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Welcome

CDFA – BNY Mellon Development Finance Webcast Series: Insider’s Look at Private Activity Bond Volume Cap The Broadcast will begin at 1:00pm (EDT).

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Erin Tehan

Legislative & Federal Affairs Coordinator Council of Development Finance Agencies Columbus, OH

Insider’s Look: Private Activity Bond Volume Cap

CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net

CDFA – BNY Mellon Development Finance Webcast Series:

Insider’s Look at Private Activity Bond Volume Cap

This Webcast is a listen-only event. Please make sure your computer speakers are turned on to hear the presentation. You can also listen by selecting “Use Telephone” in the audio tab of the GoToWebinar control panel. To ask a question, type your question into the Question box in the GoToWebinar control panel. CDFA is recording this Webcast, and it will be available to view online at www.cdfa.net.

Insider’s Look: Private Activity Bond Volume Cap

CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net

Speakers

Christine Johnson, Moderator BNY Mellon Jason Rittenberg Roxanne Graham Bill Mandeville Council of Development State of Utah State of Washington Finance Agencies Misti Armstrong California Debt Limit Allocation Committee

Insider’s Look: Private Activity Bond Volume Cap

CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net

Christine Johnson

Product Manager BNY Mellon San Francisco, CA

Insider’s Look: Private Activity Bond Volume Cap

Information Security Identification: Confidential

Overview - Private Activity Bonds

CDFA-BNY Mellon Webcast Presented by Christine Johnson

Global Corporate Trust August 16, 2011

Information Security Identification: Confidential

Overview of Private Activity Bonds

• A Private Activity Bond (PABs) is any bond whose proceeds are used for the benefit
• f a private entity.
• Use Test : >10% of proceeds for beneficial use of private business entity
• Security Test : >10% of debt service is supported by private payment stream
• PABs are taxable unless used for a qualified purposed that would allow them to be

issued as tax-exempt bonds

• 95% of the proceeds of qualified tax-exempt PABs must be used for the qualified

purpose

• PABs are typically subject to AMT (except where specially exempted)
• Most PABs are also subject to volume caps that limit the total bonding capacity for the

specific qualified purpose. These caps vary by state.

• Private Activity Bonds can serve as a key financing tool for Public-Private Partnerships

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Variations on Private Activity Bonds

• Major variations on the PABs:
• Industrial Development Bonds (IDBs)
• Exempt Facility Bonds
• Qualified Redevelopment Bonds
• Qualified Student Loan Bonds
• Qualified 501(c)(3) Bonds
• Mortgage Revenue Bonds
• Recovery Zone Economic Development Bonds
• Further exemptions from AMT for Private Activity Bonds (PABs) and expanded definition
• f Industrial Development Bonds (IDBs) written into the American Recovery and

Reinvestment Act (ARRA).

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Selected Qualified Uses and Volume Caps

Selected Private Activity (Exempt Facilities) Subject to Volume Cap? Airport No Docks and Wharves No Mass Commuting Facilities Yes Water Furnishing Facilities Yes Sewage Facilities Yes Solid Waste Disposal Yes (if privately owned) Qualified Residential Rental Projects Yes Local Electric Energy or Gas Facility Yes Local District Heating and Cooling Yes Qualified Hazardous Waste Yes High Speed Intercity Rail Facilities Yes Industrial Development Bond Yes Qualified Public Educational Facilities No

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National PAB Issuance

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Industrial Development Bonds

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CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net

Jason Rittenberg

Research & Resources Coordinator Council of Development Finance Agencies Columbus, OH

Insider’s Look: Private Activity Bond Volume Cap

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Contact all states’ allocating authorities

• 50 states + DC
• Different structures in different states
• Volunteering to report

Request information on:

• Cap allocation
• Cap carryforward from last year
• PAB issuance
• Cap-related programs (e.g., HERA)
• Expiring cap
• Carryforward to next year

CDFA National Volume Cap Report

CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net

Housing & Economic Recovery Act of 2008 Recovery Zone Bonds Tax credit bond programs High carryforward into 2010

Context for PABs & Cap in 2010

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Volume Cap Capacity: $65.0B Total PAB Issuance: $14.6B Carryforward to 2011: $43.5B

The Big Numbers in 2010

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Issuance Trend: $14.6B

• $11.9B in 2009
• $13.7B in 2008

Industrial Development Bonds: $665.9M

• $946.5M in 2009
• Indiana & West Virginia down $305.5M
• 5 states issue no IDBs in 2010 after issuing in 2009

Housing Bonds (MRB, Multifamily): $7.8B

• $5.7B in 2009
• 37% growth in these categories

2010 PAB Issuance

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Expired/Abandoned Cap: $4.3B Extra Housing Cap Abandoned: $2.2B

• $11B in extra cap expired end of 2010
• Majority of states report using entire allotment

Total Carryforward to 2011: $43.5B

• States carried $41.6B into 2010

Carryforward to 2011

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Will states be able to take advantage of additional capacity? How can we replicate success of additional housing cap? What can be done to improve the use of IDBs?

Questions for 2011 and Beyond

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Roxanne Graham

Program Manager, Private Activity Bond Program

State of Utah, Governor’s Office of Economic Development

Salt Lake City, UT

Insider’s Look: Private Activity Bond Volume Cap

CDFA Webinar – August 16, 2011

Insider’s Look at Utah’s Private Activity Bond Volume Cap

by

Roxanne C. Graham

Volume Cap Accounts

State Legislature Establishes Volume Cap Accounts

• 1. Single Family Account – 42%
• 2. Student Loan Account – 33%
• 3. Small Issue Account – 24%

Multi-family Housing – 12% Manufacturing – 12% Redevelopment Projects - ?% NEW

• 4. Exempt Facility Account – 1%

Allocation Process

Meeting Schedule and Allocation Process

• Private Activity Bond Review Board – 5 meetings

per year; 1st month of each quarter starting in January; closeout meeting in December.

• Volume cap allocations are valid for 90 days.
• Extensions may be granted upon written request.

Usually no more than 4 extensions to any project.

• Extension period is for 90 days.

Volume Cap Movement

Movement of Volume Cap throughout Calendar Year

Balance

• f Pool Account

Available to All Programs

MFG MF

January 1 October 1

Small Issue Account Exempt Facilities Account

July 1

Pool Account Single Family Student Loans

August 15

100% Pool 50% MFG 50% Other QRP

2010 Volume Cap

2010 Volume Cap Allocation Distribution

Account Percent Amount Single Family Mortgages 42% $107,618,700 Student Loans 33% $ 84,557,550 Small Issue 24% $ 61,496,400

Multi-family Housing 12% $30,748,200 Manufacturing 12% $30,748,200

Exempt Facilities 1% $ 2,562,350 Total Volume Cap 100% $256,235,000

2010 Projects

Projects Approved for 2010 Volume Cap Allocation

• Single Family & Student Loan – Combined Total

Volume Cap - $205,331,250

• Manufacturing – 4 projects - $26,800,000; only 2

projects closed using $9,800,000

• Multi-Family Housing – 3 projects - $54,922,771
• CarryForward Amount - $2,876,750
• Split between Single Family & Student Loan Accounts
• HERA – Single Family & 1 Multi-Family Project –

Used Total Cap of $96,550,479

Recovery Zone Bonds

Questions? Please contact: Roxanne C. Graham, Program Director, PAB Program roxanneg@utah.gov; (801) 538-8699

CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net

Bill Mandeville

Bond Allocation & Community Revitalization Manager

State of Washington, Department of Commerce Olympia, WA

Insider’s Look: Private Activity Bond Volume Cap

Washington State Department of Commerce

Bond Cap and Community Revitalization Program

Bill Mandeville CDFA Webinar August 16, 2011

PROGRAM ORGANIZATION

Bond Cap and Community Revitalization

Bond Cap NSP Bond Users Clearinghouse NSP 1 Brownfields NSP 3

Bond Cap and Community Revitalization Business Finances @ Commerce

ALLOCATION PROCEDURE

With the exception of direct allocations to the Washington Housing Finance Commission for housing and local jurisdictions for Energy Conservation Bonds, the following applies: Allocations are made to specific projects. Percentages are set‐aside for projects in specific categories. Set‐asides exist within set‐asides. For example, 40% of Small Issue Industrial Revenue Bonds are reserved for Eastern Washington counties until June No more than 30% of bond cap for Exempt Facilities bonds can be used for any one project until September. After September 1, 50% of the unused cap is reallocated to housing and the remainder is reallocated on an as‐needed basis.

APPLICATIONS

• Project description
• Project budget
• Development schedule
• Underwriting schedule
• List of permits
• Number/type of jobs created and retained
• Employment data
• Housing units created or rehabilitated
• Other documentation

– ESD agreement – EIS, SEPA, NEPA – Architect’s statement – Priority statement

ALLOCATION OF BOND CAP

TOTAL 2011 BOND CAP:$638,831,300

Population 6,724,540 x $95 per capita

2011 BOND CAP ‐ INITIAL ALLOCATIONS BY CATEGORY

Category Percentage Allocation (per RCW 39.86) Initial Allocation Amount Reallocated To Remainder Revised Initial Allocation (A) (B) (A ‐ B) Exempt Facility 20.0% $127,766,260.00 $0.00 $127,766,260.00 Housing‐HFC 25.6% $163,540,812.80 $0.00 $163,540,812.80 Housing‐LHA 6.4% $40,885,203.20 $0.00 $40,885,203.20 Small Issue 25.0% $159,707,825.00 $0.00 $159,707,825.00 Student Loans 15.0% $95,824,695.00 $0.00 $95,824,695.00 Remainder 8.0% $51,106,504.00 $0.00 $51,106,504.00 TOTAL 100% $638,831,300.00 $0.00 $638,831,300.00

TRENDS

$0 $100 $200 $300 $400 $500 $600 $700 Q3 Q4 Q5 Q6 Q7 Q8 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q1 Q2 2008 2009 2010 2011

Cumulative Allocations of Bond Cap Per Year (in millions)

State's Total Bond Cap Allocation Pre‐Great Recession Bond Cap

CURRENT ISSUES:

• CARRYFORWARDS

‐‐ Prior year carryforward amounts have accumulated to create huge depository of bond cap allocation in the Housing Finance Commission. ‐‐ Reduces the demand for the allocation of new bond cap.

• LACK OF HOUSING GROWTH

‐‐ More than half of the BCAP allocation is targeted to housing ‐‐ Makes the program very dependent upon new housing starts.

• LITTLE TO NO CONTROL OVER THE MARKET

‐‐ Very little BCAP can do to increase demand for its tax‐exempt bond products. ‐‐ Low interest rates makes the incentives offered by tax‐exempt bonds less attractive.

CURRENT PROJECTS:

• QUALIFIED ENERGY CONSERVATION BONDS

‐‐ Green Community Program

• HOUSING

‐‐ Foreclosure Mitigation Program ‐‐ Scatter Site Development

• MARKETING AND OUTREACH

‐‐ Strategically market BCAP products to growth areas ‐‐ On‐line access to BCAP application forms

BOND USERS CLEARINGHOUSE

State laws require local jurisdictions to report their bond activity to the Dept. of Commerce Information is stored in the Bond Users Clearinghouse (BUC) database. Commerce uses the data to prepare the following periodic reports: Collect and publish data on all bond issuances in WA

• Monthly spreadsheet
• Bimonthly newsletter
• Annual Public Debt Report

Collect and publish data on local government debt

• Annual survey
• Annual GO Debt Report

CONTACT INFORMATION

Bill Mandeville, AICP Bond Allocation and Community Revitalization Manager Department of Commerce, Local Government Division 1011 Plum Street, Olympia, Washington 98504‐2525 Phone: 360‐725‐3051 Email: bill.mandeville@commerce.wa.gov

CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net

Misti Armstrong

Program Manager California Debt Limit Allocation Committee Sacramento, CA

Insider’s Look: Private Activity Bond Volume Cap

Summer Presentation 1

California Debt Limit Allocation Committee

Sean L. Spear Executive Director Misti Armstrong Program Manager

(916) 653-3255 CDLAC website: http://www.treasurer.ca.gov/cdlac

Summer Presentation 2

Setting the Cap

• The California Debt Limit Allocation Committee (CDLAC) was created

in California to administer the private activity bond ceiling/cap. The cap is based on the states population (est. 2011, 37.2 million). The 2011 formula uses a multiplier of $95 per capita. The cap for 2011 for California is $3.5 billion.

• CDLAC is comprised of three voting members the State Treasurer is

the chair, the State Controller and the Governor. In addition to the voting members CDLAC has three non-voting members comprised of the Director of Housing and Community Development (HCD), the Executive Director for the California Housing and Finance Agency (CalHFA), and a local government representative appointed by the State Treasurer and confirmed by the Committee.

Summer Presentation 3

Program Pools

The Committee has created six (6) program pools for the issuance of tax-exempt private activity

• bonds. CDLAC has adopted Regulations for

allocating the annual state ceiling. The Regulations provide priority for projects or programs that provide the greatest public benefits. The major policy commitment in California is Affordable Housing that policy has been reaffirmed by State Treasurer, Bill Lockyer. The six program allocation pools are outlined as follows:

Summer Presentation 4

Affordable Housing Programs:

Qualified Residential Rental Program

Bond authority for Rental Projects is awarded to three sub-pools:

• General Pool (Projects having more than 50% of total units

designated as Restricted Rental Units)

• Mixed Income Pool (Projects having 50% or fewer of total units

designated as Restricted Rental Units)

• Rural Project Pool (Projects located in a rural area as defined by

California Health and Safety Code Section 50199.21 but shall not include a Mixed Income Project).

Summer Presentation 5

Affordable Housing Programs:

Single-Family Housing Program

State and local governmental agencies and joint powers authorities can issue tax-exempt mortgage revenue bonds (MRBs) or mortgage credit certificates (MCCs) to assist first-time homebuyers to purchase

• homes. These agencies and authorities may issue MRBs, the

proceeds of which back below market interest rate mortgages. As an alternative to issuing MRBs, state and local governmental agencies and joint powers authorities may issue MCCs. Homebuyers use the MCC to reduce their federal tax liability by applying the credit to their net tax due. The reservation or “fairshare” of allocation available to each state and local governmental agency is pre-determined by CDLAC

• annually. A Local’s fairshare of allocation is based on the locality’s

population as compared to the state population.

Summer Presentation 6

Affordable Housing Programs:

Extra Credit Teacher Home Purchase Program

State and local entities may issue tax-exempt mortgage revenue bonds (MRBs) or mortgage credit certificates (MCCs) to assist teachers, principals and other credentialed school staff to purchase homes. Participants must be employed at a High Priority school (a California K-12 public school that is ranked in the bottom 50% of all schools based on the most recent Academic Performance Index (API), schools receiving an API Statewide Ranking of 1,2,3,4, or 5) and make a commitment to work at a High Priority school for at least three years.

Summer Presentation 7

NON-HOUSI NG PROGRAMS:

Small I ssue I ndustrial Development Bond Program (I DB’s)

Small-Issue Industrial Development Bonds (IDBs) are tax- exempt private activity bonds that are issued through state and local governmental agencies to assist manufacturing facilities finance capital expenditures. IDBs support expansions of existing manufacturing companies. IDBs offer interest rate savings to small and midsize manufacturers in contrast to conventional loans. When used by manufacturers, IDBs serve to create new jobs and retain existing jobs within their communities.

Summer Presentation 8

NON-HOUSI NG PROGRAMS:

Exempt Facility Program

Exempt Facility Bonds are tax-exempt private activity bonds that are issued by state and/or joint powers authorities to finance solid waste disposal and waste recycling facilities. The tax-exempt bonds provide facility owners with low cost financing in the form of below market interest rate loans. The interest rate savings enable the project owners to maintain lower customer rates or minimize customer rate increases, while at the same time assisting the communities they serve meet their mandated requirements to protect and enhance the environment.

Summer Presentation 9

NON-HOUSI NG PROGRAMS:

Student Loan Program

Student Loan Bonds are tax-exempt private activity bonds issued by authorized agencies for the purpose of either financing direct loans to college students and their parents or purchasing bundles of already-originated loans on the secondary market. When used for direct lending programs, tax-exempt bond allocation allows lenders to pass on interest rate savings to “needy” students through below market interest rate loans. Needy students are borrowers for whom the cost to attend college exceeds their ability to pay, as determined by their school's financial aid office.

Summer Presentation 10

The 2011 CDLAC Allocation Pools

State Ceiling 2011 Reservation Percent of Ceiling Qualified Residential Rental Project Pool General Pool

$850,000,000 24%

Mixed I ncome Pool $250,000,000 7.1% Rural Pool

$150,000,000 4.2%

Sub-Total – Multifamily Projects $1,250,000,000 35.3% Single-Family Housing Program Pool $500,000,000 14.1% Single-Family Housing Program Bonus Pool $250,000,000

7.1%

Sub-Total – Single-Family Programs $750,000,000 21.2% Teacher Home Purchase Program Pool $0 0% Housing Total $2,000,000,000 56.5% Small-I ssue I ndustrial Development Project Pool $50,000,000 1.4% Exempt Facility Project Pool $0

0%

Student Loan Program Pool

$0 0%

Non-Housing Total $50,000,000 1.4% Allocation on Hold (undesignated reserve) $1,489,125,820 42.1% GRAND TOTAL $3,539,125,820 100.0% CDLAC website: http:/ / www.treasurer.ca.gov/ cdlac

Summer Presentation 11

Competitive and Non-Competitive Application Processes

CDLAC currently administers a non-competitive or “open” application process for each of its six

• programs. However, programs such as the

Qualified Residential Rental Pool, must still meet several CDLAC-imposed threshold requirements such as a minimum public benefit point threshold and a minimum 55-year term of affordability

Competitive and Non-Competitive Application Processes Continued

For competitive application rounds, award priority is granted to those projects with the highest score and/or highest identified “public benefit” priority (pollution control mandates, small businesses, etc.)

Summer Presentation 12

Carryforward

Due to poor market conditions, bond issuances have declined in California over the past several

• years. To preserve unused volume cap, CDLAC

granted “lump sum” carryforward allocation to the most active issuers in December of 2009 and 2010. These issuers must submit project-specific allocation applications to CDLAC prior to utilizing any portion of their assigned “lump sum” carryforward

Summer Presentation 13

Summer Presentation 14

Thank you!

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Audience Questions

Insider’s Look: Private Activity Bond Volume Cap

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Upcoming Events at CDFA

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Tuesday, September 13, 2011 @ 1:00pm Eastern CDFA – BNY Mellon Development Finance Webcast Series: A World Without Tax-Exempt Bonds? How close are we to facing a world without tax-exempt bonds? The recently created bipartisan Deficit Commission is tasked with finding an extra $1.2 trillion in spending cuts by this November. CDFA sources have indicated that tax-exempt bonds could be included in the cuts even though they are instrumental in spurring economic development and job creation throughout the country. During this installment of the CDFA-BNY Mellon Development Finance Webcast Series hear development finance professionals discuss the threats and potential changes coming to the capital markets and bond finance community. Don't miss this timely webcast to learn how you can help preserve tax-exempt bonds.

Next Webcast

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For More Information

Christine Johnson Program Manager 415-263-2026 christine.johnson@bnymellon.com Erin Tehan Legislative & Federal Affairs Coordinator 614-224-1323 etehan@cdfa.net