1. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 Borrowing and Refinancing in the Current Market April 29, 2015 Robert LewisKyle Harding PMA Securities, Inc.Chapman and Cutler LLP (630) 657-6445(312) 845-3278 rlewis@pmanetwork.comharding@chapman.com 3772200

2. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 MARKET UPDATE 1

3. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 2 *The Municipal Market Data “MMD” is a AAA municipal bond market index produced by TM3. As of April 3, 2015 HISTORICAL INTEREST RATE GRAPH (1990-PRESENT)

4. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 3 *The Municipal Market Data “MMD” is a AAA municipal bond market index produced by TM3. As of April 3, 2015 HISTORICAL INTEREST RATE GRAPH (2013-PRESENT)

5. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 COMPARATIVE MUNICIPAL INTEREST RATES Below are ESTIMATED Bank Qualified (“BQ”) tax-exempt, non-BQ tax-exempt and taxable borrowing rates for an underlying ‘Aa2’ rated credit from Moody’s Investors Service While BQ rates offer the lowest interest-cost financing option, there is a $10 million annual tax- exempt financing limit should an issuer choose the BQ financing option. 4 ESTIMATED INTEREST RATES FOR A TYPICAL “AA2” RATED ISSUER

6. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 CURRENT ECONOMIC CONDITIONS 5

7. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 EAVs are stagnant or declining Tax rates are rising Taxpayer dissatisfaction growing State reaction: –Legislation attempted to limit CPI increase in years where EAV declines (so far no legislation has passed) –Pension reform may include local cost shift, even while State support of schools (GSA/Categorical Aid) has declined Local reaction: –School districts caught between rising costs and lower State revenue –Pressure on districts to maintain or reduce taxes and/or make operational cuts –The B&I levy is the only significant levy that can be modified without impacting operating revenues –Consider refunding/restructuring opportunities for existing bonds –Balance cost of restructuring versus current political situation regarding property taxes 6 POST-GREAT RECESSION PUBLIC FINANCE

8. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 REFUNDING BASICS 7

9. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 HOW REFUNDING BONDS MIGHT HELP A SCHOOL DISTRICT Bond & Interest (B&I) levies (for each bond) are set at the time the bond is sold and are filed with the county clerk prior to closing Refundings allow the issuer to change B&I levies: -Lower interest rates may allow savings from a refinancing (new, lower B&I levies replace existing B&I levies) -Restructure existing debt service levies based on lower EAV projections for a targeted B&I tax levy over time -Change the focus from B&I tax rate to B&I levy -The district can control the levy but can not readily control the B&I tax rate -A combination that captures savings and restructures debt service with a specific B&I property tax objective 8

10. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 STATE LAW AUTHORIZATION Refunding Bonds are authorized under Section 19-15 of the School Code Refunding Bonds may be issued to pay outstanding bonds in order to: –Realize interest savings –Restructure debt burden State law: max term of refunding bonds is 20 years Tax law: if refunding bonds are tax-exempt, average life of refunding bonds cannot exceed 120% of useful life of asset financed (or refinanced) with refunded bonds Tax levies for Refunded Bonds must be abated No BINA Hearing required No 30-day Petition Period required However, when refunding a working cash bond, the District may want to consider refunding it with a funding bond 9

11. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 BASIC TYPES OF REFUNDINGS The optional call date is the date at which the issuer can payoff its bond issue Advance refunding –Refunding bond issue that closes 91 or more days in advance of the call date –Refunding proceeds invested in an escrow until the call date –The U.S. tax code only allows for one tax-exempt advance refunding in the “life” of a bond issue –The Government Finance Officer Association recommends an advance refundings should generate a minimum of 3% to 5% in savings Current refunding –Current refunding bonds need to close within 90 days of the call date –At this time, U.S. tax code allows for multiple current refundings Throughout this presentation, “tax-exempt” refers to federally tax- exemption only and does not refer to state or local taxes 10

12. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 Proceeds of Refunding Bonds retire Original Bonds Refunding Bond proceeds may be held for 90 days or less by an escrow agent or prior paying agent if the Original Bonds are not paid or redeemed at the closing of the Refunding Bonds CURRENT REFUNDING 11 Refunding Bonds - New B&I levy schedule filed with the clerk(s) Original Bonds - All or a portion of existing B&I levy(s) abated with the clerk(s)

13. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 Proceeds of Refunding Bonds establish escrow for payment of debt service on Original Bonds ADVANCE REFUNDING 12 Original Bonds - All or a portion of existing B&I levy(s) abated with the clerk(s) Refunding Bonds - New B&I levy schedule filed with the clerk(s) Escrow Account is established with Refunding Bond proceeds The escrow funds are used to purchase securities; securities earn interest at some rate (must be below yield on refunding bonds) Escrow Account pays principal and interest on Original Bonds until maturity or redemption at the call date

14. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 EXAMPLES 13

15. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 RESTRUCTURE PRIOR REFERENDUM OBJECTIVE - EXAMPLE 1 14

16. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 RESTRUCTURE PRIOR REFERENDUM OBJECTIVE - EXAMPLE 1 (CONT’D.) 15 The restructuring plan entails gradual increases until the payment can be “leveled off” The restructuring should be done is phases due to the following factors –In some cases the call dates are several years out so the escrow established to advance refund the bonds would be inefficient –Some of the bonds to be refunded are not eligible for an advance refunding so the refunding bonds would have to be sold as taxable which can be 1.0% to 1.5% higher –The “Illinois Premium” paid by local issuers may go down in time –The District’s credit rating may improve overtime due to the District’s improved finances and procedures Waiting does entail market risk and tax law risk, but there are several known factors listed above that increase the cost of refinancing

17. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 RESTRUCTURE PRIOR REFERENDUM OBJECTIVE - EXAMPLE 1 (CONT’D.) 16

18. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 RESTRUCTURE PRIOR REFERENDUM OBJECTIVE - EXAMPLE 2 17 The B&I levy is typically a much smaller percentage of the overall property tax levy (i.e. 15% to 25%) A district may be willing to accept a larger annual B&I levy increase since it is blended with a smaller annual operating rate increase So the overall increase combined will be approximately 0.3% - 0.5% higher than the consumer price index (CPI) For example, assuming a CPI of 2.0%, the overall levy increase will be approximately 2.3% - 2.5% higher The example restructuring plan on the next slide incorporates annual B&I levy increases of about 2.5% PMA has worked on plans with a range of 2.5% to 4%

19. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 RESTRUCTURE PRIOR REFERENDUM OBJECTIVE - EXAMPLE 2 (cont’d.) 18

20. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 NON-REFERENDUM BORROWING NEED Districts may issue non-referendum GO bonds However, for a school district in a tax capped county to levy for the annual debt service (principal and interest) payments on non-referendum general obligation bonds it must have a Debt Service Extension Base (DSEB) The DSEB is determined as the amount of non-referendum debt service levied for in the levy year tax caps first applied A restructuring may be utilized to allow a district to access DSEB capacity than other alternatives 19

21. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 NON-REFERENDUM BORROWING NEED (cont’d.) 20 A district has a $10 million borrowing need

22. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 NON-REFERENDUM BORROWING NEED (cont’d.) 21 Option 1: Issue Capital Appreciation Bonds (“CABS”) CABS do not increase debt service in the first 10 years.

23. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 NON-REFERENDUM BORROWING NEED (cont’d.) 22 Option 2: Strip refunding of existing bonds –Structure allows for a current interest bond financing –Could be more cost effective depending on the purpose and optional redemption features of existing bonds

24. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 NON-REFERENDUM BORROWING NEED (cont’d.) Summary: Alternative Benefits –Debt service in Option 2 is $3.2 million less than CAB option –Debt service savings can be used to increase bond proceeds or used for future financings –Refunding bonds and new money bonds are callable 23

25. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 OTHER REFUNDING CONSIDERATIONS 24

26. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 VALUING POTENTIAL REFUNDINGS Traditionally, the value is measured by the minimum present value (PV) savings as a percent of the refunded bonds par amount –Effectiveness of minimum PV Savings % as a measuring tool depends upon other factors Time to the call date (is it already a current refunding?) Current interest rates relative to historical interest rates and interest rate expectations Shape of the yield curve which impacts the cost of the escrow Some practitioners recommend that PV savings should at least exceed the negative arbitrage in the escrow –Simplified measure of opportunity cost for exercising the call option Call option valuation model to compute a refunding efficiency percentage –Complex model that utilizes statistical simulation to value a call option 25

27. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 VALUING POTENTIAL REFUNDINGS (cont’d.) It is not necessary to refund all the callable bonds –Bonds closer to the call sometimes save little or not at all –Identify the relative value versus the current yield curve (i.e. where does bank qualification provide the most value) Lastly, a refunding should consider future borrowing plans –If the issuer has potential new money plans in the next few years, it may want to consider a restructuring of outstanding bonds to minimize the impact of the new money issue –If the bonds are refunded today for cash flow savings, the cost of the restructuring may increase which may eliminate the savings Due to lengthening of the issue Eligibility for tax-exempt refunding not available 26

28. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 27 SLGS WINDOW CLOSED

29. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 SLGS VS. OPEN MARKET ESCROWS On typical advance refunding, escrow funds are used to purchase U.S. Treasury Securities – State and Local Government Series (SLGS) SLGS program established by the U.S. Treasury to assist issuers of tax- exempt debt from earning arbitrage SLGS program is currently not available [“window” closed March 6, 2015] Consequence for issuers: may need to hire third party to bid out escrow Providers submit portfolios of open market Treasury securities to bidding agent; bidding agent selects lowest cost portfolio When SLGS are available, 4-6 escrows bid each day When SLGS are not available, 30-35 escrows bid each day Tax regulations provide a safe harbor for fair market value of escrow securities if three bids are received; if three bids are not received, in an IRS examination, issuer must prove it paid fair market value for escrow securities 28

30. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 29 REFUNDING EXAMPLE

31. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 SERIES 2007 BONDS Series 2007 Bonds Issued to improve buildings -$3,680,000 of principal due December 15, 2015 through 2027 $2,995,000 of this amount due December 15, 2018 through 2027 is callable December 15, 2017 -Average interest rate of the callable bonds is 4.45% -Eligible for either a tax-exempt advance or current refunding The District would have to wait until late 2017 to refund the 2007 Bonds as a current refunding 30

32. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 ADVANCE REFUNDING OPTION FOR SERIES 2007 BONDS CURRENT MARKET CLOSING DATE: JUNE 2015 31

33. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 ADVANCE REFUNDING OPTION FOR SERIES 2007 BONDS CURRENT MARKET CLOSING DATE: JUNE 2015 The maximum allowable escrow yield is higher than the yield from the escrow investments which reduces the amount of PV savings (“Negative Arbitrage”) 32

34. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 CURRENT REFUNDING OF SERIES 2007 BONDS Alternatively, the District can continue to wait to shorten the escrow period Results in a current refunding of a portion of the callable 2007 Bonds -Based on current market conditions, the estimated interest savings on a present value basis is $302,000 (actual interest reduction is estimated at $345,000) -Earliest possible closing date is September 2017 -Negative arbitrage is reduced to only $15,000 Actual savings depend upon market conditions at the time of the refunding If rates increase by approximately 85-95 basis points, present value savings in September 2017 would be the same as doing an advance refunding now 33

35. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 PROPOSED CURRENT REFUNDING OF SERIES 2007 BONDS CURRENT MARKET CLOSING DATE: SEPTEMBER 2017 34

36. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 35 ALTERNATE ESCROW INVESTMENTS

37. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 OPTIONS TO INCREASE SAVINGS - ESCROW OPTIMIZATION Alternatively, the issuer may benefit potentially from the yields of bonds issued by the State of Illinois IL GOs can increase the escrow yield thereby reducing or eliminating negative arbitrage However, by investing in IL GOs instead of US Treasuries the issuer accepts some additional risk 36

38. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 RISKS RELATED TO REFUNDING WITH ILLINOIS GO BONDS Credit Risk –The issuer has State of Illinois (A3/A-) Credit Risk –The issuer assumes Illinois credit risk, meaning that there is a risk to the issuer that the State of Illinois bonds do not pay its obligated debt service payments to issuer’s escrow –If this occurs, the issuer would need to find another source for payment of the refunded bonds since they are still a full obligation of the issuer –Ultimately, the credit rating of Illinois is the risk that drives the value of a credit- spread refunding –States can not declare bankruptcy (1) –State of Illinois law dictates that monthly revenues be allocated first for GO debt service requirements (1) Debt Limit –Investing in State of Illinois GO Bonds does not defease the issuer’s bonds so they still count against the debt limit, if applicable 37 (1) Source: Moody's Investors Service, “Why States are Better Credit Risks Than Almost All US Corporates”

39. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 RISKS RELATED TO REFUNDING WITH ILLINOIS GO BONDS (cont’d.) Interest Rate Risk –As is the case with any refunding, the issuer takes risk that it locks in interest rates when they are not at an all-time low –This risk is present when deciding to do any fixed rate refunding State of Illinois GO Bond Liquidity Risk –State of Illinois GO Bonds are traded less frequently than US Treasury securities –Thus, the issuer runs the risk of being unable to purchase the necessary State of Illinois GO Bonds to achieve the desired refunding results at favorable interest rates, if at all State of Illinois GO Bond Call Risk –Some State of Illinois GO Bonds are subject to a “make-whole” call –If the State were to exercise its call, it redeems the called bonds at price calculated at U.S. Treasuries plus 0.4% or 0.5% 38

40. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 DISCLAIMER The information contained herein is solely intended to suggest/discuss potentially applicable financing applications and is not intended to be a specific buy/sell recommendation, nor is it an official confirmation of terms. Any terms discussed herein are preliminary until confirmed in a definitive written agreement. The analysis or information presented herein is based upon hypothetical projections and/or past performance that have certain limitations. No representation is made that it is accurate or complete or that any results indicated will be achieved. In no way is past performance indicative of future results. Changes to any prices, levels, or assumptions contained herein may have a material impact on results. Any estimates or assumptions contained herein represent our best judgment as of the date indicated and are subject to change without notice. Examples are merely representative and are not meant to be all-inclusive. The information set forth herein was gathered from sources which we believe, but do not guarantee, to be accurate. Neither the information, nor any options expressed, constitute a solicitation by us for purposes of sale or purchase of any securities or commodities. Investment/financing decisions by market participants should not be based on this information. You should consider certain economic risks (and other legal, tax, and accounting consequences) prior to entering into any type of transaction with PMA Securities, Inc. or PMA Financial Network, Inc. It is imperative that any prospective client perform its own research and due diligence, independent of us or our affiliates, to determine suitability of the proposed transaction with respect to the aforementioned potential economic risks and legal, tax, and accounting consequences. Our analyses are not and do not purport to be appraisals of the assets, or business of the District or any other entity. PMA makes no representations as to the actual value which may be received in connection with a transaction nor the legal, tax, or accounting effects of consummating a transaction. PMA cannot be relied upon to provide legal, tax, or accounting advice. You should seek out independent and qualified legal, tax, and accounting advice from outside sources. This information has been prepared for informational and educational purposes and does not constitute a solicitation to purchase or sell securities, which may be done only after client suitability is reviewed and determined. Securities, public finance and institutional brokerage services are offered through PMA Securities, Inc. PMA Securities, Inc. is a broker-dealer and municipal advisor registered with the SEC and MSRB, and is a member of FINRA and SIPC. Prudent Man Advisors, Inc., an SEC registered investment adviser, provides investment advisory services to local government investment pools. All other products and services are provided by PMA Financial Network, Inc. PMA Financial Network, Inc., PMA Securities, Inc. and Prudent Man Advisors (collectively “PMA") are under common ownership. Securities and public finance services offered through PMA Securities, Inc. are available in CA, CO, FL, GA, IL, IN, IA, KS, MI, MN, MO, NE, OH, OK, PA, SD, TX and WI. This document is not an offer of services available in any state other than those listed above, has been prepared for informational and educational purposes only and does not constitute a solicitation to purchase or sell securities, which may be done only after client suitability is reviewed and determined. All investments mentioned herein may have varying levels of risk, and may not be suitable for every investor. For more information, please visit us at www.pmanetwork.com. © 2015 PMA Securities, Inc. For institutional use only. 39

41. 64 th ILLINOIS ASBO CONFERENCE AND EXHIBITIONS APRIL 29 – MAY 1, 2015 @IllinoisASBO #iasboAC15 This document has been prepared by Chapman and Cutler LLP attorneys for informational purposes only. It is general in nature and based on authorities that are subject to change. It is not intended as legal advice. Accordingly, readers should consult with, and seek the advice of, their own counsel with respect to any individual situation that involves the material contained in this document, the application of such material to their specific circumstances, or any questions relating to their own affairs that may be raised by such material. © 2015 Chapman and Cutler LLP 40