Friday, January 11 th, 2008, 1:30 p.m. - 2:30 p.m. Scottsdale, Arizona Capital Improvement Planning - An Investment Banker’s Perspective 2555 E. Camelback Road, Suite 280, Phoenix, Arizona (602) Training Session Presented By:

Page 1 Overview of Presentation Pages 1)An Investment Banker’s Perspective 2-4 2)Financial Policy Recommendations (Best Practices) 5-6 3)General Obligation Bond Alternative Overview 7 4)CIP Financing Alternatives Summary 8-10  Cities & Towns  Counties 5)Fundamental Debt vs. Pay-As-You-Go Questions )Debt vs. Pay-As-You-Go Example 13 7)Questions 14

Page 2 1) An Investment Banker’s Perspective 1.CIP Planning Documents Vary Significantly Across the State 2.Absence of Minimum Five-Year CIP May Be Viewed as a Credit Negative (translates to potential higher borrowing costs) 3.Ten Year CIP Encouraged to Develop a More Comprehensive Funding Plan  SOPHISTICATED CIP PLANNING DOCUMENTS ARE VERY IMPORTANT TO THE MARKETPLACE:

Page 3 An Investment Banker’s Perspective 5.Learn from Other Governmental Jurisdictions – Outstanding Models To Choose From 6.Integrate O & M Ramifications into Long-Term Forecasts & Related Planning Documents 7.Identify Financing Alternatives For Each Project and Why Such Alternative(s) are Equitable

Page 4 An Investment Banker’s Perspective  INCLUDE THE COMMUNITY IN THE PLANNING PROCESS 1.Improves Relationships and Builds Support for Future Revenue Stream(s) 2.Use as a Tool to Control Political and Community Expectations Regarding CIP and On-Going Pressure on Revenues to Accomplish Projects 3.Documented, Publicly Available (i.e., website), Easy to Read and Updated Annually 4.Transparency Builds Confidence Among Stakeholders  DEBT PLANNING & FINANCIAL POLICIES SHOULD BE CROSS REFERENCED THROUGHOUT THE CIP 1.See Policy Recommendations Herein

Page 5 2) Financial Policy Recommendations (Best Practices) 1.Formal Council Approved Policies are Viewed Favorably By Market Participants 2.CIP Policy (Authorizing & Establishing) 3.Complete Master Plan Documents Which Support Capital Improvement Projects 4.General Fund “Cash” Balance Reserve Policy – One Size Does Not Fit All! o% of Expenditures or Number of Days of Operating Expenses 5.Non-Recurring Revenue Policies: oHow Does your Jurisdiction Plan for Economically Sensitive Revenues (i.e., Sales Tax, Construction Related Revenues, Income Taxes and Bed Taxes)? 6.Debt Planning & Affordability Policies: oFormalized Plan that Includes Targeted and Maximum Debt Levels & Pay- As-You-Go Funding oDetermining Debt Capacity is an Art Not a Science

Page 6 Financial Policy Recommendations (Best Practices) 7.Community Facilities District (CFD) Policies & Procedures 8.Improvement District (I.D.) Policies & Procedures 9.Impact Fee Policies & Procedures 10.Utility Enterprise Systems Policies and Procedures: oOutline Procedures for Monitoring Covenants to Ensure Compliance 11.Inter-Fund Borrowing Policies 12.Primary and Secondary Tax Rate Policies & Objectives

Page 7 3) General Obligation (G.O.) Bonds Alternative Overview  Substantial CIP Funds Can Come from G.O. Bond Authorization  Voter Approval Required (Majority Vote). Election Opportunity Limited to the First Tuesday After the First Monday in November  Repaid Through Secondary Property Tax Levy  City/Town Debt Limitations: 20% and 6% of Secondary Assessed Valuation  20% Category: Public Safety, Law Enforcement, Fire and Emergency Services, Water, Lights, Sewer, Open Space, Parks, Streets & Transportation Facilities  6% Category: Any of 20% Category & All Other General Municipal Purposes  County Debt Limitations: 15% of Secondary Assessed Valuation  All Eligible Projects and Related Debt Categories Subject to Bond Counsel Approval

Page 8 4) Arizona City & Town, CIP Financing Alternatives Summary (a) Election Permitted to be held on the First Tuesday after the First Monday in November of each year. (b) Election Permitted in March, May, September and November. (c) Election not required if population is less than 50,000. Excise Taxes and Development Fees required by WIFA Under Certain Circumstances. (d) Election not required if population is less than 50,000. Type of Infrastructure Improvements G.O. Bonds (a) HURF Bonds (b) Excise Tax Rev. Bonds I.D. Bonds CFD Bonds Lease Purchase / COPs (Annual Approp.) Utility Revenue Bonds & WIFA (c) GADA (d) USDA / RUS P3 1. Streets & Roads (Transportation) (20% or 6%) 2. Parks & Open Space (20% or 6%) 3. Water & Wastewater Utilities (Acquisitions & Improvements) (20% or 6%) (Including Grants) 4. Electric & Gas (6%) (No WIFA) (No Grants) 5. Police & Fire (Public Safety) (20% or 6%) (No Grants) 6. Administrative Facilities (i.e., City Hall) (6%) (No Grants)

Page 9 Arizona City & Town, CIP Financing Alternatives Summary Type of Infrastructure Improvements G.O. Bonds (a) HURF Bonds (b) Excise Tax Rev. Bonds I.D. Bonds CFD Bonds Lease Purchase/ COPs (Annual Approp.) Utility Rev. Bonds & WIFA (c) GADA (d) USDA / RUS P3 7. Libraries (6%) (No Grants) 8. Airport (20% or 6%) 9. Equipment / Technology (e) (20%or 6%) (e) (No Grants) 10. Economic Development (6%) 11. Storm Drainage (20% or 6%) ( Grants?) 12. Solid Waste (6%) (No Grants) 13. Sport Facilities (Professional) (6%) (a) Election Permitted to be held on the First Tuesday after the First Monday in November of each year. (b) Election Permitted in March, May, September and November. (c) Election not required if population is less than 50,000. Excise Taxes and Development Fees required by WIFA Under Certain Circumstances. (d) Election not required if population is less than 50,000. (e) Amortization Limited to Average Useful Life of Assets Being Financed.

Page 10 Arizona Counties, CIP Financing Alternatives Summary Type of Infrastructure Improvements G.O. Bonds (15%) HURF Bonds Excise Tax Rev. Bonds I.D. Bonds CFD Bonds Lease Purchase/ COPs Special Districts (a) Library District Jail District WIFA (c) GADA (d) USDA / RUS 1. Streets & Roads (Transportation) (b) 2. Parks & Open Space 3. Water & Wastewater Utilities (Pima County WW Only) (Includes Grants) 4. Public Safety / Courts 5. Administrative Facilities 6. Libraries 7. Equipment / Technology 8. Detention Facilities & Jails 9. Economic Development (a) Includes Sanitary Districts, Domestic Water Improvement Districts and other similar Districts. (b) County Highway Acceleration Financing Option Also Available. (c) Election not required if population is less than 50,000. (d) Election not required if population is lass than 200,000

Page 11 5) Fundamental Debt Vs. Pay-As-You-Go Questions  PROJECT COMPLETION: oAbility to Construct Public Infrastructure in Advance to Enjoy Benefits Related Thereto and Meet Community Service Objectives oNecessity and Desire for highly Essential Capital Improvement Projects (i.e., Health & Safety, Highway Acceleration, Open Space Preservation) oOpportunity to Purchase Capital Assets at an Attractive Price  CONSTRUCTION COSTS AND ECONOMIC CONDITIONS: oImpact of Inflation on Project Budget oEconomies of Scale Possibilities. Does Current Bid Environment Create Opportunities?  BUDGET & CASH FLOW CONSIDERATIONS: oLimit Revenue Bond Debt Service to a % of the City’s General Fund (Don’t Overburden Budget) oDebt Affordability Analysis. Identify/Implement Special Revenue Stream to Repay Debt Obligation. oUpdated Debt Issue Size Based on Debt Service Amount in Budget

Page 12 Fundamental Debt Vs. Pay-As-You-Go Questions  INTERGENERATIONAL EQUITY: oSpreading Costs of Project Over Approximate Useful Life Which Allows for Multiple Generations to Help Pay for Fair Share oCurrent Residents Paying Taxes During the Cash Build-up Period Without the Benefit  ONGOING O&M FOR REPLACEMENT FACILITIES: oGrowing Costs of Remediating Long Neglected Public Infrastructure, Including Ramifications of Operation & Maintenance  COST OF MONEY: oInvestment Rate of City/County Funds Currently Approximate 4.0% - 4.5% oBond Interest Rates Approximate 4.5% for 20-Year Insured Bonds  POLITICAL RAMIFICATIONS

Page 13 6) Debt Vs. Pay-As-You-Go Example Assum ptions:

Page 14 Questions?