How State Policies Affect Municipal Bonding and Economic Development

Susie Becker – Vice PresidentAlan Westenskow – Vice President

Zions Bank Public Finance

January 15, 2013

2

Utah’s Current Competitive Advantages Hub location for transportation – rail, air, trucking Low cost of electricity Relatively low cost of living Good work ethic and young, relatively educated work force, which is

always growing Easy access to outdoor recreation opportunities Relatively low taxes for individuals and businesses Fiscally well managed governments Good transportation – public transit and general highway connectivity Good higher education system Foreign language ability

3

Where Can Utah Improve?

Air quality issues Perceptions of nightlife and culture K-12 education stresses Work force that is sufficiently trained in required specialties and

work opportunities to prevent out migration of educated work force

4

Future Issues

Constrained water resources Keeping infrastructure up with rapid population growth Balancing future electricity demands with yet to be determined

environmental regulations Global trade

5

Economic Development Survey

Questions asked:

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#1 – Decisions Made . . .

7

#1 – Decisions Made . . .

8

Community Development Renewal Agencies

Source: Utah State Office of Education

9

Growth in Tax Increment

Source: Utah State Office of Education

10

Facts About Tax Increment

Source: Utah State Office of Education

11

#2 – Economic Tools Used

12

#2 – Economic Tools Used

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#2 – Economic Tools Used

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#3 – Economic Challenges of Cities

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#3 – Economic Challenges of Cities

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#4 – Looking Forward . . .

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#4 – Looking Forward . . .

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#4 – Looking Forward . . .

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Past Policy Decisions

What policy decisions in the past have positioned Utah's economy so favorably during these troubling economic times?

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Past Policy Decisions That Have Benefitted Utah

Because Utah has been conservative in its past debt policies it has had enough capacity to fund necessary infrastructure projects when needed I-15 CORE project could be funded at a time when construction

was needed, but federal money had dried up. State could issue sufficient amount of bonds and still maintain AAA rating

Utah’s debt laws and policies have allowed Utah to build enough infrastructure to meet local and statewide needs

Business friendly tax environment Historic good balance of debt and infrastructure spending

21

Policy Decisions that can be Made Today to Position Future Utah Economy Maintain all financing options at both the state and local levels Resist ideas to limit debt capacity and options

Idaho debt constraints Focus on policies that coordinate resources within state

instead of making communities compete for local business Maintain representative democratic system to coordinate and

steer issues

22

Direct Democracy Case Study: California What is unique about California is not its set of challenges, which differ in scale but not

in kind from those elsewhere. It is its brand of democracy. The Southern Pacific Railroad had corrupted every part of the State. As one reporter

wrote in 1896, “it didn't matter whether a man was a Republican or Democrat. The Southern Pacific Railroad controlled both parties, and he either had to stay out of the game altogether or play it with the railroad.”

To reform the influence of special interests in October 1911 California voters had to decide on three new types of balloting: referendums, recalls and initiatives. They accepted them all with enthusiasm. Referendum: A vote in which the citizens accept or reject a proposal such as a

law passed by their legislature Recall: A vote by the people to remove an elected official from office before the

official’s term expires Initiative: A measure put on a ballot by a petition of citizens Proposition: An initiative or measure that has qualified for a ballot

http://www.economist.com/node/18563638

23

Characteristics of Different Types of Bonds

Source: Zions Bank Public Finance

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Bond Ratings

Source: Moody’s, Standard & Poor’s and Fitch

25

Moody’s Ratings Distributions: Municipals vs. Corporates, Year End 2011

Source: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_140114

26

1

State Rating Category Map

AZ*Aa3/AA-/NR

UTAaa/AAA/AAA

CAA1/A-/A-

NVAa2/AA/AA+

WAAa1/AA+/AA+

ORAa1/AA+/AA+

I D*Aa1/AA+/AA

KS*Aa1/AA+/AA

OKAa2/AA+/AA+

MOAaa/AAA/

AAA

ARAa1/AA/NR

LAAa2/AA /AA

KY Aa2/ AA-/ AA-

I N*Aaa/AAA /AA+

OH Aa1/ AA+/ AA+ WV

Aa1/AAAA+

MIAa2/AA-

/AA-

NHAa1/AA/AA+

TNAaa /AA+ /AAA

TXAaa/AA+/AAA

NE*NR/AAA/NR

I A*Aaa/AAA/AAA

MN Aa1/AA+/

AA+WI

Aa2/AA/AA

I LA2/A+/A

MSAa2/AA

/AA+

ALAa1/AA/

AA+

GAAaa/AAA/AAA

FL

SCAaa/AA+/

AAA

NC Aaa/AAA/

AAA

PAAa2/AA/AA+

NYAa2/AA

/AA

ND*Aa1/AA+/NR

SD*NR/AA+/AA

NMAaa/AA+/NR

CO*Aa1/AA/NR

MTAa1/AA/AA+

WY*NR/AAA/NR

RIAa2/AA/AA

CT Aa3/AA/AA

DE Aaa/AAA/AAA

NJAa3/AA-/AA-

VTAaa/AA+

/AAA

ME Aa2/AA/AA+

VA

AKAaa/AAA/AA+

HIAa2/AA/AA

MAAa1/AA+/AA+

DC Aa2/A+/AA-

MD Aaa/AAA/AAA

Aa1/AAA/AAA

Aaa/AAA/AAA

AAA

AAA/AA

AA

Moody’s/S&P/Fitch

NR= Not Rated

* No GO debt- Issuer Rating

Last updated on 7/19/2012

Data Sources: Moody’s, Standard and Poors and Fitch Ratings

A

GuamNR/B+/NR

PRBaa1/BBB/BBB+

BBB

BB/B

US VIBaa2/BBB+/BB

BBB/BB

AA/A

Slide courtesy of Wells Fargo

Bond Ratings of US States

27

3

Rating Action Heat Map: 7/2011 - 7/2012

AZ*Aa3/AA-/NR

UTAaa/AAA/AAA

CAA1/A-/A-

NVAa2/AA/AA+

WAAa1/AA+/AA+

ORAa1/AA+/AA+

I D*Aa1/AA+/AA

KS*Aa1/AA+/AA

OKAa2/AA+/AA+

MOAaa/AAA/

AAA

ARAa1/AA/NR

LAAa2/AA /AA

KY Aa2/ AA-/ AA-

I N*Aaa/AAA /AA+

OH Aa1/ AA+/ AA+

WVAa1/AA

AA+

MIAa2/ AA-

/AA-

NHAa1/AA/AA+

TNAaa /AA+ /AAA

TXAaa/AA+/AAA

NE*NR/AAA/NR

I A*Aaa/AAA/AAA

MN Aa1/AA+/

AA+WI

Aa2/AA/AA

I LA2/A+/A

MSAa2/AA

/AA+

ALAa1/AA/

AA+

GAAaa/AAA/AAA

FL

SCAaa/AA+/

AAA

NC Aaa/AAA/

AAA

PAAa2/AA/AA+

NYAa2/AA

/AA

ND*Aa1/AA+/NR

SD*NR/AA+/AA

NMAaa/AA+/NR

CO*Aa1/AA/NR

MTAa1/AA/AA+

WY*NR/AAA/NR

RIAa2/AA/AA

CT Aa3/AA/AA

DE Aaa/AAA/AAA

NJAa3/AA-/AA-

VTAaa/AA+

/AAA

ME Aa2/AA/AA+

VA

AKAaa/AAA/AA+

HIAa2/AA/AA

MAAa1/AA+/AA+

DC Aa2/A+/AA-

MD Aaa/AAA/AAA

Aa1/AAA/AAA

Aaa/AAA/AAA

Downgrade

Upgrade

Favorable Outlook change

Unfavorable Outlook change

Moody’s/S&P/Fitch

NR= Not Rated

* No GO debt- Issuer Rating

Colors represent rating action by at least one agency within the past 12 months

Last updated on 7/19/2012

Data Sources: Moody’s, Standard and Poors and Fitch Ratings

PRBaa1/BBB/BBB+

GuamNR/B+/NR

US VIBaa2/BBB+/BB

No Action

Slide courtesy of Wells Fargo

Recent Rating Action for US States

28

Average One-year Rating Transition Rates, 2008-2011, GO and Non-GO

Source: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_140114

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Municipal Bond Default Counts by Sale Purpose, 1970-2011

Source: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_140114

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Notable Municipalities in Distress

Source: Moody’s Special Comment: Recent Local Government Defaults and Bankruptcies May Indicate a Shift in Willingness to Pay Debt

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Job loss trends in local government jobs

Since the beginning of President Obama’s term, state and local governments have shed 611,000 employees — including 196,000 educators — according to government statistics.

Source: http://www.washingtonpost.com/business/economy/threat-from-mounting-public-job-losses-tested-obamas-economic-strategy/2012/04/29/gIQAhJpMqT_story.html

32Source: Bond Buyer Index

3.5

4.0

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Jul-8

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Wee

kly

Inte

rest

Rat

e (%

)

Date

BBI on 08/09/12

Interest Rate Trend20 Year 20 Bond Buyer Index

January 1988 to August 2012

Bond Interest Rates

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New Money Borrowing Only Modestly Reactive to Interest Rates Interest rates are usually only a modest factor driving new-money bond

issuance. State and local governments base their new-money borrowing plans

primarily on capital needs, voter sentiment, political viability and relative health of operating budgets, with interest rates representing only a secondary consideration except during periods of extreme volatility.

Source: Moody’s Debt Driver 2012 Report 3/5/2012

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Volume of Bonds Issued in US 1992-2011

Source: The Bond Buyer 2012 Yearbook

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Bond Volume Issued by Utah 1992-2011

Source: The Bond Buyer 2012 Yearbook

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Bonds Per Capita: US and Utah

Sources: The Bond Buyer 2012 Yearbookwww.census.gov

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Comparison of State Bonds Per Capita Utah

Sources: The Bond Buyer 2012 Yearbookwww.census.gov

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Uses of Utah Bond Issues 2011

Source: The Bond Buyer 2012 Yearbook

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Uses of Utah Bond Issues 2010

Source: The Bond Buyer 2011 Yearbook

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Utah Full Use of Bond Issues 2011

Source: Thomson Reuters Municipal Market Analysis Utah – Financial Advisor Year End 2011

41

State of Utah General Obligation Bonds Annual Debt Service (P&I)

Source: State’s Financial Advisor (compiled from past Official Statements)

42

State of Utah Recommended Debt Levels

43

Permanent Community Impact Fund

The Utah Community Impact Board Permanent Community Impact Fund provides grants and or loans to subdivisions of the state, which are or may be socially or economically impacted, directly or indirectly, by mineral resource development on federal lands. The CIB receives funding from a portion of federal mineral lease royalties returned to the State by the Federal Government.

From 2007 to 2011 CIB distributed $535,454,657 $215,847,657 in ML Grants $160,981,000 in ML Loans $158,626,000 in Bonus Loans

http://housing.utah.gov/cib/documents/2011LEGISLATIVEREPORT.pdf