1. GFOAz May 11, 2007 The ABC’s of Municipal Financing

2. 2 The ABCs of Municipal Financing in Arizona Overview of Capital Project Needs Sources of Revenue Debt vs. Pay-As-You-Go Types of Debt Case Studies

3. 3 Public Infrastructure Needs for City of Phoenix New Streets and Improvements Fire and Police (Public Safety) Parks and Open Spaces Water, Sewer, Flood, Solid Waste Neighborhoods and Housing Libraries Education and Cultural Facilities Airport Improvements

4. 4 Revenue Sources to Pay for Infrastructure Secondary Property Taxes Local Sales (Excise) Taxes Special Designated Sales Taxes (Transit) State Shared Revenues Water, Sewer, Solid Waste Fees Airport Fees and Charges Impact or Development Fees Other User Charges

5. 5 Historical Secondary AV City of Phoenix $ Billions Based on Full Cash Value from County Assessors Office

6. 6 Historical Water Development Occupational Fees City of Phoenix $ Millions Fees constant throughout period at $600 per equivalent 5/8 inch meter.

7. 7 How Can Revenue Sources be used to Fund Infrastructure Needs?  Pay-As-You-Go (Cash)?  Debt Finance (Short or Long Term Borrowing)?

8. 8 Capital needs can be met through current revenues and the annual budget process Revenue sources uncertain from year to year for debt service payments Issuing additional debt will jeopardize current credit rating Reasons to Use Pay-As-You-Go or Cash for Capital Project Funding

9. 9 Reasons to Use Pay-As-You-Go or Cash for Capital Project Funding (continued) Municipal market is not favorable (high interest rates) or projects difficult to market Projects can be phased or deferred while revenues are collected The assets being funded have short lives

10. 10 No interest costs No issuance costs No restrictive debt covenants No over-issuance of debt Projects not pursued until funds available Advantages of Pay-As-You-Go Funding

11. 11 Capital facilities are needed today (regulatory or growth pressures) and current revenues are insufficient Reliable future revenues are available to service the debt Issuance of debt will not jeopardize credit rating Reasons to Consider Debt Financing

12. 12 Favorable municipal bond market Assets financed are longer lived Assets needed for growth are paid by current and future residents (intergenerational equity) Reasons to Consider Debt Financing (continued)

13. 13 TYPES OF DEBT

14. 14 CASE STUDIES CITY OF PHOENIX  Public Process for G.O. Bond Program  Public-Private-Partnership for Downtown Development (CITYSCAPE)

15. 15 City of Phoenix General Obligation Bond Program  Primary mechanism used historically to fund non-enterprise fund capital needs  Debt secured by secondary property taxes of City  Require voter approval

16. 16 History of Voter Approved G.O. Bond Programs City of Phoenix $ Millions $436 $525.7 $1057.4 $753.9 $878.5

17. 17 Programs Funded by 2006 G.O. Bond Program ($ Millions) Police, Fire, Homeland Security$ 177.0 20.2% Education Facilities 198.7 22.6% Library, Youth, Senior and Cultural Facilities 133.815.2% Parks, Open Space & Recreational Facilities 120.5 13.7% Streets, Storm Sewers, and Flood Protection 147.416.8% Affordable Housing and Neighborhood Revitalization 85.0 9.7% Computer Technology 16.1 1.8% TOTAL$ 878.5100.0%

18. 18 Public Review Process for General Obligation Bond Program City of Phoenix  Departments develop requested capital projects ($3.2 billion in requests)  Operations and maintenance costs for projects developed  Citizen Bond Committee and subcommittees appointed (700 citizens, 17 subcommittees)  Fiscal Capacity Subcommittee reviews Assessed Valuation forecast and debt capacity analysis

19. 19  Subcommittees hold public hearings  Subcommittees recommend projects to Executive Committee  Executive Committee develops recommendation within fiscal capacity  Council approves Bond Program  Citywide vote on Bond Program Public Review Process for General Obligation Bond Program City of Phoenix

20. 20 Financing Downtown Public/Private Partnership Project (CITYSCAPE )

21. 21 CityScape Project Location N

22. 22  Project to develop 3 blocks between in core of Downtown between Jefferson and Washington 1 st Street and 2 nd Ave.  Lead by Red Development in partnership with Baron Collier  Planned 2.5 million sq. ft. of four mixed use residential and commercial towers, including 150 room hotel and 220,000 sq. ft of retail space in core of downtown  Total project cost approximately $900 million Cityscape Project

23. 23  Non-general fund City Excise Tax capacity leveraged for Convention Center Expansion and for backing of new Downtown Hotel  No reserves or pay-as-you-go funding available due to other City commitments  Speculative nature of the project and large financing required by the Developer (more than $800 million)  Uncertainty of revenue and sales tax generation from the project Challenges of City Participation

24. 24 City purchases parking facilities upon completion of the following minimum improvements.  220,000 sq. ft of retail  500,000 sq. ft of commercial  500 unit residential tower and 150 room hotel  2,500 below ground parking spaces  Upgrades and repairs to Patriots Park Garage Developer guarantees projected level of City sales tax revenues from project for first five years through a letter of credit (LOC) from a bank approved by the City. LOC burns off each year as sale tax targets are met. City provides Government Property Lease Excise Tax (GPLET) to the Project. City Participation TERMS OF DEVELOPMENT AGREEMENT

25. 25 City Participation TERMS OF DEVELOPMENT AGREEMENT Developer prepays Phase II construction sales taxes that will be refunded in the event Phase II is constructed within five years. City purchases parking facilities through the sale of $70 million in excise tax bonds and allots $2.5 million of Street G.O. Bonds and $4.0 million in 2006 G.O. Bonds approved for Patriots Garage rehabilitation. City sells Jefferson Street garage near U.S. Airways Center to provide for $20 million to purchase additional underground parking from the Project. Developer operates the garage and makes lease payments to the City.

26. 26 Questions?