Guaranteed Entitlement) Sources: Bond Proceeds: Par Amount 3,640,000.00 3,640,000,00 Uses: Refunding Escrow Deposits: Cash Deposit SLG Purchases 0,66 3,539,208,00 3,539,208,66 Delivery Date Expenses: Cost of Issuance Underwriter's Discount Bond Insurance Surety Policy 50,000.00 21,840.00 14,190,58 10,920,00 96,950,58 Other Uses of Funds: Additional Proceeds 3,840,76 3,640,000,00 Julll,2002 2:14 pm Prepared by Public Financial Mangement (Monroe:REFI993-CASE,2002A) Page 3 SUMMARY OF REFUNDING RESULTS Refunding of Revenue Refunding Bonds, Series 1993 Revenue Refunding Bonds, Series 2002A Monroe County, Florida (Guaranteed Entitlement) Dated Date Delivery Date Arbitrage yield Escrow yield 10/01/2002 10/01/2002 3,231720% 1.642856% Bond Par Amount True Interest Cost Net Interest Cost Average Coupon Average Life 3,640,000,00 3,205701 % 3.204088% 3.043696% 3,741 Par amount of refunded bonds Average coupon of refunded bonds Average life of refunded bonds 3,405,000,00 5.000000% 3,811 PV of prior debt to 10/01/2002 @ 3,231720% Net PV Savings Percentage savings ofrefunded bonds Percentage savings of refunding bonds 3,673,417,66 62,369,00 1.831689% 1.713434% Julll,2002 2:14 pm Prepared by Public Financial Mangement (Monroe:REFI993-CASE,2002A) Page 4 SA VINGS Refunding of Revenue Refunding Bonds, Series 1993 Revenue Refunding Bonds, Series 2002A Monroe County, Florida (Guaranteed Entitlement) Present Value Prior Refunding Annual to 10/01/2002 Date Debt Service Debt Service Savings Savings @ 3.2317195% 12/01/2002 85,125,00 16,706,00 68,419,00 68,419,00 68,054.40 06/01/2003 85,125,00 50,118,00 35,007,00 34,266,75 12/01/2003 585,125.00 625,118,00 -39,993,00 -4,986,00 -38,524,81 06/01/2004 72,625,00 45,230,50 27,394,50 25,969,19 12/01/2004 597,625,00 625,230,50 -27,605,50 -211.00 -25,753,08 06/01/2005 59,500,00 38,995,50 20,504,50 18,824.40 12/01/2005 609,500.00 633,995.50 -24,495,50 -3,991.00 -22,130,79 06/01/2006 45,750,00 31,022,50 14,727.50 13,094.17 12/0112006 625,750,00 641,022,50 -15,272.50 -545.00 -13,362,81 06/01/2007 31,250,00 21,903,00 9,347,00 8,048,19 12/01/2007 641,250,00 651,903.00 -10,653,00 -1,306,00 -9,026,86 06/01/2008 16,000.00 11,602,50 4,397.50 3,666,98 12/01/2008 656,000,00 661,602,50 -5,602,50 -1,205,00 -4,597,52 4,110,625,00 4,054,450,00 56,175,00 56,175,00 58,528,24 Savings Summary PV of savings from cash flow 58,528.24 Plus: Refunding funds on hand 3,840,76 Net PV Savings 62,369,00 Jul II, 2002 2: 14 pm Prepared by Public Financial Mangement (Monroe:REFI993-CASE,2002A) Page 5 PRIOR BOND DEBT SERVICE Refunding of Revenue Refunding Bonds, Series 1993 Revenue Refunding Bonds, Series 2002A Monroe County, Florida (Guaranteed Entitlement) Annual Period Debt Debt Ending Principal Coupon Interest Service Service 1 % 1/2002 12/01/2002 85,125 85,125 85,125 06/01/2003 85,125 85,125 12/01/2003 500,000 5,000% 85,125 585,125 670,250 06/01/2004 72,625 72,625 12/01/2004 525,000 5.000% 72,625 597,625 670,250 06/01/2005 59,500 59,500 12/01/2005 550,000 5,000% 59,500 609,500 669,000 06/01/2006 45,750 45,750 12/0112006 580,000 5,000% 45,750 625,750 671,500 06/01/2007 31,250 31,250 12/01/2007 610,000 5,000% 31,250 641,250 672,500 06/0112008 16,000 16,000 12/01/2008 640,000 5,000% 16,000 656,000 672,000 3,405,000 705,625 4,110,625 4,110,625 Julll,2002 2:14 pm Prepared by Public Financial Mangement (Monroe:REFI993-CASE,2002A) Page 6 BOND DEBT SERVICE Refunding of Revenue Refunding Bonds, Series 1993 Revenue Refunding Bonds, Series 2002A Monroe County, Florida (Guaranteed Entitlement) Annual Period Debt Ending Principal Coupon Interest Debt Service Service 10/01/2002 12/01/2002 16,706.00 16,706,00 16,706 06/01/2003 50,118,00 50,118,00 12/01/2003 575,000 1.700% 50,118,00 625,118,00 675,236 06/01/2004 45,230,50 45,230,50 12/01/2004 580,000 2,150% 45,230,50 625,230,50 670,461 06/01/2005 38,995,50 38,995,50 12/01/2005 595,000 2,680% 38,995,50 633,995,50 672,991 06/01/2006 31,022,50 31,022,50 12/01/2006 610,000 2,990% 31,022,50 641,022.50 672,045 06/01/2007 21,903,00 21,903.00 12/01/2007 630,000 3,270% 21,903.00 651,903,00 673,806 06/01/2008 11,602,50 11,602,50 12/01/2008 650,000 3,570% 11,602,50 661,602,50 673,205 3,640,000 414,450.00 4,054,450,00 4,054,450 Julll,2002 2: 14 pm Prepared by Public Financial Mangement (Monroe:REFI993-CASE,2002A) Page 7 BOND SUMMARY STATISTICS Refunding of Revenue Refunding Bonds, Series 1993 Revenue Refunding Bonds, Series 2002A Monroe County, Florida (Guaranteed Entitlement) Dated Date Delivery Date Last Maturity 10/01/2002 10/01/2002 12/01/2008 Arbitrage Yield True Interest Cost (TIC) Net Interest Cost (NIC) All-In TIC Average Coupon 3,231720% 3.205701 % 3,204088% 3,811564% 3,043696% Average Life (years) Duration of Issue (years) 3,741 3,532 Par Amount Bond Proceeds Total Interest Net Interest Total Debt Service Maximum Annual Debt Service Average Annual Debt Service 3,640,000,00 3,640,000,00 414,450,00 436,290,00 4,054,450,00 675,236,00 657,478,38 Underwriter's Fees (per $1000) Average Takedown Other Fee 6.000000 Total Underwriter's Discount 6,000000 Bid Price 99.400000 Bond Component Par Value Price Average Coupon Average Life Serial Bonds 3,640,000,00 100,000 3,044% 3,741 3,640,000,00 3,741 TIC All-In TIC Arbitrage Yield Par Value + Accrued Interest + Premium (Discount) - Underwriter's Discount - Cost of Issuance Expense - Other Amounts 3,640,000.00 3,640,000,00 3,640,000,00 -21,840.00 -21,840,00 -50,000.00 -25,110,58 -25,110,58 Target Value 3,618,160,00 3,543,049,42 3,614,889.42 Target Date Yield 10/01/2002 3.205701 % 1 % 1/2002 3.811564% 10/01/2002 3,231720% Jul 11, 2002 2: 14 pm Prepared by Public Financial Mangement (Monroe:REFI993-CASE,2002A) Page 8 SOURCES AND USES OF FUNDS Refunding ofMSD Revenue Ref, Bonds, Series 1991 Refunding Revenue Bonds, Series 2002B Monroe County, Florida (Solid Waste Collection Revenues and Special Assessments) Sources: Bond Proceeds: Par Amount 5,965,000,00 5,965,000,00 Uses: Refunding Escrow Deposits: SLG Purchases 5,782,383.00 Delivery Date Expenses: Cost of Issuance Underwriter's Discount Bond Insurance Surety Policy 100,000,00 35,790,00 24,725,30 17,895,00 178,410,30 Other Uses of Funds: Additional Proceeds 4,206,70 5,965,000.00 lul11,2002 1:51 pm Prepared by Public Financial Mangement (Monroe:REF1991-CASE,2002B) Page 9 SUMMARY OF REFUNDING RESULTS Refunding ofMSD Revenue Ref. Bonds, Series 1991 Refunding Revenue Bonds, Series 2002B Monroe County, Florida (Solid Waste Collection Revenues and Special Assessments) Dated Date Delivery Date Arbitrage yield Escrow yield 07/05/2002 07/05/2002 3.631814% 1.699746% Bond Par Amount True Interest Cost Net Interest Cost Average Coupon Average Life 5,965,000,00 3,607270% 3,614011 % 3,500067% 5.266 Par amount of refunded bonds Average coupon of refunded bonds Average life of refunded bonds 5,660,000,00 6,746952% 5.494 PV of prior debt to 07/05/2002 @ 3,631814% Net PV Savings Percentage savings of refunded bonds Percentage savings of refunding bonds 6,613,534.81 695,361.81 12,285544% 11,657365% Jul 11, 2002 1 :51 pm Prepared by Public Financial Mangement (Monroe:REFI991-CASE,2002B) Page 10 SAVINGS Refunding ofMSD Revenue Ref, Bonds, Series 1991 Refunding Revenue Bonds, Series 2002B Monroe County, Florida (Solid Waste Collection Revenues and Special Assessments) Present Value Prior Refunding Annual to 07/0512002 Date Debt Service Debt Service Savings Savings @ 3,6318143% 10/01/2002 190,642.50 44,733,50 145,909,00 144,659.83 04/01/2003 190,642,50 93,628,25 97,014.25 94,468.23 09/30/2003 242,923,25 10/01/2003 700,642,50 723,628,25 -22,985,75 -21,983,32 04/01/2004 173,812,50 88,273.25 85,539,25 80,349,73 09/30/2004 62,553,50 1 % 1/2004 713,812,50 728,273,25 -14,460,75 -13,341.18 04/01/2005 155,587,50 81,393,25 74,194,25 67,229,20 09/30/2005 59,733,50 10/01/2005 735,587,50 736,393,25 -805,75 -717,09 04/01/2006 136,012,50 72,616,25 63,396,25 55,414,06 09/30/2006 62,590,50 10/01/2006 751,012.50 742,616.25 8,396,25 7,208,19 04/01/2007 115,256,25 62,599,75 52,656.50 44,399.40 09/3012007 61,052,75 10/01/2007 765,256,25 747,599,75 17,656,50 14,622,25 04/01/2008 93,318.75 51,400.00 41,918,75 34,095,90 09/30/2008 59,575,25 10/01/2008 783,318,75 751,400,00 31,918.75 25,499.06 04/01/2009 70,031,25 38,905.00 31,126,25 24,422.46 09/30/2009 63,045.00 10/01/2009 805,031.25 763,905,00 41,126,25 31,693,20 04/01/2010 45,225,00 25,275.00 19,950.00 15,099,91 09/3012010 61,076,25 1 % 1/20 1 0 685,225,00 635,275,00 49,950,00 37,132,24 04/01/2011 23,625,00 13,227,50 10,397,50 7,591.52 09/30/2011 60,347,50 10/01/2011 723,625,00 663,227.50 60,397,50 43,311,52 09/30/2012 60,397,50 7,857,665,00 7,064,370,00 793,295,00 793,295.00 691,155,11 Savings Summary PV of savings from cash flow 691,155,11 Plus: Refunding funds on hand 4,206,70 Net PV Savings 695,361.81 Julll,2002 1:51 pm Prepared by Public Financial Mangement (Monroe:REFI991-CASE,2002B) Page 11 PRIOR BOND DEBT SERVICE Refunding ofMSD Revenue Ref, Bonds, Series 1991 Refunding Revenue Bonds, Series 2002B Monroe County, Florida (Solid Waste Collection Revenues and Special Assessments) Period Annual Ending Principal Coupon Interest Debt Service Debt Service 07/0512002 10/01/2002 190,642,50 190,642,50 04/01/2003 190,642,50 190,642,50 09/30/2003 381,285,00 10/01/2003 510,000 6,600% 190,642,50 700,642,50 04/01/2004 173,812.50 173,812,50 09/30/2004 874,455,00 10/01/2004 540,000 6,750% 173,812.50 713,812,50 04/01/2005 155,587,50 155,587,50 09/30/2005 869,400,00 10/01/2005 580,000 6,750% 155,587,50 735,587,50 04/01/2006 136,012,50 136,012,50 09/3012006 871,600,00 10/0112006 615,000 6,750% 136,012,50 751,012,50 04/01/2007 115,256,25 115,256,25 09/3012007 866,268.75 10/01/2007 650,000 6,750% 115,256,25 765,256,25 04/01/2008 93,318,75 93,318,75 09/30/2008 858,575,00 10/0112008 690,000 6,750% 93,318,75 783,318.75 04/01/2009 70,031,25 70,031.25 09/3012009 853,350,00 10/01/2009 735,000 6,750% 70,031,25 805,031.25 04/01/2010 45,225.00 45,225,00 09/3012010 850,256,25 10/01/2010 640,000 6,750% 45,225,00 685,225,00 04/01/2011 23,625,00 23,625,00 09/30/2011 708,850,00 10/01/2011 700,000 6,750% 23,625.00 723,625,00 09/3012012 723,625,00 5,660,000 2,197,665,00 7,857,665,00 7,857,665,00 J ul 11, 2002 1 : 51 pm Prepared by Public Financial Mangement (Monroe:REFI991-CASE,2002B) Page 12 BOND DEBT SERVICE Refunding ofMSD Revenue Ref, Bonds, Series 1991 Refunding Revenue Bonds, Series 2002B Monroe County, Florida (Solid Waste Collection Revenues and Special Assessments) Period Annual Ending Principal Coupon Interest Debt Service Debt Service 07/05/2002 10/01/2002 44,733.50 44,733.50 04/01/2003 93,628,25 93,628,25 09/30/2003 138,361.75 10/01/2003 630,000 1.700% 93,628,25 723,628,25 04/01/2004 88,273,25 88,273,25 09/30/2004 811,901.50 1 % 1/2004 640,000 2,150% 88,273,25 728,273,25 04/01/2005 81,393,25 81,393,25 09/30/2005 809,666,50 10/01/2005 655,000 2,680% 81,393.25 736,393,25 04/01/2006 72,616.25 72,616,25 09/30/2006 809,009,50 10/01/2006 670,000 2,990% 72,616,25 742,616,25 04/01/2007 62,599,75 62,599,75 09/30/2007 805,216.00 10/01/2007 685,000 3.270% 62,599,75 747,599,75 04/01/2008 51,400,00 51,400,00 09/30/2008 798,999,75 10/01/2008 700,000 3,570% 51,400,00 751,400,00 04/01/2009 38,905,00 38,905,00 09/30/2009 790,305,00 10/01/2009 725,000 3,760% 38,905,00 763,905,00 04/01/2010 25,275,00 25,275.00 09/30/2010 789,180,00 10/01/2010 610,000 3,950% 25,275.00 635,275,00 04/01/2011 13,227,50 13,227,50 09/30/2011 648,502,50 10/01/2011 650,000 4,070% 13,227,50 663,227,50 09/30/2012 663,227.50 5,965,000 1,099,370,00 7,064,370,00 7,064,370,00 JuI11,2002 1:51 pm Prepared by Public Financial Mangement (Monroe:REFI991-CASE,2002B) Page 13 BOND SUMMARY STATISTICS Refunding of MSD Revenue Ref, Bonds, Series 1991 Refunding Revenue Bonds, Series 2002B Monroe County, Florida (Solid Waste Collection Revenues and Special Assessments) Dated Date Delivery Date Last Maturity 07/05/2002 07/05/2002 10/0112011 Arbitrage Yield True Interest Cost (TIC) Net Interest Cost (NIC) All-In TIC Average Coupon 3,631814% 3,607270% 3,614011 % 4,128098% 3,500067% Average Life (years) Duration oflssue (years) 5,266 4,782 Par Amount Bond Proceeds Total Interest Net Interest Total Debt Service Maximum Annual Debt Service Average Annual Debt Service 5,965,000,00 5,965,000.00 1,099,370.00 1,135,160.00 7,064,370,00 811,901.50 764,634,16 Underwriter's Fees (per $1000) Average Takedown Other Fee 6.000000 Total Underwriter's Discount 6,000000 Bid Price 99.400000 Bond Component Par Value Price Average Coupon Average Life Serial Bonds 5,965,000,00 100,000 3.500% 5,266 5,965,000,00 5,266 TIC All- In TIC Arbitrage Yield Par Value + Accrued Interest + Premium (Discount) - Underwriter's Discount - Cost of Issuance Expense - Other Amounts 5,965,000,00 5,965,000,00 5,965,000.00 -35,790,00 -35,790.00 -100,000,00 -42,620,30 -42,620,30 Target Value 5,929,210,00 5,786,589,70 5,922,379,70 Target Date Yield 07/05/2002 3,607270% 07/05/2002 4,128098% 07/05/2002 3,631814% Julll,2002 1:51 pm Prepared by Public Financial Mangement (Monroe:REFI991-CASE,2002B) Page 14 fn -- fn ~ - co c: <( ~ .. -- u co c. co o .. .c CI) Ci I i I ! i I I I I , 1 I I i ! i i ! i : "l:t N .:;;;; ~ Q., c co a.. en ...- 0 Q) '-" 0 Q) ~ >- a.. c ...- CO 0 CO 'C CO ::J ...- c.. ...- c CO ~ 0 c.. 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CO +-' CO 0 c.. c c.. 0 ..... c.. c.. ..... 0 Q) +oJ Q) ~ a> ::J ::J +oJ N s..... 0') ~ E +-' ::J 0 I +-' U') U') c ..c ~ - "0 .- I Q) I Q) fh CO ::J - .- - E U') > en ~ +-' +oJ +-' +oJ 0 => c .- C +oJ +oJ +-' c.. c "'C 0 .... ro c ro 0 ::J c.. CO +oJ -- "'C 0 W 0 0 ::J - I +oJ (.) C ~ ~ Q) E U') c c ca CO c "'C c > 0 ro 0') Q) 0') Q) ro 1:: c C. Q) Q) 0 c a> en U') U') 0 a> c.. +-' 0') s..... > ca -- +oJ C +oJ c.. Q) 0 ..c +-' L- 0 CO 0 en ro ::J ..c () 0 () Z s..... Z -;:: ...J (j) +-' C -- co ::J 0 .... CO I ::J I 0 I I - s..... .c u. (!) ..... <( CI) C . . . . --------J MONROE COUNTY, FLORIDA DEBT CAPACITY REPORT July 17, 2002 Public Financial Management, Inc. 10100 Deer Run Farms Road, Suite 201 Fort Myers, FL 33912-1045 Monroe County, Florida Debt Capacity Analysis July 17,2002 I. INTRODUCTION Monroe County has identified a number of capital facilities and infrastructure needs that its traditional reliance on pay-as-you-go financing will not support within the required timeframes for completion of the projects. The County's principal capital funding source has been the one-cent Infrastructure Sales Surtax. Public Financial Management, Inc., the County's financial advisor, has identified eXlstmg revenue sources and determined the estimated debt capacity of each to aid in the evaluation of potential funding sources and methods for the County's proposed capital projects. Further, PFM has reviewed the County's Capital Projects Plan as it relates to the Surtax and identified opportunities for restructuring the Plan to increase and accelerate the capital financing program. II. DEBT CAPACITY FACTORS There are several factors that will affect the debt capacity of any given revenue source. Debt capacity is a function of the following: . Amount of Revenue . Required Covenants . Existing Debt . Interest Rates . Financing Costs . Structure III. EXISTING REVENUES PFM has compiled a summary of the County's existing revenue sources that may be utilized to secure any potential debt financing. The revenues are based upon the County's FY 2002 revenue budget information. Some of the revenues may have restrictions related to outstanding debt that would govern the use of the revenue. Re\ enuc FY 2002 Infrastructure Sales Surtax (1 cent) 10,500,000 Const, County and Local Fuel Taxes 4,050,000 Tourist Devel Taxes 9,987,000 Half-Cent Sales Tax 4,700,000 Guaranteed Entitlement 950,000 Cable Franchise Fees 380,000 Public Financial Management Page 1 IV. PROPOSED DEBT COVENANTS Typically with the issuance of debt, there are limitations related to certain coverage requirements and additional bonds tests. Financial institutions and bond insurers evaluate each revenue pledge to determine compliance with the necessary coverage requirements and credit criteria. Below are estimated coverage requirements for those revenues that have not previously been pledged by the County and the actual coverage requirements for those revenues that are currently pledged to existing debt. Rcycnuc CO\cragc Infrastructure Sales Surtax (1 Cent) 1.25 Const. County and Local Fuel Tax 1.25 Tourist Development Taxes 1.25 Half-Cent Sales Tax 1.25 Guaranteed Entitlement 1.00 Franchise Fees 1.35 Covenant to Budget and Appropriate V. EXISTING DEBT The County has a small amount of debt outstanding as of June 30, 2002. The section below summarizes the status, debt service, security, existing covenants and other details of the outstanding debt. Municipal Service District Refunding Improvement Bonds, Series 1991 Amount $6,140,000 Purpose Solid Waste Refunding Security Solid Waste Revenues Status Currently callable - 12% PV Savings Guaranteed Entitlement Revenue Refunding Bonds, Series 1993 Amount Purpose Security Status $3,880,000 Jail Expansion Refunding Guaranteed Entitlement Currently callable - 2% PV Savings Sales Tax Revenue Refunding Bonds, Series 1998 Amount Purpose Security Status $6,140,000 Refunding and New Money Infrastructure One-Cent Sales Tax Non-callable Public Financial Management Page 2 VI. INTEREST RATE MARKET Interest rates have a significant impact on the debt capacity of any given revenue. As interest rates rise debt capacity will decrease and vice versa. Therefore, any estimated debt capacity may change on a daily basis as the market fluctuates. Today's interest rates are at historically low levels and therefore increase the amount of debt capacity. The Bond Buyer's 25 Revenue Bond Index Last T en Years 8% 8% 7% 7% 6% 6% 5% 5% 4% ~ 0/ 0/ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ & ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ VII. DEBT CAPACITY FINANCING SCENARIOS Given the type and amount of the revenues, there are several financing mechanisms available to the County. These financing mechanisms include but are not limited to the following: Public Offering or Private Placement . General Obligation Bonds secured by ad valorem revenues . Revenue Bonds - secured by: half-cent sales tax infrastructure sales tax state and local fuel taxes franchise fees guaranteed entitlement Public Financial Management Page 3 VIII. DEBT CAPACITY PFM has summarized the results of the debt capacity analysis completed for each of the potential security pledges of the County for future financings. The type of financing assumptions are based upon the estimated amount of the capacity - if less than $3.0 million PFM assumed a bank loan, if more than $3.0 million PFM assumed a bond issue. The estimates are based on a 5.00 percent interest rate assumption. ){n ('nul' Supported Bond ){('\ ('IIUl' Source ( 'm ('rage , laturit~ Strudlln' \mollllt Size Infrastructure Sales Tax 1.25 $10,500,000 15 Years $87.2 million Wrap Around 1998's State and Local Fuel Tax 1.25 4,050,000 30 Years 49.1 million Level Debt Tourist Development Taxes 1.25 9,987,000 30 Years 121.0 million Level Debt Half-Cent Sales Tax 1.25 4,700,000 30 years 56,9 million Level Debt Guaranteed Entitlement 1.00 950,000 20 years 9,5 million Wrap Around 1993's Franchise Fees 1.35 380,000 20 years 3,8 million Level Debt IX. NEW REVENUES PFM suggests also considering other new revenue sources such as special assessments. Prior to making any revenue assumptions relating to assessments, PFM would need to identify information regarding the direct benefit received by each property owner versus the cost of the project. Other policy decisions would need to be made by the County regarding the following . Basis for assessment . Cost of project that provides direct benefit . Will County provide any subsidy of cost . Collection method Special assessments may be utilized to secure debt if certain criteria are met. Below is a summary of the issues that are considered: . Assessment Area Demographics . Forec1osure/Bankruptcy Provisions . Collection Method . Term and Redemption of Debt . Value-to-Debt Ratios . Cash Flow . Lien Position . Collection Rates of other Similar Areas . Treatment of Property Sales Public Financinl Management Page 4 X. ISSUES TO CONSIDER This report is intended as a general reference regarding potential security pledges and debt capacity of the County's existing revenue base. There are various factors and issues to consider that may have an impact on the capacity or ability to pledge any of the above revenues. Some of these issues include the following. . Type of Financing - there are various types of financings and bonds that may be issued. Types of financings include revenue bonds, general obligation bonds, certificates of participation, leases, private placements, etc. and types of bonds include current interest bonds, capital appreciation bonds, super-sinkers, etc. PFM has assumed current interest bonds for all scenarios and revenue bonds for non-ad valorem and enterprise fund revenue pledges and general obligation bonds for ad valorem revenues. The type of financing and the type of bond may have a significant impact on the debt capacity. ~ General Obligation Bonds - Projects that benefit the entire community could be a candidate for general obligation financing. General obligation bonds issued by local units of government are secured by a pledge of the issuer's ad valorem taxing power. Such bonds constitute debt of the issuer and require approval by election prior to issuance of the bonds. There a two types of general obligation bonds: (i) limited ad valorem, and (ii) unlimited ad valorem. Limited ad valorem bonds have legal limits on tax rates (millages) that can be levied for debt service. Unlimited ad valorem bonds are secured by a full faith and credit pledge and have no statutory upper limit on tax rate or amount. . Most cost effective method of financing . Maturity up to 30 years . Requires voter approval . Requires I.OOX coverage . May be an unfair distribution of payment ~ Revenue Bonds - Revenue bonds are long-term obligations that are secured by some specified revenue source. Revenue bonds do not require voter approval. Since revenue bonds are secured by a specified revenue and not the full faith and credit of the entity, the costs of issuance and the overall cost of the debt are usually higher than general obligation bonds. In addition, revenue bonds typically require a debt service reserve fund and certain bond coverage tests. . More costly than general obligation bonds . Maturity up to 30 years Public Financial Management Page 5 . Does not require voter approval . Most security pledges require a minimum of 1.1OX coverage depending upon the specific security source (Most state shared revenue sources require 1.25X -1.35X coverage.) . May be secured by existing revenue source such as half-cent sales tax, utility tax, covenant to budget & appropriate, etc. . Type of Sale - There are basically three types of municipal bond sales: competitive sales and negotiated sales, both of which are public offerings, and private placements. ~ Public Offerings - Public offerings are bond issues sold to underwriting firms - either through a competitive bid process or a negotiation - who remarket the bonds to investors. Public offerings mat be sold insured or uninsured, and rated or non-rated. There are various costs associated with public offerings including bond insurance, ratings, underwriter's discount, bond counsel, printing the preliminary and final official statement and other issuance costs. Public offerings are usually cost effective with financings of over $5.0 million. . Maturity up to 30 years . Higher costs of issuance . Minimal impact bank qualified/non-bank qualified . Expanded documentation . Standard call provisions (10 years @ 10 1) ~ Private Placement - A private placement entails selling bonds, notes or other securities to a limited number of investors or simply placing them at a bank as a placement or a loan. The securities are either purchased for investment purposes rather than resale, or held in the bank's portfolio. The pledge or security of the issue may be ad valorem revenues, covenant to budget and appropriate, or other specified revenue source. The documents would create a lien on that revenue. The advantage of using a private placement rather than a public offering is that there are fewer disclosure requirements, therefore the fixed cost of issuance are reduced. . Maturity up to 15 - 20 years . Lower costs of issuance . Significant impact bank qualified/non-bank qualified . Limited documentation . Call provisions may vary - mayor may not have prepayment penalty Public Financial Management Page 6 . Additional Issues to Consider: ~ Structure - there are numerous ways to structure debt service based upon a given revenue stream and coverage requirements. PFM generally recommends level debt service for those revenues that have not been previously pledged to other debt. The actual structure may have a significant impact on the debt capacity. ~ Covenant to Budget and Appropriate - if the County pledges any specific non-ad valorem revenue to a financing, it will have an impact on the capacity of a covenant to budget and appropriate pledge due to the anti-dilution test requirements contained in most covenant bond resolutions. The table below is a typical formula to calculate legally available non-ad valorem revenue. If this type financing is considered further, PFM would consult with the County Attorney and Bond Counsel to identify any other revenue restrictions, Revenues - Governmental Fund Types (Paee CS 1) General Special Revenue 2 Debt Service Capital Projects Total Revenue Less Restricted Funds: Capital Projects Debt Service Total Revenue Less Ad Valorem Revenue (Page K3) $ Thousands 30,905 108,408 756 14,357 154,426 (14,357) (756) 139,314 67,551 Total Non-Ad Valorem Revenue 71,763 Essential & Mandated Expenditures (Paee Dl) Public Safety General Government Total E & M Less: E & M Expenditures Paid from Ad Valorem Revenues 32,858 16,797 49,654 (24,077) 25,578 Legally Available Non-Ad Valorem Revenues 46,185 1 References to Monroe County 2001 CAFR 2 Special Revenues may be restricted depending on project description. Public Financial Management Page 7 ~ Bank Qualified versus Non-Bank Qualified - Federal tax law currently allows financial institutions to deduct a portion of the interest income from their loans to municipal issuers of less than $10 million of tax-exempt debt per calendar year in calculating their income tax liability. Financial institutions, in turn, typically pass a portion of the tax savings associated with these "bank qualified" loans to issuers in the form of lower interest rates. Bank qualification is a classification per the Internal Revenue Code and applies to all types of debt issued in any calendar year (for example, loans, private placements, public offerings, etc.). There can be as much as 100 basis points difference between a bank qualified and non-bank qualified private placement interest rate and as much as 25 basis points difference in a public offering interest rate. Public offerings may be less sensitive to bank qualification than private placements. If the County issues or plans to issue more than $10 million in debt of all types in any calendar year, bank qualification will not be available. Public Financial Management Page 8