Deferred Financing-boc Presentation Aug 19 2009-final

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 Ki Kindergarten 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 Assessed Value

$700,000,000 = $465,806,005,470

0.0015028 Tax Rate

Year 2

Debt Service Assessed Value

$700,000,000 = $398,124,791,000

0.0017582 Tax Rate

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

To otal Projected Debt Service ($Mil)

$1,000 $901

$859 $782

$800 $673

$778

$782

$786

$781

$779

$697 $600

$400

$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 $Milli $4,500

$Millions $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 Measure K Bonds

Measure R Bonds

Measure Y Bonds

Measure Q

Measure K

Fiscal Year 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 $800M represents construction contracts for approximately 17 projects

$ in Billions

$5.0 $4.5

0.8

0.8

0.9

$4 0 $4.0

$ Financed + Est. Costs

$3.5

State Cash Gap

$3.0

3.9

3.9

3.9

State Bond Local Bond

$2 5 $2.5 $2.0 Cash Required

Cash Known Cash with 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