By: Lourdes German Economic Perspectives on State and Local Taxes Conference December 2015

I. When do Municipalities Access The Capital

Markets?

II. How Are Municipalities Using Securities to Finance Infrastructure via the Capital Markets?

III. Conclusion & Questions

When they want to raise funds for a capital project by borrowing from investors via the issuance of municipal securities (Bonds, Notes)

• When they want to borrow the funds on a tax-exempt basis

• When the IRS authorizes the borrowing for the purpose of the project

• When state law authorizes the borrowing & there is a public purpose

Municipality Investors

• $3.8 Trillion of bonds outstanding for municipal infrastructure • Municipal securities are issued in all 50 States • Property Tax is predominant security for general obligation borrowings • Debt is often one long term liability that triggers municipal defaults & bankruptcy • Predominant investors and holders of municipal bonds are individuals

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Source: Securities Industry & Financial Markets Association

Municipality Identifies Capital

Project

State Law Authority Confirmed

Tax Exemption Analysis

Debt Structure/Security

/Debt Capacity Confirmed

Method of Sale Chosen – Public vs.

Private Offering

Offering Documents Announce Sale

Credit Analysis & Public Underwriting

The Closing: Municipality Receives

Funds & Begins Project

Municipality Begins Repaying Investors

Municipality

Investors

Capital Markets Regulators:

SEC, IRS, MSRB, FINRA

Bond & Disclosure Counsel

Financial Advisor

Underwriter / Broker Dealer

Bond Trustee &

Paying Agent

Rating Agencies

Depository Trust

Company

Municipality Investors

11,000 Average New Municipal Bonds Deals Per Year by Governments - “Primary” Market

(~$400 Billion)

$3.8 Trillion Bonds Outstanding -The

“Secondary” Market (Approx. ~10,000,000

Trades Annually Among Investors)

Source: Municipal Securities Rulemaking Board, www.msrb.org

Capital Project Event

Monitoring (Fire, Sale) (IRS)

Change in Use & Use of Proceeds

Monitoring (IRS)

Material Events Disclosures &

Annual Financials

(SEC, MSRB)

Credit Surveillance

(Private Sector)

Source: Municipal Securities Rulemaking Board, www.msrb.org

Deal: $9,050,000 Municipal Purpose Loan of 2008 Bonds – Tax Exempt • One Bond was issued to fund multiple capital projects in the Town – electric plant,

fire facilities, water tank • Chapter 44 of the Massachusetts General Laws & Town meeting approval required • Full faith and credit pledge of the Town’s property tax supports repayment

Source: Town of Shrewsbury, Massachusetts Official Statement dated February 7, 2008

• Public offering • Official

Statement with Continuing Disclosure

• Competitive Bids solicited from a Universe of Capital Markets Underwriters

• Bond Opinion provided to Capital Market Investors

Source: Town of Shrewsbury, Massachusetts Official Statement dated February 7, 2008

• Chapter 44 of the Massachusetts General Laws & Debt Affordability informs

structure: Project useful life analysis & 18 year amortization; Prices and yields set by winning underwriter based on market conditions

• Credit quality impacted bond prices & yields • Result: Town will repay $9,050,000 of principal and $2,569,393 of interest to investors

Source: Town of Shrewsbury, Massachusetts Official Statement dated February 7, 2008

Deal: $39,926,000 New Bedford State Qualified Bonds (Taxable/Tax-Exempt) • Borrowing authorized under special legislation and Massachusetts General Laws • City used Massachusetts State Qualified Bond Act • Funding for railroad remediation, refinancing of prior debt and sewer/school projects

Source: City of New Bedford Official Statement, Dated February 7, 2008

• Sold as a public offering via an Official Statement

• Negotiated offering

• Bond Opinion

• SEC Anti-Fraud Standards apply & Continuing Disclosure

Source: City of New Bedford Official Statement, Dated February 7, 2008

• Two series of bonds issued due to Taxable/Tax-Exempt Status • Special Law & Massachusetts General Laws guide amortization • State Qualified Bond Act and Use of Insurance impact credit quality and pricing • 24 Year Amortization governed refinancing, school, sewer projects

Source: City of New Bedford Official Statement, Dated February 7, 2008

• 15 year amortization for taxable series for remediation • $22,209,000 issued to refinance existing debt • Result: City paid $215,000 for insurance policy & will repay $39,926,000 of principal

and $5,935,959 of interest to investors

Source: City of New Bedford Official Statement, Dated February 7, 2008

• State Aid Debt Affordability Analysis required because New Bedford Used State Qualified Bond Program

Source: City of New Bedford Official Statement, Dated February 7, 2008

City of Brockton Bond Financing Using Clean Renewable Energy Bonds – Zero percent borrowing relying on IRS Tax Credits

City of Woburn Bond Financing for School Construction via Massachusetts School Building Authority Revenue Bond Program

Berkshire Arts & Technology Charter School Bond Financing Using Qualified Zone Academy Bonds – Zero percent borrowing relying on IRS Tax Credits

MIT - Massachusetts Development Finance Agency Bond Financings for Campus Capital Construction

Any references to bonds or fixed income securities in this presentation are intended for educational purposes only. Any references to bonds or fixed income securities presented in this piece should not be construed as an offer, solicitation, or recommendation to buy or sell securities or other investment products, nor are they intended to be used as a general guide to investing, or as a source of any specific or general investment recommendation. Screenshots are included of various bond official statements for teaching and illustrative purposes to demonstrate how information appears within the official sales document prepared under securities laws in the context of the capital market transaction for the municipality, with full links provided where the audience can view and access the entire official statement.