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

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Public Finance 101: Topics

Legal Basics Bond Market Basics Issuer’s Counsel’s Perspective – Oregon AG Tumbling Through the Great Recession

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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

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Pubic Finance 101: General Legal Basics

Federal Tax Law Governmental Purpose; Capital Expenditure Earnings on Bond Proceeds

State Tax Law

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Public Finance 101: General Legal Basics

Federal Securities Law Exemption from Registration Anti-Fraud Provisions Continuing Disclosure

State Securities Law

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Pubic Finance 101: Bond Market Basics

Establishing the facts 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

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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

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3.00

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Oregon Bond Index (20 Year)From November 1999 to June 2011

Inte

rest

Rat

e (%

)

This index represents an average rate on 20-year maturities of Oregon municipal GO bonds rated “A”.

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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 29 300.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

MMD Yield CurveAaa as of 6/3/2011

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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.

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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

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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

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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)

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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