KCTCS BOARD OF REGENTS AND FINANCE, TECHNOLOGY, AND HUMAN RESOURCES COMMITTEE MEETINGS September...
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Transcript of KCTCS BOARD OF REGENTS AND FINANCE, TECHNOLOGY, AND HUMAN RESOURCES COMMITTEE MEETINGS September...
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KCTCS BOARD OF REGENTS AND
FINANCE, TECHNOLOGY, AND HUMAN RESOURCES COMMITTEE
MEETINGS
September 18-19, 2014
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TABLE OF CONTENTS
• Commonwealth Economics
• Capital Projects
• Statutory Requirements
• Bonds 101
• Benefits of a State Issuer
• Credit Profile
• Required Board Resolutions
• Plan of Action
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COMMONWEALTH ECONOMICS
• Lexington based consulting firm specializing in:
• Economic Feasibility Studies
• Strategic Governmental Finance
• Governmental Incentives, e.g. Tax Increment Financing
• Traditional Finance and Structuring
• Senior team leadership experience at state and national level in:
• Economics
• Accounting and Quantitative Analysis
• Capital Markets
• Regulatory Issues
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COMMONWEALTH ECONOMICS KEY STAFF
• Tom Howard, Managing Director & Partner (primary contact)
• Over 22 years of state government experience in the Office of Financial Management (OFM)
• Former Executive and Deputy Executive Director of OFM
• Municipal Securities Rulemaking Board Member 2008-2011
• KY v Davis, United States Supreme Court (2008)
• Brett Antle, Director & Partner (back-up)
• Former Deputy Executive Director OFM
• Former Administrator of Commonwealth’s statewide accounting systems
• Certified Public Accountant
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KY CAPITAL PROJECTS
• All capital projects in excess of $600,000 must be approved by the General Assembly in an enacted budget KRS 45.760 through KRS 45.763.
• House Bill 235, as enacted and vetoed in part, provided for $194,000,000 of KCTCS Agency Fund Projects:
• $145,500,000 of which are bond funded
• Requires 25% matching funds for each project
• Bonds to be repaid through a mandatory fee levied by KCTCS so long as the obligations are outstanding
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STATUTORY REQUIREMENTS
• May 2014, the Kentucky State Property and Buildings Commission (SPBC) (Executive Branch) authorized all HB 235 bond funded capital projects, exclusive of certain Road Fund obligations.
• Capital Projects and Bond Oversight Committee (CPBO) (Legislative Branch) must approve all projects just prior to financing pursuant to KRS 45.790.
• All bonds issued in the name of the Commonwealth or a state agency must be approved by the Office of Financial Management (OFM) pursuant to KRS 42.420.
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STATUTORY REQUIREMENTS
In addition to budgetary authority for bond funded capital projects, there are other statutory considerations:
• KCTCS does not have specific authority to issue bonds in its own name.
• General Fund and select Agency Fund capital projects are funded under KRS Chapters 56 and 58 through the State Property and Buildings Commission and/or the Kentucky Asset Liability Commission (ALCO).
• KRS 164A.608 provides an intercept of state funds (Agency Fund and General Fund) in the event that a postsecondary institution fails to transmit a debt service payment in a timely manner.
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BONDS 101GENERAL
• Projects which have a governmental purpose and meet certain Internal Revenue Code requirements may be issued on a tax-exempt basis.
• Postsecondary education capital projects typically are issued on a tax-exempt basis.
• Issuers of governmental bonds, tax-exempt or taxable, are now regulated by the Securities and Exchange Commission (SEC) and indirectly by the Municipal Securities Rulemaking Board (MSRB).
• The new rules and regulations for municipal bond issuers are quite demanding and require constant monitoring.
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BONDS 101SECURITY
• Repayment of capital debt obligations can take on one or more of the forms below:
• Lease appropriation;
• Pledge of an institution’s General Receipts, including both Agency Funds and General Funds;
• Pledge of specific revenues, i.e. tuition and fees, parking, rents etc.
• Bonds secured by such provisions are issued by the postsecondary institution or through a state agency such as SPBC or ALCO, when there is no specific authority.
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BONDS 101SPBC BENEFITS
• Large, well recognized, and frequent issuer assists with market acceptance, especially for unknown credits.
• State, through OFM, has a long standing, proven procurement process that already has a finance team in place such that valuable time isn’t lost when a project needs to move forward.
• Finance Team will include:
• KCTCS staff and representatives
• OFM staff
• SPBC Financial Advisor
• SPBC Senior Managing Underwriter
• SPBC Bond Counsel
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BONDS 101SPBC BENEFITS
• Opportunity to access an interim construction financing solution at favorable terms, when needed.
• OFM, as staff to SPBC, maintains a centralized database for management and payment of the bonds, as well as, ongoing monitoring for potential refinancing opportunities at later date.
• OFM, as staff to SPBC, provides ongoing disclosure and compliance services for the bonds, which is a significant relief to KCTCS staff.
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CREDIT CONSIDERATIONS
• Bonds will need to be rated by at least two of the Nationally Recognized Statistical Rating Organizations (NRSO), most likely:
• Moody’s
• Standard & Poor’s
• As a result of the lease purchase of the Versailles office facility, KCTCS is currently rated Aa2 by Moody’s with a Stable Outlook, even though there are no KCTCS bonds outstanding.
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CREDIT PROFILE
• KCTCS has a very strong credit profile:
• Strong cash position
• Positive operating results
• History of strong state support
• No debt
• Pension issues:• Limited Defined Benefit exposure
• Defined Contribution Plan
• Funded OPEB Trust for post-employment health care
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REQUIREDBOARD RESOLUTIONS
• KCTCS expression of intent for the projects to move forward.
• KCTCS authorization that the credit hour fee remain in effect until the bonds are retired.
• KCTCS application to SPBC and ALCO to finance the projects on an interim and permanent basis when necessary.
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PLAN OF ACTION
• Prepare necessary Board Resolutions for action at the December Board of Regents meeting.
• Prepare project timelines and estimated future cash flow needs.
• Fund initial expenditures with matching funds.
• Work with OFM to develop an interim construction borrowing plan through the state’s ALCO program.
• Work with the Finance Team to develop a trust estate for the future issuance of permanent bonds to redeem the construction loans.
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QUESTIONS
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