CNMI Public School System January 11,2013 PSS General Obligation Bond – History & Current Balances Presented By: Tim Thornburgh CNMI Public School System January 11,2013

House Joint Resolution & Bond Plan HJR 10-36 endorsed PSS Seven Year CIP Plan 1997-2003 HJR No. 10-36 authorized in September of 1997 a public debt of $15,685,000 for a new high school and related CIP projects; Pledged full faith and credit of the CNMI to back the debt issue; Stated that the interest rate on the debt instrument must not exceed six percent simple interest with a term of ten years. PSS and CDA teamed together to develop plan for the PSS bond Issued a RFP for a financial management company to advise PSS and CDA on the bond issue; California Financial Services (CFS) selected in response to RFP; CFS brings with them bond underwriter Paine Webber and bond insurer Financial Security Assurance (FSA); The firm of Orrick, Herrington & Sutcliffe LLP of San Francisco is the bond counsel with Roger Davis as the lead attorney; PSS, CDA and CFS work together to develop the bond financing plan including a detailed history of the finances of the CNMI.

PSS Bond Issue PSS Bonds were sold on May 1, 1999 by PaineWebber PSS bond rating was AAA by Standard & Poors and Moody’s; Interest rate was 3.963% & term of 10 years; Bonds were sold in increments of $5,000 per bond; Bonds were triple tax exempt (federal, state and city); Bonds were over-subscripted so bond holders paid a premium to purchase the bonds which netted PSS $540,000; PSS and CDA invested $14.7 million of bond proceeds with Ambac Capital Funding in a guaranteed investment contract (GIC) with 5.46% annual interest rate; First year interest earnings were over $800,000; Interest on the funds in the GIC earned over $4 million across the ten year project period.

CIP Matching funds appropriated Public Law 11-89 appropriated $14,980,000 in CIP funds on a $1 per $1 match basis; Total CIP match and GO bond funds at $14,980,000 each total $29,960,000; Repeals PL 11-78 for MHS gym and adds remaining balances of $670,937 to the $1.8 million for completion of the MHS gym; Gives expenditure authority of CIP funds to Secretary of Public Works in consultation with Chair of Board of Education.

School Project Summary Saipan –new schools including Kagman High School, Saipan Southern High, Chacha JHS, and MHS gym; Rota – completion of Sinapalo Elementary School, new classrooms and library at RJHS, air cons for RHS, showers and restrooms at RHS and fire alarms and electrical work at RJHS; Tinian – new elementary classrooms, electrical system upgrade at TJSHS, Tinian shower and restroom facilities, collateral equipment for TJSHS, Tinian elementary school playground, and modernization including fire alarms, electrical and plumbing upgrades.

Projects funded with bond interest Part 1 Garapan, Tinian and Rota Head Start Center classrooms at a total cost of $200,000 each for a total of $600,000 as per PL 14-3; Additional classrooms (6) at Kagman Elementary School at a cost of $692,000 as per PL 14-3; Additional classrooms (6) at Kagman High School at a cost of $620,000 as per PL 14-3.

Appropriation of any remaining fund balances at closure of indenture of trust PL 16-10 appropriates $291,210 from PSS GO bond and any fund balances at the closure of the indenture of trust for critical classroom repairs, renovation and paving of school parking lots; Expenditure authority is the Commissioner of Education; The indenture of trust closed with the final bond payment on October of 2008; A review of taxes owed to the US based on arbitrage was completed in December of 2008 with no funds owed; On January 8, 2009 remaining funds on deposit with Bank of New York Mellon Trust in the amount of $2,404,733 were transferred to the PSS.

Projects funded with bond interest Part 2 Garapan second story 6 classrooms @ $348,322 Garapan School Fence @ $115,161; GTC collateral equipment $95,367; Rota school projects @ $50,140; Tinian transformer @ $67,834; All schools network repairs @ $300,000; MHS classroom repairs @141,725 MHS paving @ $118,760

Projects to be completed with bond interest Part 3 Dandan ES parking lot paving@ $50,000; Garapan School repairs @ $115,235 GTC classroom repairs @ $67,633; HJHS classroom repair & intercom @ $116,000; Tinian projects TBD @ $532,000; SVES fence, gutters, stairs repairs @ $ 94,000; MHS classroom repairs & gutters @ $141,336; Kagman ES roof and fence repairs @ $20,000; SAES classroom repairs @ $90,000; Koblerville ES school repairs @ $30,000;

GO Bond and CIP Match Summary Expended slightly over $30 million on the new schools and renovation projects on Saipan, Tinian and Rota; Interest earned on the GIC funded several worthy school projects with a value of over $4 million on all three islands; Governor reprogrammed $569,674 of Tinian CIP match funds leaving $532,207 unmatched in violation of the PL 11-89 dollar for dollar project match and therefore a fund balance subject to PL 16-10 with expenditure by the COE for critical classroom repairs and paving of school parking lots. Prepare a new PSS CIP Plan and execute the plan just as we did with the previous plan; Ultimate goal – School Facilities that are safe and conducive to teaching and learning