0 Virginia Public School Authority Providing Financing for Virginia’s Schools for over 50 Years VASBO – Helping Shape the Future Fall Conference - October 16, 2015

School Financing Options  Virginia local officials have a number of options available to address financing needs for school projects  General Obligation Bond issue by locality following a successful referendum  Lease Revenue Bonds through a conduit issuer  Bank loan  Literary Fund loan  Virginia Public School Authority (VPSA)  The option selected may depend on funding availability, circumstances in the locality, and the attributes of the project 1

School Financing Options, continued  Local Options  General Obligation Bonds – Issued directly by you. Your rating. Secured by full faith and credit of your locality. Referendum required.  Lease Revenue Bonds – Requires conduit issuer such as your Economic Development Authority. Secured by appropriation. No referendum required.  Bank Loans – Lending bank negotiates terms of loan.  Literary Fund Loan – Issued by DOE. No direct Literary Loans or interest rate subsidies for foreseeable future *  All subject to your own debt policy, i.e. types of debts and limitations on indebtedness. 2

School Financing Options, continued  VPSA’s Pooled Bond Program  Flagship program  Bond bank  Authority issues bonds and uses the proceeds to purchase general obligation local school bonds  Payments on local schools bonds held by the Authority provide for the debt service on the VPSA bonds  Schools and only schools  All types of real and personal property for public schools, including land, buildings and equipment 3

VPSA Pooled Bond Program  Program Highlights.....  Provides Market access – particularly helpful to localities not frequently in the bond market  Highly Rated (AA+/Aa1/AA+)  “Credit enhancement” through state-aid intercept/sum sufficient provisions  Streamlined application process with no application fee  Minimizes burden on local officials 4

Why VPSA?  Experience  Administrative ease  Cost 5

Why VPSA?  Experience  Established in 1962 and completed first bond issue in 1963  $ 6.6 billion has been issued through the Pooled Bond Program alone  $ 2.6 billion in local school bonds from 104 different localities are currently held by the VPSA  Pooled Bond Program has been enhanced and refined over the years to simplify and streamline 6

Why VPSA?  Administrative Ease  Local GO Bonds sold to the VPSA do not require voter referendum  Streamlined application process with no application fee  Market access – particularly helpful to localities that are not frequently in the bond market  Authority does the heavy lifting for the bond sale  Bond documents, ratings, public offering documents, coordination of sale  Decreased administrative burden on local officials  Arbitrage rebate compliance, continuing disclosure and monitoring for refunding opportunities 7

Why VPSA?  Cost  No application fee  Administrative costs are low – 5 basis points added to local debt service  Covers VPSA costs of issuance and administrative costs  Local costs of issuance (local counsel, FA) paid by locality or financed as part of the bond issue 8

Sample VPSA/Local Loan 9 VPSA Locality Maturity PrincipalCoupon Interest Total PrincipalCoupon Interest Total 2015 $ 500, % $ 300, $ 800, $ 500, % $ 305, $ 805, $ 500, % $ 285, $ 785, $ 500, % $ 289, $ 789, $ 500, % $ 270, $ 770, $ 500, % $ 274, $ 774, $ 500, % $ 255, $ 755, $ 500, % $ 259, $ 759, $ 500, % $ 240, $ 740, $ 500, % $ 244, $ 744, $ 500, % $ 225, $ 725, $ 500, % $ 228, $ 728, $ 500, % $ 210, $ 710, $ 500, % $ 213, $ 713, $ 500, % $ 195, $ 695, $ 500, % $ 198, $ 698, $ 500, % $ 180, $ 680, $ 500, % $ 183, $ 683, $ 500, % $ 165, $ 665, $ 500, % $ 167, $ 667, $ 500, % $ 150, $ 650, $ 500, % $ 152, $ 652, $ 500, % $ 135, $ 635, $ 500, % $ 137, $ 637, $ 500, % $ 120, $ 620, $ 500, % $ 122, $ 622, $ 500, % $ 105, $ 605, $ 500, % $ 106, $ 606, $ 500, % $ 90, $ 590, $ 500, % $ 91, $ 591, $ 500, % $ 75, $ 575, $ 500, % $ 76, $ 576, $ 500, % $ 60, $ 560, $ 500, % $ 61, $ 561, $ 500, % $ 45, $ 545, $ 500, % $ 45, $ 545, $ 500, % $ 30, $ 530, $ 500, % $ 30, $ 530, $ 500, % $ 15, $ 515, $ 500, % $ 15, $ 515, Total $ 10,000, $ 3,150, $ 13,150, $ 10,000, $ 3,202, $ 13,202,500.00

Why VPSA?  Cost (continued)  Strength of local GO’s issued for essential public purposes (schools) helps maintain high credit quality of the program and…..  Helps keep the Authority’s costs low; minimal credit analysis  High ratings mean lower interest rates 10 MMD Yields September 8, 2015 Municipal Market Data General Obligation Yields Aaa Aa A Aa to A Spread

Positive Credit Features  Essential public purpose – schools  Three levels of security provide high degree of confidence  General obligation (GO) bonds of locality  State-aid intercept mechanism  If a payment default occurs on a local school bond, state comptroller can withhold any amounts appropriated to that locality and apply the withheld amount to their local school bond  Prevents default on the VPSA bonds  Sum-sufficient appropriation  If the amount intercepted is insufficient, an appropriation from the Commonwealth covers the shortfall  Literary Fund  General Fund 11

Positive Credit Features  The three levels of bondholder security are unique, and result in VPSA’s high credit ratings  This means borrowers in the program – regardless of the localities’ underlying rating realize the benefit from the Authority’s ratings  There has never been a local default on a VPSA Bond 12

Key Features - VPSA’s Pooled Bond Program  Bonds sales conducted two times each year – Spring & Fall  Local GO Bonds only  Maintains credit quality  Requires minimum credit analysis  Local school bonds sold to the VPSA are excluded from referendum requirement  Financing terms can range from 10 to 30 years  Amortization is typically level debt service or level principal  Delayed principal and other structuring features are possible 13

Refunding Opportunities  Savings opportunities for the pool are rigorously monitored  Refunding issues are regularly undertaken by the Authority  Savings are passed through to local participants through a debt service credit IssuePar Amount Series Refunded Savings Distributed Localities Involved March 2005$230.6mm5$8.7mm61 February/March 2009$114.2mm4$6.9mm33 October 2009$481.3mm7$28.7mm29 September 2010$85.5mm2$3.4mm15 February 2012$282.2mm6$21.9mm25 May 2014$227.3mm3$19.9mm20 February 2015$466.6mm7$55.4mm24 Total$1,421.1mm$144.9mm 14

Other VPSA Financing Programs, continued  Stand-Alone Bond Program  VPSA serves as the conduit issuer for a locality  Useful for highly rated localities that do not benefit from the VPSA’s credit enhancements (i.e., have a rating higher than that of the Authority)  Bond rating based on that of the local borrower 15

Other VPSA Financing Programs - continued  VPSA Technology Grant Program  Five year notes  Authorized through the Appropriation Act – DOE formula  Finances computer based instructional and testing system for Standards of Learning (SOL) and high speed Internet connectivity  Typically Spring sale  Repaid from an appropriation from the Literary Fund  VPSA School Security Equipment Grant Program  Five year notes  Authorized through the Appropriation Act  Awarded on a competitive basis  Up to $100,000 per division with a 25% local match  Applications available on DOE website and due August 1, 2016  Repaid from an appropriation from the Literary Fund 16

VPSA Process  VPSA establishes sale calendar (January/July)  Application packages distributed to localities  Applications reviewed; questions resolved  VPSA Board of Commissioners meets; approves applications; authorizes issuance of bonds  Ratings applied for  Bond documents (POS/NOS), sizing finalized  VPSA sells bonds and formally accepts bond sale agreements from localities  Closing documents drafted and reviewed by VPSA bond counsel  Bond closing – bond proceeds wired to locality accounts in SNAP 17

Key Responsibilities of the Borrower/Borrowers’ Counsel  Obtain School Board approval of application to VPSA  Submit application for participating in Fall/Spring Pooled Sale  Project information  Obtain Board of Supervisors approval of bond resolution  Review and verify preliminary numbers  Resolutions/ordinances filed with Circuit Court  Bond Sale Agreement returned to Authority with tax questionnaire  Draft closing documents submitted to VPSA/bond counsel  Account registration forms to SNAP for bond proceeds  Comply with Proceeds Agreement 18

Key Responsibilities…(continued)  Post – issuance  Localities’ obligations set out in Use of Proceeds Agreement  Arbitrage rebate  Change in use/private use of tax-exempt financed facility  Spend-down requirements  Practice Continuing Disclosure!!  Are you a MOP?   State and Local Government Toolkit   Learning about Municipal Bond Issuance 19

Future Challenges and Opportunities  VPSA well positioned for future with its programs  Direct Literary Loans and/or Interest Rate Subsidies – unlikely  Interest rates expected to remain low  Commonwealth ties to Federal Government  Sequestration reduced the amount of QSCB/BAB subsidy, but not significantly 20

21 VPSA Financing Team Virginia Public School Authority - Virginia Department of the Treasury Janet Aylor Director of Debt Management (804) Jay Mahone VPSA Program Manager (804) Financial Advisor Davenport & Company Jamie Traudt Ty Wellford VPSA Bond Counsel McGuire Woods Arthur Anderson T.W. Bruno Melissa Palmer Senior Financial Analyst (804)