Investor Presentation General Obligation State Road Bonds, Series - - PowerPoint PPT Presentation

Investor Presentation

General Obligation State Road Bonds, Series 2019A

November 21, 2019

Disclaimer

Investor Presentation 2

This investor presentation that you are about to view is provided as of November 21, 2019 for a proposed offering of the State of West Virginia, General Obligation State Road Bonds (the “Bonds”). This presentation has been prepared for information purposes only and for your sole and exclusive use in connection with the proposed transaction. The information contained herein is subject to completion and

• amendment. Any offer or solicitation with respect to the Bonds will be made by means of a final official statement. If you are viewing this

investor presentation after the date stated above, events may have occurred that have a material adverse effect on the financial information presented. This presentation does not constitute nor does it form part of an offer to sell or purchase, or the solicitation of an offer to sell or purchase, any securities or an offer or recommendation to enter into any transaction described herein nor does this presentation constitute an offer, commitment or obligation on the part of the issuer to provide, issue, arrange or underwrite any financing or enter into any other transaction. You will be responsible for making your own independent investigation and appraisal of the risks, benefits, appropriateness and suitability of the proposed transaction and any other transactions contemplated by this presentation and neither the issuer nor the underwriter is making any recommendation (personal or otherwise) or giving any investment advice and will have no liability with respect thereto. The issuer makes no representation or warranty as to the (i) accuracy, adequacy or completeness of any information in this investor presentation or (ii) legal, tax or accounting treatment of any purchase of Bonds by you or any other effects such purchase may have on you and your affiliates. This investor presentation contains “forward‐looking” statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results may differ materially from those expressed or implied by such forward‐looking statements. Accordingly, we caution you not to place undue reliance on these statements. All statements other than the statements of historical fact could be deemed forward‐looking. All opinions, estimates, projections, forecasts and valuations are preliminary, indicative and are subject to change without notice. THE PRINTING, DUPLICATING, DOWNLOADING, SCREEN CAPTURING, ELECTRONIC STORING, RECORDING, PUBLISHING OR DISTRIBUTING OF THIS INVESTOR PRESENTATION IN ANY MANNER IS STRICTLY PROHIBITED. By viewing this investor presentation you acknowledge that you understand and agree to the provisions of this page.

Transaction Summary

Investor Presentation 3

Competitive 2019 A Bonds sale date is December 3rd

General Obligation State Road Bonds, Series 2019 A Par Amount $600,000,000 Method of Sale Competitive Use of Proceeds Highway, bridge and secondary road construction in the State Tax Status Federally Tax‐Exempt, State of West Virginia Tax‐Exempt Final Maturity June 1, 2044 Maturities* Semi‐annual principal payments Serial Bonds: 12/1/2022 – 6/1/2044 Denominations $5,000 Interest Payment Dates December 1st and June 1st, commencing June 1, 2020 Security See “Security” slide herein Optional Redemption* June 1, 2029 Current Ratings (M/S/F) Aa2 / AA‐ / AA Sale Date December 3, 2019 Closing Date December 17, 2019 Financial Advisor Public Resources Advisory Group, Inc.

Overview of the State of West Virginia

• The State of West Virginia, also known as the Mountain

State, was created by Presidential proclamation effective

• n June 20, 1863
• Located in the South Atlantic region of the United States,

West Virginia is bordered by the states of Maryland, Pennsylvania, Ohio, Kentucky and Virginia

• Located within 500 miles of half of the United States

population and a third of Canada's, West Virginia is well positioned as a desirable, affordable and easily accessible tourist destination

• West Virginia has 24,077 square miles of land area, an

average elevation of 1,500 feet and a population of approximately 1.82 million

• The ancient geological events that created West

Virginia's scenic mountains also endowed it with extensive deposits of high quality coal, natural gas, petroleum, limestone, salt and sand

• West Virginia’s economy has a long tradition of mining

and energy production, as well as related industries, such as chemicals, steel, cement and glass production

Investor Presentation 4

Economic Highlights

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• West Virginia is in a state of transition with energy mix switching from coal to natural gas
• Natural gas production up more than four‐fold since 2011 to nearly 1.8 trillion cubic feet
• Growth in supply exceeds current pipeline infrastructure
• Coal production down 40% since 2008: rebounded from 79.8 million tons in 2016 to 95.5

million tons by 2018; Easing back during last quarter of 2019

• The State’s real Gross Domestic Product (GDP) improved in three consecutive quarters,

increasing 9.3%, 1.8% and 5.2% during the third, fourth and first quarters for 2018‐2019, respectively.

• Seasonally adjusted non‐farm private sector payroll employment is up 10,500 jobs or 1.5% in

2018 over 2017.

• State performance compared to the rest of the nation
• WV personal income (nominal) rose by 5.1% in 2018 versus U.S. increase of 5.6%
• WV ranked 6th highest in per capita personal income growth in 2018 at 5.8% versus U.S. increase of 4.9%
• State’s unemployment rate of 4.6% in August 2019 versus 3.7% for the U.S.

Investor Presentation

West Virginia Wage and Income Figures Continue to Grow

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74.4% 72.8% 80.1% 74.1% 75.1% 70.0% 72.0% 74.0% 76.0% 78.0% 80.0% 82.0% 84.0% WV‐U.S. Ratio

WV – U.S. Per Capita Income Ratio – 1990‐2018 Source: U.S. Bureau of Economic Analysis

Investor Presentation

Civilian Unemployment Rates – 2010 ‐ 2018

Source: West Virginia Workforce; United States Department of Labor, Bureau of Labor Statistics.

3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 West Virginia United States

Personal Income and Consumers Sales Tax Growth Improved in Recent Years

Investor Presentation 7

Personal Income and Consumer Sales Tax Revenue Personal Income and Consumer Sales Tax Growth Rate

*The actual dollar amounts for Fiscal Year 2019 are unaudited.

1,803 1,814 1,920 2,097 2,155 1,231 1,222 1,247 1,370 1,390 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200 $2,400 FY2016 ACTUAL FY2017 ACTUAL FY2018 ACTUAL FY2019 ACTUAL* FY2020 BUDGET

Millions

Personal Income Taxes Consumer Sales Taxes

Source: State Budget Office ‐ Reports and Charts.

‐2.0% 0.6% 5.8% 9.2% 2.8% 0.3% ‐0.7% 2.0% 9.9% 1.5% ‐3.0% ‐1.0% 1.0% 3.0% 5.0% 7.0% 9.0% 11.0% FY2016 ACTUAL FY2017 ACTUAL FY2018 ACTUAL FY2019 ACTUAL* FY2020 BUDGET Personal Income Taxes Consumer Sales Taxes

394,125 1,799,097

500,000 1,000,000 1,500,000 2,000,000 2011 2012 2013 2014 2015 2016 2017 2018

Severance Taxes Improved from the low in 2016

WV Natural Gas Production

Million Cubic Feet

WV Coal Production

Total Tons Produced

Investor Presentation 8

157,778,087 95,364,743

60,000,000 110,000,000 160,000,000 2008 2010 2012 2014 2016 2018

Gains in Natural Gas are Offsetting Reduced Coal Production

Severance Tax Revenues

Source: United States Energy Information Administration, Natural Gas Wellhead Value and Marketed Production Report. Source: U. S. Energy Information Administration 2016 Coal Report (November 2017) and Coal Data Browser (Aggregate Coal Mine Production ‐ Total 2016). Source: State Budget Office ‐ Reports and Charts.

$276 $321 $346 $462 $377 $250 $300 $350 $400 $450 $500 FY2016 ACTUAL FY2017 ACTUAL FY2018 ACTUAL FY2019 ACTUAL FY2020 BUDGET

Millions

*The actual dollar amounts for Fiscal Year 2019 are unaudited.

Economic Growth and New Revenue Measures have Contributed to Higher Gen Rev Fund Revenues

Investor Presentation 9

FY2016‐2020 General Revenue Fund – Budgetary Basis

Statement of Revenues, Expenditures & Changes in Fund Balance (In Thousands) COMPONENT FY2016 FY2017 FY2018 FY2019 FY2020 ACTUAL ACTUAL ACTUAL ACTUAL* BUDGET Personal Income Taxes $1,803,311 $1,813,866 $1,919,570 $2,096,807 $2,154,880 Consumer Sales Taxes 1,231,044 1,222,283 1,247,031 1,370,157 1,390,260 Severance Taxes 276,440 321,031 345,914 462,451 376,800 Corporate Taxes 143,605 116,306 110,068 198,032 136,980 Business & Occupation Taxes 119,174 111,885 115,003 124,523 123,000 Other Taxes 245,211 344,062 331,431 329,693 338,300 Excess Lottery Transfer 84,164 65,464 65,457 65,364 65,000 Licenses, Permits & Fees 8,743 8,666 8,161 8,395 37,280 Departmental Charges 19,029 19,134 22,554 22,756 24,000 Investment Earnings 2,509 6,045 7,846 27,776 30,000 Other 169,445 137,768 72,223 50,382 33,700 TOTAL $4,102,675 $4,166,510 $4,245,258 $4,756,336 $4,710,200

Source: State Budget Office ‐ Reports and Charts. *The actual dollar amounts for Fiscal Year 2019 are unaudited.

FY 2020 Budget Summary

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• No Rainy Day funds used to balance FY 2020 budget
• Rainy Day funds continue to be among the best in the country. Over $830 million as of

October 31, 2019. The percentage of Rainy Day funds as of October 31, 2019 to Fiscal Year 2019 total appropriations was 17.74%.

• Second consecutive year of an average of 5% pay raises for teachers and public

employees recommended and funded by the Governor

• The Medicaid Program ended FY 2019 with a robust State matching share cash balance
• 100% of Actuarially Determined Contributions for all state pension plans are funded in

the FY 2020 budget

• Major new dollars for Social Services and deferred maintenance
• Stabilized Public Employee Insurance Agency (“PEIA”) with an additional $105 million

contribution

Investor Presentation

State has Robust Rainy Day Fund Balances

Investor Presentation 11

Rainy Day Balance at End of Fiscal Year

(except where noted)

17.74%

$556 $659 $851 $914 $956 $869 $779 $652 $710 $753 $833 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 10/31/2019

Millions

Source: State Budget Office ‐ Reports and Charts ‐ Other Reports (Rainy Day Fund).

State has Strong Financial Management Practices

Investor Presentation 12

Institutionalized policies and practices have worked throughout economic cycles:

• Six‐year budget and financial plan is a guide for policy makers
• Previous reductions in base budget expenditures
• Ongoing monitoring of revenue and expenses
• Lottery revenue forecasts ensure flexibility
• Commitment to retain adequate reserves
• Reserves automatically replenished through budget surpluses

Financial Management Practices

State is Committed to Reducing Long‐Term Liabilities

Investor Presentation 13

• Pensions
• Continued faithful commitment to fully funding PERS and TRS with paying 26 consecutive years of the

40 year plan

• Consistent funding, dedicated surplus use, level dollar amortization and tier 2 cost saving program
• Workers’ Compensation Old Fund
• In 2006, the State’s liability was $2.25 billion and in 2019 the liability has been reduced to $50 million
• Other Post Employment Benefit Plan
• OPEB fund created in FY2007 with dedicated revenues since FY2017
• Plan projected to be fully funded by 2037

Commitment to Reducing Long‐term Liabilities

State has Improved Pension Funding Levels

Investor Presentation 14

Improved Public Employees Retirement System (PERS) and Teachers’ Retirement System (TRS) % Funded

79.7% 78.4% 79.7% 86.8% 91.5% 92.9% 41.3% 53.7% 57.9% 66.0% 67.1% 69.6% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 2009 2011 2013 2015 2017 2018 PERS TRS

Source: CPRB Comprehensive Annual Financial Report (CAFR), Fiscal Years Ended June 30, 2018.

Roads to Prosperity Program Legislation

Investor Presentation 15

• The Legislature passed a series of funding measures that, collectively, could generate up to $2.8

billion for highway and bridge construction and maintenance in the State over the next 7‐10 years

• Included in the funding measures was Senate Bill 1006, which is expected to add approximately

$150 million of revenues annually to the State Road Fund by the following measures, all becoming effective July 1, 2017:

• Increasing certain registration fees charged by the Division of Motor Vehicles
• Raising the floor on the average wholesale price of gas subject to the motor fuel excise tax and

thereby increasing the motor fuel excise tax by 3.5 cents/gallon

• Increasing the consumer sales tax on motor vehicle sales from 5% to 6%

The West Virginia Legislature has passed several measures to increase transportation funding that is designed to improve the State’s roads and bridges, create jobs and boost the economy

Increased Taxes and Fees Deposited to State Road Fund

Investor Presentation 16

Tax increases effective as of July 1, 2017 have produce over $150 million in incremental annual revenues to support $1.6 billion in RTP GO State Road Bonds

Revenue Enhancement Description FY 2017 (Actual) FY 2018 (Actual) FY2019 (Actual)* Change (2017 to 19) Motor Fuel Taxes Reset the floor priced used to calculate the Wholesale Gas Tax from $2.34/gallon to $3.04/gallon, increasing the Motor Fuel Tax by 3.5 cents/gallon $381,304 $419,644 $443,428 $62,124 Consumer Sales Tax Increased Sales Tax on motor vehicles from 5% to 6% (except leases) 204,111 227,418 236,137 32,026 Vehicle / License Fees Increases fees charged by the West Virginia Division of Motor Vehicles for annual vehicle registration fees and license and

• ther fees

104,354 148,546 168,785 64,431 Total $689,769 $795,608 $848,350 $158,581

ROADS TO PROSPERITY

Senate Bill 1006

Source: West Virginia Department of Revenue. *The actual dollar amounts for Fiscal Year 2019 are unaudited.

State Road Fund Revenues have significantly increased due to new Taxes and Fees

Investor Presentation 17

Historical State Revenue Components

• Motor Fuel Taxes:
• Motor Fuel Excise Tax: Flat rate equal to 20.5 cents/gallon plus a variable component equal to 5% of the wholesale price of motor fuel
• Motor Carrier Road Tax: Equal to the flat rate component of the motor fuel excise tax listed above and imposed on every motor carrier traveling on or over

roads in the State

• Motor Vehicle Sales Tax: Imposed on sales of motor vehicles to West Virginia residents at a rate of 6% of the net sales price
• License/Registration Fees: Imposed by Chapter 17A of the West Virginia Code (increased in 2017)
• Highway Litter Control: One dollar for each certificate of registration and renewal
• Miscellaneous Revenue: Includes interest on investments, map sales, permits, etc.

State Road Fund: Statement of State Revenue Components by Source (In Thousands) FY2015 FY2016 FY2017 FY2018 FY2019 (Actual) (Actual) (Actual) (Actual) (Actual)* Motor Fuel Taxes $434,853 $396,397 $381,304 $419,644 $443,428 Motor Vehicle Sales Tax 206,026 206,247 204,111 227,418 236,137 License/Registration Fees 100,601 86,983 104,354 148,546 168,785 Highway Litter Control 1,517 1,853 1,876 1,480 1,666 Miscellaneous Revenue 26,674 26,737 26,208 52,471 122,671** Total $769,671 $718,218 $717,853 $849,559 $972,687

Source: West Virginia Budget Office. Projections revised as of April 2018. *The actual dollar amounts for Fiscal Year 2019 are unaudited. ** Includes $104,000,917 in General Revenue Fund appropriations in Fiscal Year 2019.

RTP General Obligation State Road Bonds

Investor Presentation 18

• On October 7, 2017, voters approved the Roads to Prosperity Amendment of 2017

authorizing the issuing and selling of General Obligation State Road Bonds in the following amounts over a four‐year period:

Fiscal year beginning July 1, 2017, an amount not to exceed $800 million;

• Fiscal year beginning July 1, 2018, an amount not to exceed $400 million;
• Fiscal year beginning July 1, 2019, an amount not to exceed $200 million; and
• Fiscal year beginning July 1, 2020, an amount not to exceed $200 million.
• Any bonds not issued during the respective fiscal year may be carried forward and issued

in any subsequent year before July 1, 2021

Voter approval of the $1.6 billion demonstrates a State‐wide commitment to rebuilding the State’s roads

Note: Boxed information represents authorizations for the issuance of the 2019A Bonds.

Security Features of the Bonds

Investor Presentation 19

General Obligation Bonds with additional credit features provided by the Bond Act

• The Bonds are a direct and general obligation of the State backed by its full faith and credit
• The State has committed to make appropriations from the State Road Fund for deposit into the Roads to Prosperity Debt Service Fund

(“RTP DSF”) to pay debt service on the Bonds

• To the extent that revenues of the State Road Fund are insufficient in any year to satisfy debt service requirements, the State is obligated

to implement an annual State tax to pay the debt service on the Bonds

• Dedicated Taxes: Section 14(a) of the Bond Act requires that an annual amount from the collections of the motor fuel tax, the motor

vehicle sales tax and certain registration and other fees collected by the State Division of Motor Vehicles, that are required to be deposited into the State Road Fund, be dedicated to pay debt service on the Bonds

• Segregated Payment Account: Section 3 of the Bond Act creates the RTP DSF into which all amounts appropriated by the Legislature from

the State Road Fund shall be deposited

• Accelerated Monthly Funding: Section 14(b) of the Bond Act provides that, beginning in the month of July in the first fiscal year in which

the first interest payment on the Bonds is due, and monthly thereafter for the first ten months, there shall be deposited into the RTP DSF an amount equal to 1/10th of the projected debt service requirements from moneys appropriated by the Legislature

• Finally, in the event of late budget in any year, Governor has plenary power and authority to, by Executive Order, direct payment on the

Bonds

Statutory provisions governing security for the Bonds includes:

$0 $50 $100 $150 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 Millions Series 2019A Debt Service Existing SRF Bonds

2019 A Bonds Estimated Sources and Uses

Estimated Sources and Uses of Funds Sources: 2019A Par Amount $600,000,000.00 Premium 142,969,296.20 Deposit from SRF 3,576,075.00 Total Sources $746,545,371.20 Uses: Project Fund $742,969,296.20 Issuance Costs 3,576,075.00 Total Uses $746,545,371.20

• The 2019 A Bonds will be issued with a par

amount of $600 million.

• The 2019 A Bonds will have semi‐annual

principal repayment with December 1 and June 1 maturity dates commencing December 1, 2022.

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Pro Forma 2019 A Debt Service

Investor Presentation

Plan of Finance

Maturity 2019A Maturity 2019A 12/1/2022 $7,640,000 12/1/2033 $13,150,000 6/1/2023 7,830,000 6/1/2034 13,480,000 12/1/2023 8,025,000 12/1/2034 13,815,000 6/1/2024 8,225,000 6/1/2035 14,160,000 12/1/2024 8,430,000 12/1/2035 14,515,000 6/1/2025 8,640,000 6/1/2036 14,880,000 12/1/2025 8,860,000 12/1/2036 15,250,000 6/1/2026 9,080,000 6/1/2037 15,630,000 12/1/2026 9,305,000 12/1/2037 16,020,000 6/1/2027 9,540,000 6/1/2038 16,420,000 12/1/2027 9,780,000 12/1/2038 16,835,000 6/1/2028 10,020,000 6/1/2039 17,255,000 12/1/2028 10,275,000 12/1/2039 17,685,000 6/1/2029 10,530,000 6/1/2040 18,125,000 12/1/2029 10,795,000 12/1/2040 18,580,000 6/1/2030 11,060,000 6/1/2041 19,045,000 12/1/2030 11,340,000 12/1/2041 19,520,000 6/1/2031 11,620,000 6/1/2042 20,010,000 12/1/2031 11,915,000 12/1/2042 20,510,000 6/1/2032 12,210,000 6/1/2043 21,020,000 12/1/2032 12,515,000 12/1/2043 21,545,000 6/1/2033 12,830,000 6/1/2044 22,085,000 Total $600,000,000

Plan of Finance

Investor Presentation 21

2019A Preliminary Amortization Structured with Semi‐Annual Principal Payments

Timetable and Contact Information

Date Event

• Nov. 21st

Mail Preliminary Official Statement

• Dec. 3rd

Competitive Bond Sale

• Dec. 17th

Closing

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Contact Phone / Email Christine Fay PRAG (610) 565‐5990 cfay@pragadvisors.com Jessica Donnelly PRAG (610) 565‐5990 jdonnelly@pragadvisors.com Tom Huestis PRAG (212) 566‐7800 thuestis@pragadvisors.com

Investor Presentation

NOVEMBER 2019

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DECEMBER 2019

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