Public Finance 101: Issuing Bonds for Your Communities

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Public Finance 101: Issuing Bonds for Your
Communities
Carol Juang McCoog, Partner, K&L Gates LLP
Kieu-Oanh Nguyen, Partner, Western Financial
Group
Lynn Tsugie Nagasako, Senior Assistant Attorney
General, Oregon Department of Justice
Public Finance 101: Topics




Legal Basics
Bond Market Basics
Issuer’s Counsel’s Perspective – Oregon AG
Tumbling Through the Great Recession
1
2
Public Finance 101: General Legal Basics
 State Law – Authority
 Sources: State Constitution, State Statutes,
Codes and Charters
 Vote required; subject to referral; neither
 Use of Proceeds
3
Pubic Finance 101: General Legal Basics
 Federal Tax Law
 Governmental Purpose; Capital Expenditure
 Earnings on Bond Proceeds
 State Tax Law
4
Public Finance 101: General Legal Basics
 Federal Securities Law
 Exemption from Registration
 Anti-Fraud Provisions
 Continuing Disclosure
 State Securities Law
5
Pubic Finance 101: Bond Market Basics
 Establishing the facts



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Projects financed (useful life)/drawdown of funds
Source of repayment
Security
Tax status (taxable or tax-exempt, bank
qualification)
 Financing options
 Short-term debt (lines of credit, notes)
 Long-term debt (bonds)
 Government loan programs/bank
placement/publicly-offered issue
6
Pubic Finance 101: Bond Market Basics
 Structuring a bond issue









Security
Amortization
Call provisions
Determine method of sale
Parties involved
Official Statement/Rating process
Bid opening/pricing
Closing
Post-sale
7
3.00
3/4/2011
11/4/2010
7/4/2010
3/4/2010
11/4/2009
7/4/2009
3/4/2009
11/4/2008
7/4/2008
3/4/2008
11/4/2007
7/4/2007
3/4/2007
11/4/2006
7/4/2006
3/4/2006
11/4/2005
7/4/2005
3/4/2005
11/4/2004
7/4/2004
3/4/2004
11/4/2003
7/4/2003
3/4/2003
11/4/2002
7/4/2002
3/4/2002
11/4/2001
7/4/2001
3/4/2001
11/4/2000
7/4/2000
3/4/2000
11/4/1999
Interest Rate (%)
Oregon Bond Index (20 Year)
From November 1999 to June 2011
This index represents an average rate on 20-year maturities of Oregon municipal GO bonds rated “A”.
6.50
6.00
5.50
5.00
4.50
4.00
3.50
8
MMD Yield Curve
Aaa as of 6/3/2011
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
9
Pubic Finance 101: Issuer’s Counsel’s Perspective –
Oregon Attorney General
Oregon Revised Statutes (ORS) 180.060(6) states:
“The Attorney General shall, when requested, perform
all legal services for the state or any department or
officer of the state.”
ORS 180.060(2) and (3) provide that in the
performance of those duties, the Attorney General
may not, except in one limited circumstance, issue
any legal opinions to third parties.
10
Pubic Finance 101: Issuer’s Counsel’s Perspective –
Oregon Attorney General
 Role of DOJ During the Issuance of Bonds:
 General Obligation Bonds
 Revenue Bonds
 Conduit Bonds
11
Public Finance 101: Tumbling Through the Great
Recession (2008)
 Bond Insurers Downgraded
 Banks Going Under




Auction Rate/VRDO Markets Freeze
SWAPs terminate
GICs needing to be collateralized
Debt service reserves no longer filled
12
Public Finance 101: Tumbling Through the Great
Recession (2009 – 2010)
 The Federal Stimulus Act
 Build America Bonds (direct subsidy bonds)
 Qualified School Construction Bonds (tax credit;
direct subsidy)
 Recovery Zone Facility Bonds; Recovery Zone
Economic Development Bonds (tax-exemption)
13
Public Finance 101: Tumbling Through the Great
Recession (2011)
 The Recovery
 Many programs ended; some continue
 Tax overhaul proposals include revival of some
programs and ending of traditional tax-exemption
 Federal government hitting debt ceiling
14
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