1. Erin Bartholomy Lynda Given Todd Krzyskowski Sean McCarthy Partner Partner Managing Director First Vice President Chapman and Cutler LLP Chapman and Cutler LLP Mesirow Financial Stifel, Nicolaus & Company, Inc. May 20, 2010 Maximizing the Benefits of the Evolving American Reinvestment and Recovery Act of 2009

2. 2 The Obama Administration’s $787 Billion Economic Stimulus Package, known as the American Recovery and Reinvestment Act, was signed into Law on February 17, 2009 – Municipal Highlights Eliminates AMT on Bonds Issued in 2009 and 2010 Introduces Taxable Bond Financing Options for Tax-Exempt Issuers Energy Infrastructure Bonds (QECBs) (Capped Issuance) Liberalizes Investment Rules for Financial Institutions Qualified Zone Academy Bonds (QZABs) (Capped Issuance) Increases Annual “Bank Qualified” Bond Limit to $30 Million for 2009-10 The primary purpose of the Recovery Act is to Prompt Immediate Capital Formation Efforts by State & Local Governments using expanded TAXABLE borrowing alternatives to stimulate the economy and put people back to work…… Build America Bonds (BABs) (Uncapped Issuance) Qualified School Construction Bonds (QSCBs) (Capped Issuance) Recovery Zone Facility Bonds (RZFBs)

3. 3 3 The Stimulus Plan Provides State & Local Governments Including School Districts the Opportunity to Capture All of the Federal Subsidy that Was Traditionally Shared with Tax Exempt Investors Note: While State & Local Governments can benefit, the financing alternatives were geared to be REVENUE NEUTRAL to the U.S. Treasury, but actual impact has been more costly Tax-Exempt Investors State, School District, and Other Local Governments Includes:  Build America Bonds  Energy Conservation Bonds  Qualified School Construction Bonds  Qualified Zone Academy Bonds  Expanded “Bank Qualified” Bonds Allocation of Federal Subsidies - Traditional Tax-Exempt Allocation of Federal Subsidies - New Taxable Alternatives

4. 4 The Borrowing Alternatives Provided by the Stimulus Plan are All TAXABLE and Must be Compared to Traditional Tax-Exempt Alternatives – At the Margin  Taxable Bonds are the base level of borrowing cost for issuers  Various borrowing options provide an approximate subsidy in the current market defined as a percentage of taxable bonds * Treasury guidance and allocation still to be published on Recovery Zone BABs

5. 55 The Federal Stimulus Plan Provides Maximum Opportunity to Capture Federal Tax Subsidies at the Local Level The benefit that the Federal Stimulus Plan aims to provide at the local level which typically has gone to tax-exempt investors

6. 66 The Illinois State Toll Highway Authority is Estimated to Have Saved Over $60,000,000 in Interest Costs Through the Use of BABs Issuers with solid credit ratings should expect the same percentage level of savings versus traditional tax-exempt bonds subject to market conditions at the time of financing

7. 7 The Stimulus Plan Sunsets on December 31, 2010 So Planning Must Begin Now – Especially if You Need to Pass a Referendum! 2/17/2009 American Recovery and Reinvestment Act is signed into law 12/31/2010 Current expiration of BAB financing opportunities Increase to $30 million Bank-Qualified Capacity for 2009 Increase to $30 million Bank-Qualified Capacity for 2010 12/31/2009 February 2, 2010 Primary Election for Referendum Ballot Question November 2, 2010 General Election for Referendum Ballot Question March 18, 2010 - HIRE Act signed into law, extending BABs for 3 years 12/01/ 2013? Proposed extension of ARRA including BABs subsidy (at a reduced level)

8. 88  What are my capital financing needs/plans? Timeframe?  What is my current debt capacity?  What type of governmental unit am I? -Home Rule vs. Non-Home Rule -Tax-Capped vs. Non-Capped  Do I need to pass a referendum? Can the Stimulus Plan Help that Appeal?  Am I in touch with my State Representative on Tax Credit Bond Sponsorship? -Will State Statute Change to Assist local issuers (e.g. longer maturities)?  What is my current debt structure? -Upward Sloping, Downward Sloping, or Level  What tax rate impact can be achieved? -Intergovernmental cooperation Develop Your Thoughts and Engage Your Governing Body and Community; Next Steps & Key Questions to Think About

9. 9 Forward Starting Swap Mechanics Cash Flows for Taxable Build America Bonds and Their Accompanying Subsidy Federal Treasury Issuer Subsidy BABs Bondholders Direct Payment of 35% of Interest Paid Federal Treasury Investor Subsidy BABs Bondholders & Tax Credit Holders Tax Credit Equal to 35% of Interest Received Taxable Fixed Interest Rate Taxable Fixed Interest Rate Traditional Fixed Rate Bonds Bondholders Tax-Exempt Fixed Interest Rate Local Issuer

10. 10 Tax-Exempt Interest Rates Have Historically Carried Yields Lower than Their Taxable Counterparts –The 30-Year US Treasury is a taxable interest rate and the 30-Year MMD is a tax-exempt interest rate for AAA rated issuers The Federal Stimulus was enacted when taxable interest rates were significantly below tax-exempt interest rates to eliminate the great benefit experienced by tax-exempt bond investors at the expense of issuers

11. 11 Intergovernmental Communication and Good Debt Management Are Keys to Managing Overall Taxpayer Tax Rate Impact Theoretical $10 million BAB Debt Service for a Sample Issuer and Additional Debt Issuance Capacity A downward sloping debt profile coupled with minimal debt allows an issuer to issue long-term debt and maximize the benefit from the temporary Federal Stimulus with minimal tax rate impact Note – Additional Debt Issuance Capacity includes principal and interest; assumes maximum annual debt service of $17.5 million, based upon largest annual outstanding Sample Issuer GO Debt Service plus theoretical $10 million BAB debt service

12. 12  Debt issuance authority must be established  The importance of Capital projects  Borrowing Options School Building Bonds Alternate Bonds Life Safety Bonds Working Cash Fund Bonds Debt Certificates Funding Bonds ARRA and Illinois Law 12 2808242

13. 13 Who is Using BABs  1,066 BABs transactions worth over $90 billion were priced from April 2009 to March 31, 2010  It is estimated that state and local governments will save approx. $12 billion in present value borrowing costs by using BABs compared to issuing solely traditional tax-exempt bonds  Proceeds must be issued to finance new money capital expenditures for which tax-exempt governmental bonds could be issued

14. 14 When to Use BABs  Decision to issue BABs should be a “game day” decision at the time of bond sale. If it is cost effective for the district to use this program at the time of sale, it should be used.  Must analyze traditional tax-exempt and taxable Build America Bond scales to advise issuer-client and determine which financing option is the most economical.  Often, a blended transaction, which incorporates both BABs and tax-exempt bonds provides for the most economical financing solution.

15. 15 Tax-Exempt vs. Taxable BABs Yields Traditional Tax-exempt Bonds vs. Taxable BABs Tax-Exempt vs. Taxable BABs Yield Curves Crossover - BABs become more cost-effective Taxable and tax-exempt yield curves are analyzed to determine to appropriate blend

16. 16 Case Study: Jefferson County, Colorado Jefferson County, Colorado Certificates of Participation, Series 2009  Marketing Date: 10/20/2009  Credit ratings: Aa2/AA  Sold as 1 transaction with 2 separate series:  Series A: $67,715,000 taxable COPs (Direct Pay Build America Bonds)  Series B: $8,765,000 tax-exempt COPs  Issuer saved nearly $4.5 million by issuing a combination of tax-exempt COPs and taxable direct pay Build America Bond COPs, rather than a tax- exempt only transaction

17. 17 Maturity Schedule: Jefferson County COPs, Series 2010 Tax- Exempt Taxable

18. 18 Net Debt Service: Jefferson County

19. 19 Is it Worth It? Often, BABs have provided larger savings for larger issuers.

20. 20 BABs Challenges  Extraordinary/make-whole calls are relatively expensive and render the debt economically non-callable  Deals are managed off the taxable desk, yet subject to MSRB rules  After-market premium inherent in the taxable market  Deal features are currently evolving  Long-term risks due to potential changes in governmental policy, etc.

21. 21  Need Qualified Zone Academy  100 Percent Test/Qualified Purpose/2 Percent COI  Expenditure Rules  Private Business Contribution  Certain Wage and Labor Standards Applicable  Bonds may either be traditional “tax credit” QZABs or “direct pay” QZABs Qualified Zone Academy Bonds 21

22. 22  Supervision of an Eligible Local Education Agency (ISBE)  Application made to ISBE, ISBE grants allocation to individual Districts  Illinois allocation in 2009 $52,401,000, in 2010 $52,218,000  Designate a building or buildings as a qualified zone academy  Each academy must have 35% of students qualify for free or reduced priced lunch  10% Private Business Contribution Requirement Qualified Zone Academy 22

23. 23  Rehab/Repair Public School Facility (Regulations Define Rehab) – Not New Construction  Equipment  Development of Course Materials  Training Teachers/School Personnel Qualified Purpose of Bond Proceeds 23

24. 24  100 Percent of Available Project Proceeds (“APP”) used for Qualified Purpose  APP=Par amount of Bonds less 2% permissible to pay costs of issuance  In General, Proceeds Must Be Spent Within Three Years  Binding Commitment to Spend At Least Ten Percent of Proceeds Within Six Months  Spend Proceeds With Due Diligence  Redeem Bonds with unspent proceeds after 3 years Expenditure Rules 24

25. 25  Public/Private Partnership  Written Commitment from Private Entities  Contribution Must Have PV of at Least Ten Percent of Proceeds of Issue  Must Be a “Qualified Contribution” Private Business Contribution 25

26. 26  Equipment  Technical Assistance to Develop Curriculum or Train Teachers to Promote “Market Driven” Technology in Classroom  Employee Services as Mentors  Internships/Field Trips, Etc.  Any Other Property or Service … Qualified Contribution 26

27. 27 Wage rate requirements and labor standards requirements under Subchapter IV of Chapter 31 of Title 40 of the United States Code apply to projects financed with proceeds of QZABs (Federal “Prevailing Wage”) Certain Wage and Labor Standards Applicable 27

28. 28  Owners receive a federal tax credit instead of interest  Tax credit received on quarterly credit allowance dates  May be supplemental coupon also  Tax credit rate and maximum term published at www.treasurydirect.gov www.treasurydirect.gov  Can carry forward unused portion of Tax Credit  May create a sinking fund invested at the published permitted sinking fund yield Tax Credit QZABs 28

29. 29  Issuer receives direct payment from federal government  Payment is lower of actual interest or tax credit rate  De Minimus Premium Rules Apply  Must File Form 8038-CP  Maximum term published by Treasury  Current terms 17 year maturity 5.51% interest/tax credit rate Direct Pay QZAB 29

30. 30  All of the rules applicable to tax-exempt bonds must be complied with  Spending requirements  Arbitrage rebate  Private use and payment tests Rules Applicable to Build America Bonds 30

31. 31  Irrevocable election to treat the debt as BABs  2% Cost of issuance limitation  Includes bond insurance premium  Issue some bonds as taxable non-BABs  No more than a de minimis original issue premium allowed  Based on the definition of “issue price” based on reasonable expectations  First interest payment must be within one year of the date of issuance Rules Applicable to Build America Bonds (cont’d.) 31

32. 32  Capitalized interest  Up to placed-in-service date of the financed project(s)  Complications with multiple projects and multiple placed-in-service dates  No CABs  Count against “small issuer” exception for rebate but NOT against the $30,000,000 annual BQ limit  Can be used for reimbursement  Can be used to refinance temporary short-term financings Rules Applicable to Build America Bonds (cont’d.) 32

33. 33  Form 8038-B  Bond counsel files on the closing date  Includes a debt service schedule  Form 8038-CP Must be filed not less than 45 and not more than 90 days before each interest payment date The first 8038-CP should be filed no earlier than 30 days after the 8038-B is filed IRS Forms; Filings 33

34. 34  Expect to receive an IRS Questionnaire  Respond promptly! Post-Issuance Compliance 34

35. 35  A Build America Bond that the issuer designates as a Recovery Zone Economic Development Bond  National limit of $10,000,000,000  Allocation formula to each Illinois county  Issuer receives payment equal to 45% of interest paid on bonds paid directly by the U.S. Treasury (rather than 35%)  Proceeds must be used for one or more qualified economic development purposes in a recovery zone Taxable Recovery Zone Economic Development Bonds 35

36. 36  “Qualified economic development purpose” means expenditures for purposes of promoting development or other economic activity in a recovery zone, including:  Capital expenditures with respect to property located in the zone  Expenditures for public infrastructure and construction of public facilities  Expenditures for job training and educational programs  Wage rate requirements and labor standards requirements under Subchapter IV of Chapter 31 of Title 40 of the United States Code apply Taxable Recovery Zone Economic Development Bonds (cont’d) 36

37. 37 Effects of the Proposed “Hiring Incentives to Restore Employment Act (HIRE)”  Proposed HIRE extends BAB program and direct-pay subsidy for three years  Most likely that the Issuer subsidy will be reduced (25%-30%)  BABs program becoming model for other Federal programs  QSCB program restructured to provide direct-pay subsidy  Old QSCB program resulted in only $2.6 billion in issuance last year (out of $11 billion authorized)  Expectation of increased issuance due to new direct-pay subsidy feature  Issuers receive payments equal to the lesser of the actual interest rate of the bonds or the tax-credit rate for municipal tax-credit bonds  5.86% rate for a 17 year maturity (as of April 8th)  Mesirow Financial estimates the State would price at 5.41% for a 17 year maturity  Important to consider timing: Tax credit yield is determined at closing rather than pricing 37

38. 38 Questions?

39. 39 Thank You!