Closing Budget Gaps With Asset Sales ABA 2012 Spring Meeting and 7 th Annual State & Local Procurement Symposium April 19-20, 2012 Washington, D.C. Harriet M. Welch, Partner
The Issue to be Addressed – State and Local Government Fiscal Stress Recurring revenue shortfalls due to Great Recession Recurring expenditure increases due to fixed labor/benefits agreements Inability to achieve balance in short term (1-5 years) Attempts to achieve balance causing reduction in core services Solution requires current cash infusions 2
The Budgetary Benefits from Asset Sales Monetizing functioning assets unlocks asset value to close budget gaps with return (repayment) of asset equity over time (utilities, buildings, parks, etc.) Goes beyond selling surplus assets. Urban renewal/economic development/land bank assets sold to developers may enhance revenues (PILOT agreements; impact fee agreements) Proceeds of asset sale usually not restricted but must applied prudently and accurately to alleviate deficit 3
The Techniques to Effect Asset Sales Sale and leaseback; may require creation or use of conduit on behalf on public entity True sale transaction (California model) Assignment of tax benefits to new owner, current bondholders redeemed? Use of EU-type senior “project bonds” (GO or other guaranteed source) and subordinated debt paid from revenue flow Lease facilities with up-front investor payment (i.e., parking facilities); P3 Ground lease to retain public asset ownership and regulation Sale of easements for land use control 4
Legal Issues Involved in Asset Sales Need to find state law authority to sell assets if not surplus – to third party or government “subsidiary” Referenda requirements and fair valuation of assets – protecting the public interest Effect of asset sale “privatization” on credit ratings; use of private sector anchor tenant to generate revenue/boost credit rating Effect on labor agreements and benefits if assets and facilities sold 5
Legal Issues Involved in Asset Sales (cont’d.) Tax-exempt status of interest on bonds which financed sold assets Continued public management or privatization of sold assets Proceeds of securitizing tax payment streams not a “revenue” for budget purposes ( Lance v. McGreevey (2004)– NJ) Risk of loss to the public if sold assets are the collateral for the financing to raise budget revenues. 6
The Need for Revision of State Laws to Effect Asset Sales Statutes which authorize asset sales to generate budget revenues; authorize public assets to be rented or leased rather than owned; empower conduits to own assts and lease to public entities and private sector entities Statutes which authorize true sales; address asset “ownership” issue; develop the concept of a special purpose vehicles (SPV) which absorbs the financial risk and leases facilities to government Statutes which set parameters for valuation of assets and regulation of public assets under SPV ownership 7
The Need for Revision of State Laws to Effect Asset Sales (cont’d.) Statutes which address labor agreements/employee benefits when assets held in trust for investors or by SPV Statutes which permit mortgaging public assets and use as collateral Statutes which address treatment of mortgaged public assets upon default in financing Statutes which follow the 2007 ABA Model Procurement Code and adopt design-build methods for public infrastructure procurement 8
UK-Type Public Private Partnership Infrastructure Financing Establish legal alternatives to traditional municipal bonds to finance infrastructure with equity participation and governmental use and leasing Shift risk of loss to investors with senior/subordinate structure with only obligation of public entity to lease for use and regulate Include asset sales in P3 transaction to generate budget revenues 9
Federal Funding and Tax Incentives Amend IRC to provide new category for asset sale tax-credit bonds with relaxation of private activity bond rules Provide matching federal dollars/loan guarantees for asset sale financings (ABA HOD Resolution 105, 2009) Provide federal funding subsidies for rehabilitation and transition of sold assets from public sector use, if applicable 10
Harriet M. Welch Harriet Welch focuses her practice on public finance, project finance, securities and municipal bond issues. She +1.213.689.5158 has more than 20 years of public finance experience in California and more than 30 years of public finance harriet.welch@ssd.com experience overall. Practice Focus Public & Infrastructure Harriet represents California bond issuers, investment bankers, letter of credit banks and borrowers on tax Finance; exempt financings. She has served as bond counsel for the County of Los Angeles on a variety of financings, the Public Sector; Redevelopment Agency of the City of Los Angeles, the State Public Works Board, the California Educational Fiscal Stability Invitiative Facilities Authority, the California Health Facilities Financing Authority, California Municipal Finance Education Authority and the City of Los Angeles. The Catholic University of America, J.D., Harriet’s practice has focused extensively in recent years on bond counsel engagements for colleges, Member, Catholic University universities, private schools and other nonprofit organizations. She has written articles, including “Everything Law Review, 1978 You Wanted to Forget About Tax Exempt Financing,” for the Western Association of College and University Loyola University Business Officers and other industry groups, and been a speaker at industry conferences. Since 1997, she has New Orleans, B.A., 1975 served as bond counsel on financings for more than 30 California colleges and universities. She has been active Admissions in developing tax exempt financing for religiously affiliated schools in California. California, 1988 Harriet has also served as disclosure counsel to the State Public Works Board and the City of San Diego. She has extensive experience on lease revenue financings and certificates of participation, limited obligation bonds and TRANS. She has served as bond counsel on California land-based financing as well as counsel to bondholders in connection with work-outs of these financings. During the past six years, Harriet has served and is serving in California as bond counsel on 66 financings; disclosure and underwriter’s counsel on 42 financings; borrower’s counsel on 27 financings; and issuer counsel on more than 75 financings. These financings aggregate more than $23.3 billion. 11
Harriet M. Welch (cont’d.) Harriet also has experience representing clients in financing matters for transactions in Bulgaria, Palestine and +1.213.689.5158 Israel. In particular, she has provided advice in the structuring of the securitization of real property installment harriet.welch@ssd.com contracts in international jurisdictions; debt structuring for the Higher Commission of Investment and Finance of Practice Focus the Palestinian National Authority; proposed refinancing of electric generating facilities for the municipality of Public & Infrastructure Nablus; and the proposed construction of local municipal shopping centers in the cities of Nablus, Ramallah and Finance; Jenin. Public Sector; Fiscal Stability Invitiative Harriet is a frequent speaker on tax exempt financings. She spoke at the 2010 California Public Finance Education Conference and the 2010 National Association of Bond Lawyers’ Bond Attorneys (NABL) Workshop on The Catholic University of “Educational Facilities, Cultural Facilities and Other Non-Healthcare 501c-3 Financings.” America, J.D., Member, Catholic University She has been selected as a Southern California Super Lawyer in a survey of her peers distributed by Thomson Law Review, 1978 Reuters each year since 2007. Loyola University New Orleans, B.A., 1975 In 2007 Harriet was named a fellow of the American College of Bond Counsel. She is past president of the Admissions California Association of Bond Lawyers and a former board member of the Women Lawyers Association of Los California, 1988 Angeles. She is a member of NABL and the executive committee of the Board of Directors of the Los Angeles County Economic Development Corporation (LAEDC). She is also on the Development Committee of the Catholic Education Foundation. Representative Experience Serving as bond counsel for $70,503,000 California Educational Facilities Authority Revenue • Bonds (University of La Verne), Series 2010. Serving as bond counsel for $25.5 million California Municipal Finance Authority Tax Exempt • Revenue Bonds (Mater Dei High School Project), Series 2010A, 2010B, 2010C and 2010D. Serving as bond counsel for $1.5 billion County of Los Angeles 2010 Tax and Revenue • Anticipation Notes, Series A & B. Serving as bond counsel for $137,650,000 California Municipal Finance Authority Solid • Waste Revenue Bonds (Republic Services, Inc. Project), Series 2010. 12
Closing Budget Gaps With Asset Sales ABA 2012 Spring Meeting and 7 th Annual State & Local Procurement Symposium April 19-20, 2012 Washington, D.C . Harriet M. Welch, Partner Squire Sanders (US) LLP 213.689.5158 harriet.welch@squiresanders.com 339974
Recommend
More recommend
