Texas Military Preparedness Commission Revolving Loan Fund 23 February 2006 Texas Military Preparedness Commission Office of the Governor

Texas Military Preparedness Commission Agenda Overview of RLF Program Bob Rasmussen (TMPC) Finance and Legal Structure Kim Edwards (TPFA) Credit Analysis Piper Montemayor (OGEDT) Proposed Timeline Bob Rasmussen (TMPC) Texas Military Preparedness Commission Office of the Governor

RLF Program—78th Legislature (SB 652) Established TMPC and RLF concept Applicable to Defense Communities with active bases Application submitted with Military Value Enhancement Statement that describes project and benefits TMPC evaluates project and administers loans BRAC evaluation criteria Feasibility of project Creditworthiness TPFA issues bonds to fund loans Legislature’s intent is for RLF program to be self-supporting—no legislative appropriations Texas Military Preparedness Commission Office of the Governor

Amendments to RLF—79th Legislature Loan program expanded to include: Economic development projects for defense communities adversely impacted by BRAC 2005 Minimize negative economic impact Create jobs Infrastructure projects for communities positively impacted by BRAC 2005 Communities required to submit Community Redevelopment Value Statement relating the project to BRAC 2005 actions Texas Military Preparedness Commission Office of the Governor

Texas Military Preparedness Commission Potential Applicants Political subdivisions adjacent to, near, or encompassing part of an active military installation or an installation closed as a result of BRAC 2005 Criteria: Increase military value for BRAC scoring Provide positive economic impact, such as job creation, for communities negatively impacted by BRAC 2005 Assist communities with infrastructure projects that support new missions Number of Eligible Communities: Approximately 45 Texas Military Preparedness Commission Office of the Governor

Texas Military Preparedness Commission Project Criteria Funds must be expended completely within 5 years from when loan was awarded Minimum amount of loan will be $1M with a maximum determined by available funds and creditworthiness Applications must be submitted with either Military Value Enhancement Statement; or Economic Redevelopment Value Statement Projects are generally expected to be related to facilities or infrastructure Texas Military Preparedness Commission Office of the Governor

Key Action Steps Joint Conference between TMPC and TPFA and Interested Defense Communities Explain program Review rules, application, criteria, and timelines Communities submit Letters of Interest TMPC Commissioners review Letters of Interest and determine if sufficient demand exists to implement the program Applications requested TMPC Commissioners approve applications TPFA sells bonds to fund loans Loans Available to Eligible Applicants Dec 2006

Texas Military Preparedness Commission Agenda Overview of RLF Program Bob Rasmussen (TMPC) Finance and Legal Structure Kim Edwards (TPFA) Credit Analysis Piper Montemayor (OGEDT) Proposed Timeline Bob Rasmussen (TMPC) Texas Military Preparedness Commission Office of the Governor

Program Mechanics $ A B C D INVESTORS TPFA TMPC TPFA Bonds Bond Proceeds TMPC LOANS A B C D Loans

Program Mechanics A B C D INVESTORS TPFA TMPC Debt Service Loan Payments TMPC Loan Repayment A B C D Loans

Benefits of RLF State’s AA/AA+/AA1 General Obligation Credit rating: Provides a lower interest rate for entities with a lower credit rating. Economies of Scale: combining several small bond issues into one larger bond issue

Example of Debt Service Savings Tax Exempt: $20M for 20 years Rating Interest Rate1 Total Debt Service Savings2 State of Texas AA1/AA+/AA 4.373% $31,134,830 - El Paso Aa3/AA 4.443% $31,343,757 $208,927 Corpus Christi A1/A+/AA- 4.532% $31,605,387 $470,557 Texarkana A2/A+ 4.570% $31,710,809 $575,979 Taxable: $20M for 20 years 5.341% $33,953,530 Brooks Development Authority3 NR 6.842% $38,517,817 $4,564,287 1 Based on market conditions as of February 15, 2006; TIC reflects 20 year level debt service with premium bonds sized to fund a $20 million project, underwriter’s discount and cost of issuance. 2 Over 20 year life of bond issue

Loan Terms and Structure Loan Terms and Repayment Schedule will be tailored to meet the needs of each borrower Final term of the loan can not exceed useful life of the project or asset Pre-payment provisions (call feature) of the loan will match the call feature of the bonds TPFA issues TPFA Bonds are “Self-Supporting” – all costs and debt service will be paid from loan payments

What is the Interest Rate? Interest rate will be the market rate for State of Texas General Obligation Bonds on the date the bonds are sold (November 2006) February 15, 2006: 4.373% Tax-exempt; 5.341% Taxable Taxable vs. Tax-exempt: Facilities with a substantial “non-governmental” or private business use or guarantee may not qualify for tax-exempt interest rates. Tax code does not define federal government as a “governmental” entity

Legal Pledge Any lawful revenue source can be pledged to repay the loan Will vary by type of borrower (City, Economic Development Authority, Port Authority) Examples: Property Tax (General Obligation pledge); Enterprise Revenue System (Utility, Municipal Airport); Sales Tax Please consult your legal counsel

Other Costs TMPC Application fee: $500 - due when application is submitted; refunded when loan is funded TMPC Administrative fee: 1/10 of 1% (10 bp) of par amount of loan ($1,000 per $1 million loan). Due when loan is funded. Costs of Issuance Arbitrage Rebate Compliance

Example Costs of Issuance Allocation Loan Amount % of Total Pro Rata COI Borrower A $5,000,000 25% $50,000 Borrower B $10,000,000 50% $100,000 Borrower C $4,000,000 20% $40,000 Borrower D $1,000,000 5% $10,000 Total $20,000,000 100% $200,000 Bond Counsel Financial Advisor Rating Agency Fees Official Statement printing and distribution Miscellaneous

Example Sources and Uses Schedule Borrower A Borrower B Borrower C Borrower D Total Sources: Loan Proceeds $5,055,000 $10,110,000 $4,044,000 $1,011,000 $20,220,000 Uses: Project Fund $5,000,000 $10,000,000 $4,000,000 $1,000,000 $20,000,000 TMPC Fee $5,000 $10,000 $4,000 $1,000 $20,000 TPFA Cost of Issuance $50,000 $100,000 $40,000 $200,000

Example Debt Service Schedule

Example Debt Service Schedule

Consult your bond counsel and financial advisor.

Texas Military Preparedness Commission Agenda Overview of RLF Program Bob Rasmussen (TMPC) Finance and Legal Structure Kim Edwards (TPFA) Credit Analysis Piper Montemayor (OGEDT) Proposed Timeline Bob Rasmussen (TMPC) Texas Military Preparedness Commission Office of the Governor

Credit Analysis Credit Review Review Repayment Ability Security Review (if applicable) Documents required at the time of application Comprehensive Annual Financial Reports Full Credit Rating Report

Texas Military Preparedness Commission Agenda Overview of RLF Program Bob Rasmussen (TMPC) Finance and Legal Structure Kim Edwards (TPFA) Credit Analysis Piper Montemayor (OGEDT) Proposed Timeline Bob Rasmussen (TMPC) Texas Military Preparedness Commission Office of the Governor

Proposed Timeline: Date Action April 3, 2006 Letters of Interest Due TMPC Commissioners Review Letters of Interest and Determine if Program can be implemented June 1, 2006 Communities Submit Applications June 15, 2006 TMPC Commissioners Approve Applications for Creditworthiness Review July 31, 2006 Creditworthiness Review Completed August 17, 2006 TMPC Commissioners Approve Applications

Proposed Timeline (continued): Date Action August 30, 2006 Letters of Commitments from Communities (City Council/Board Resolution) September 7, 2006 TPFA Board Approves Requests for Financing November 7, 2006 Bond Review Board Planning Session November 16, 2006 Bond Review Board Approval November 20, 2006 Loan Agreements Signed—TMPC and Communities December 14, 2006 Loans Funded

Questions? Primary Points of Contact: Applications and Timeline Al Casals – (512)936-0517 acasals@governor.state.tx.us Finance Questions Kim Edwards – (512)463-5544 kim.edwards@tpfa.state.tx.us Credit Questions Piper Montemayor – (512)463-6735 pmontemayor@governor.state.tx.us