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HomeMy WebLinkAbout2023.09.19 PPFD Meeting Handout from Finance �,�-�' 0.�' q� ►��Z�23 City p.f PP,=� 3o�a r�,�;� / � �5�� Finance Department • (509) 545-3420 • Fax (509) 544-3082 P.O. Box 293 • 525 N.Third Ave. • Pasco,WA 99301 DATE: September 19, 2023 TO: Pasco Public Facilities District Board (PPFD) Members FROM: Darcy Buckley, City of Pasco Finance Director SUBJECT: Overview of Debt Financin Pro'ect As part of planning a capital project, it is worthwhile to review and anticipate financing options and related steps depending upon decisions made. Integral in PPFD construction of the Aquatic Facility is planning the timing of construction and related spending. It is possible to spend local dollars toward a project that will ultimately be debt financed prior to the bonds being sold. To reimburse use of locally received dollars with bond proceeds,however, appropriate steps must be followed. Currently, the only dollars available for PPFD expenditures,both operating and capital, are the result of PPFD sales tax receipts.No City of Pasco funding, either loaned or gifted, is budgeted to support PPFD activity. With the successful passage of PPFD local sales tax and associated receipts, a recurring revenue stream exists to support PPFD activity. Therefore, as noted above, cash analysis and budget monitoring are a necessary element of planning. The process is both collaborative and iterative requiring close communication between PPFD administration and the larger finance team. Based on this communication, decisions are made throughout the many months process. Below is a glossary of terms and related information that will be a part of the narrative around the capital spending process: Financing Team: Typical the debt issuance process includes a team composed of the issuer (PPFD), bond counsel (legal advisor), a municipal advisor(financial guidance), and an underwriter(sells bonds). The benefits provided by the external partners is invaluable. As experts in the issuance of debt, they are familiar with the process, provide legal oversight and prepare documents. Jointly the team possess market-based expertise to structure the bond, coordinate the effort and communication with a rating agency and insurers. Finally, they take the bonds to the financial market to complete the transaction. Declaration of Official Intent: If project costs are incurred prior to debt issuance, the PPFD must sign a formal declaration describing the project and planned debt issued support. This form is necessary to meet federal tax requirements. This step allows reimbursement for project spending that occurs before the debt is issued,meaning that any PPFD cash that was spent before the bond proceeds are received can be reimbursed once bond is issued. Once declaration is Overview of Debt supparted Project �inancing September 19, 2E)23 Page 2 of 2 signed, regular PPFD cash can be spent toward the project. Upon completion of debt issuance, the bond proceeds reimburse the regular cash use. Tax-Exempt Bonds: For bonds to be issued as exempt from Federal income tax, the product of proceeds must serve a governmental, capital purpose. There are limits on private activity benefit. Spending of Debt Proceeds: Typically,bond proceeds must be spent within 18 months of issuance. This timeline is necessary to avoid exceeding certain IRS limitations. Official Statement: The financing team will collaborate with PPFD to produce an Official Statement to provide to investors prior to sale. Bond Rating: A rating agency will evaluate financial and community attributes affecting PPFD. From this assessment, they will evaluate credit worthiness and assign a bond rating. The rating impacts interest rate assigned to debt. Ultimately, the rating also affects the marketability of the debt. Continuing Disclosure: Post issuance disclosure of material events is required. Some of the items included are annual financial statements, compliance with bond ordinance and covenant requirements, incurrence of a financial obligation, etc.