City of Tukwila, Washington Bond Issuance Basics and Considerations - PowerPoint PPT Presentation

City of Tukwila, Washington Bond Issuance Basics and Considerations March 9, 2015 Presented by: Susan Musselman, Director Public Financial Management, Inc. (360) 445-0238 musselmans@pfm.com

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Overview of Topics 1) Introduction 2) Why Issue Bonds? 3) Debt Profile 4) Overview of Credit 5) Market Update 6) Bond Sale Process & Upcoming Transactions

Introduction

The PFM Group – The City’s Financial Advisor • PFM’s Seattle office first opened in 2001 – We expanded our Washington practice in 2013 with the acquisition of SDM Advisors • PFM serves over 80 clients in Washington and Oregon, including: – City of Marysville – City of Redmond – City of Bothell – City of Tukwila – City of Shoreline – City of Oak Harbor – City of Anacortes – City of Richland – City of Walla Walla – Skagit County – Whatcom County – Kitsap County – Clark County 4

PFM’s Role Role of Financial Advisor • Registered “municipal advisor” (financial advisor) with the Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB) • Fiduciary responsibility to act in the client’s best interest, before, during, and after any transaction • New SEC Municipal Advisor Rule became effective July 1, 2014 – Establishes regulatory regime for municipal advisors (previously unregulated) – Prohibits underwriters/banks from providing “advice” except in very limited circumstances • PFM serves as an independent financial advisor to each one of our clients – Not affiliated with a broker-dealer (underwriter) or bank; no conflicts of interest as a result of such affiliation 5

Why Issue Municipal Bonds? • Fund necessary, long-lived capital projects today, rather than waiting and “saving up” tax revenues • Spread the costs of facilities or infrastructure over a long period of time – Taxpayers/customers pay for facilities they currently use – “Inter-generational equity” • Maintain flexibility and liquidity in fund balance • Access capital at favorable interest rates – Interest rates generally are near historic lows – Interest on municipal bonds is generally exempt from federal income tax, resulting in lower borrowing rates 10

City’s Debt Profile

Outstanding General Obligation Debt Final Series Name Outstanding Par Call Date Purpose Coupon Range Maturity LTGO Refunding Bonds, 2008 $3,450,000 n/a Advance refund LTGO Bonds, 1999 4.00 – 6.00% 12/1/19 LTGO Bonds, 2010A 380,000 n/a 4.00% 12/1/15 Acquisition & construction of Southcenter Parkway improvements; LTGO Bonds, 2010B (Taxable emergency preparedness facilities, 3,970,000 6/1/20 3.61 – 5.41%* 12/1/24 BABs – Direct Payment) fixtures, tech. 12/1/21 Advance refund LTGO Bonds, LTGO Refunding Bonds, 2011 4,185,000 1.25 – 4.00% 12/1/23 2003A Park district facility improvements LTGO Bond, 2013 803,221 n/a 2.50% 12/1/22 (pool) LTGO Bond, 2014 (Taxable) 3,850,000 12/1/19 Tukwila International Boulevard – 0.85 – 4.86%** LTGO Note, 2014 (Taxable)*** 2,250,000 anytime property acquisition LIBOR + 1.00% 12/1/17 Subtotal $18,888,221 SCORE Bonds, 2009A $497,200 1/1/20 SCORE Facility 4.25 – 5.00% 1/1/22 SCORE Bonds, 2009B (Taxable 5,933,200 1/1/20 SCORE Facility 4.117 – 6.616%* 1/1/39 BABs- Direct Payment) Valley Com Refunding Bonds, Advance refunding of Valley 220,000 n/a 3.75% 12/1/15 2010 Communications Center 2000 Bonds Subtotal $6,650,400 Total – Non-Voted General $25,538,621 Obligations As of March 9, 2015. * Build America Bonds coupons are shown as gross rates, not reflecting Federal subsidy (35% prior to sequestration). ** A portion of the 2014 Bonds will have interest rates reset every five years, based on the Five Year Advance Fixed Bullet Rate, as published by the Seattle Federal Home Loan Bank. *** Non-revolving line of credit. Par amount reflects maximum available, not currently outstanding balance. 5

Outstanding General Obligation Debt Annual General Obligation Debt Service $6 Millions $5 $4 $3 $2 $1 $0 PFM’s PRICING GROUP Outstanding General Obligation Bond Principal $30 Millions $25 $20 $15 $10 $5 $0 Based on its current debt portfolio, the City will amortize approximately 66.4 % of outstanding LTGO debt within the next 10 years. 6

General Obligation Bonds – Security • Limited Tax General Obligation (LTGO) bonds: “full faith and credit” obligations of the City • City has pledged to bondowners that it will levy property taxes in amounts sufficient to pay debt service on bonds – Property tax pledge is limited by constitutional and statutory restrictions – Non-voted (councilmanic) general obligation – Not to be confused with voter-approved general obligation bonds, which carry an unlimited property tax pledge (not subject to constitutional and statutory limits) • Other funding sources can (and often are) used to make debt service payments, but are not specifically pledged as security for the LTGO bonds • Statutory limits on amount of LTGO debt a city may incur: – Limited to 1.5% of assessed valuation – City’s current limit is approximately $75.8 million – Outstanding LTGO obligations (including proposed 2015 Bonds) of approximately $30.9 million 10

Water and Sewer Revenue Bonds Final Series Name Outstanding Par Call Date Purpose Coupon Range Maturity Insurer Design/construction of wastewater Water and Sewer pumping facilities, force mains and $2,205,000 12/1/16 4.00 – 4.50% 12/1/26 FSA Revenue Bonds, 2006 sewer mains, lift stations, and storm drain and water line improvements • Revenue Pledge – Secured by net revenue of the Waterworks Utility and surface water utility system – No pledge of taxes, City taxing authority, or any other City revenue source – Senior pledge, ahead of Public Works Trust Fund or other State loans • Additional Bonds Test – The City may issue additional parity Water and Sewer Revenue Bonds if net revenue meets a specific test set forth in the Bond Ordinance • Debt Service Reserve Fund – Additionally secured by a debt service reserve fund equal to the average annual aggregate debt service of all outstanding Water and Sewer Revenue Bonds – At the time the 2006 Bonds were sold, this requirement was $430,444 • Rate Covenant and Coverage Requirement – Covenant to maintain annual net revenues of 1.25x or greater of annual debt service. – In 2012 and 2013, the City maintained aggregate debt service coverage of 7.16x and 9.27x, respectively 5 As of March 9, 2015.

Local Improvement District Bonds Final Series Name Outstanding Par Call Date Purpose Coupon Range Maturity Insurer Local Improvement District Public improvements within LID $6,082,500 n/a 3.15 – 5.375% 1/15/29 n/a No. 33 Bonds (2013) No. 33 • Local Improvement District 33: – Formed to improve urban access for the Southcenter area • Secured by and payable solely from: – Amounts deposited to LID Bond Fund (assessments made in LID 33, along with interest and penalties) – City’s Local Improvement Guaranty Fund • Guaranty Fund funded at closing with $668,750 of bond proceeds – If Guaranty Fund contains insufficient funds to make a payment on the Bonds, the City must issue interest-bearing warrants against the Fund in order to meet such payments • Rated “BBB” by Standard & Poor’s As of March 9, 2015. 5

Credit Overview

Credit Strengths and Concerns – LTGO Bonds Moody’s Investors Service last reviewed the City’s general obligation credit on December 18, 2012. Strengths: Challenges: Tax base Tax base concentration Moderately sized for the rating level Diversified revenue sources Contraction in assessed valuation and declines in general fund balances City benefits from creation of Tukwila Metropolitan Park District Trend prior to 2011-2012 Manageable debt levels Reserves below similarly-rated peers and reliance on economically- sensitive revenues Current Moody’s “Issuer” Rating: Current Moody’s LTGO Bond Rating: Aa3 A1 7