2007-2008 Capital Financing

1. 2007-2008Capital Financing North East ISD Unlimited Tax School Building Bond Series 2007A

2. Capital Financing • Capital Financing in San Antonio • Construction Considerations • Debt Structure Considerations • Debt Structure Challenges • Concerns: Tax Rate • Underwriters

3. Managing NEISD Capital Financing • May 2007 Election: • North East ISD taxpayers authorize $498M in bonds • San Antonio taxpayers authorize over $2B in bonds for construction since May 2006 Source: NEISD Finance

4. Bond Authorization San Antonio

5. Bond Issuance Information Total: $ 996,554,000 N = negotiated; C = competitive

6. Concerns:Increasing Costs • San Antonio Construction Capacity • Rising labor Costs • Rising material Costs Source: NEISD Finance

7. Increase in National Non-residential Buildings Preliminary through May Source: Bureau of Labor Statistics – www.bls.gov

8. 26.7% 03-06 Historical Material Cost Data(National Averages) 1996 to 2000 … 3.2% / Yr 2000 to 2004 …3.9% / Yr 2003 to 2006 …8.9% / Yr 15.7% 00-04 10.5% 05-06 11.4% 04-05

9. Elementary School Construction Cost Analysis

10. Debt StructureConsiderations • Inflation of construction costs needs to be addressed • Secure lowest cost of borrowing and achieve District goals • Take advantage of historically low interest rates and flat yield curve environment Source: NEISD Finance

11. TRSY versus true interest cost (TIC) Yield

12. Debt StructureConsiderations • Maintain tax rates to achieve the desired tax savings on the average valued home • Minimize costs associated with bond issuance • Consider possible need for additional bonds for growth in 2010 and 2013

13. Debt StructureChallenges • Keeping debt in the 30 year time range • Keeping I&S tax rate below $.50

14. Debt StructureChallenges • Match the maturity of technology and equipment bonds to their useful life • $54 million for technology • $11.2 million for buses

15. One Sale or Two Sales?

16. One sale of $498,049,000 • Minimize interest rate risk • Every .1% change in interest rates will cost approximately $4.5 million • A 1% change in rates will cost an additional $45 million Proposed Bond Issuance

17. Market Volatility

18. One sale of $498,049,000 • Will allow additional interest earnings on bonds of $17.5 - $20 million for construction • Maintain tax rates • To achieve the desired estimated tax savings on the average valued home will cost taxpayers capitalized interest Proposed Bond Issuance

19. Proposed Bond Issuance • Capitalized Interest: • When Initial tax rate does not cover initial debt payments. • Create additional funds to cover initial debt payments in order to maintain desired tax rate.

20. Proposed Bond Issuance • Example: • Borrow $110,000 • Purchase $100,000 asset • Make initial loan payments with additional $10,000 • Additional $10,000 will be paid over the life of the loan

21. NEISD Proposed Bond Sale Summary One SaleTwo Sales $40M Interest Earnings $20M Interest Earnings [$23.5M] Capitalized Interest [$4.5M] Capitalized Interest [$.2M] Issuance Cost $16.5M in Net Earnings $15.3M in Net Earnings [$15.3M] Change in Interest Rate of .34% $0

22. Concerns: Tax Rate • Assumptions Prior to Bond Election Source: NEISD Finance

23. Estimated Effect on Taxpayer Prior to Election *M&O Tax rate of $1.03 was used in estimate with an I&S Tax Rate of $.3729 **M&O Tax rate of $1.03 was used in estimate with an I&S Tax Rate of $.3712

24. Effect on NEISD Taxpayers • Changes in assumption after election • Average taxable home value increased not by 7% but by 11% • M&O tax rate increased by $.01 Source: NEISD Finance

25. Effect on Taxpayers After Election “Current value *M&O Tax rate of $1.04 used in estimate with an I&S Tax Rate of $.3495 **M&O Tax rate of $1.04 used in estimate with an I&S Tax Rate of $.3074

26. North East ISD Average Value of New Single Family Residential Properties Tax Year 2007* Number of Parcels 3,320 Average Market Value $221,213 Average Taxable Value** $206, 213 *Houses built after January 1, 2006 **Value net of $15,000 homestead exemption

27. North East ISD Average Value of Existing Single Family Residential Properties* Tax Year Tax Year Value 2006 2007 Increase Number of Parcels 104,595 104,905 Average Market Value $148,963 $163,821 9.97% Average Value Net of 10% Value Cap Loss $147,429 $160,910 9.14% Average Taxable Value** $132, 429 $145,910 10.18% *Houses built before January 1 2006 **Value net of 10% value cap loss and $15,000 homestead exemption

28. Average Value of Existing Single Family Residential Properties *M&O Tax rate of $1.04 used in estimate with an I&S Tax Rate of $.3629

29. Concerns: Tax Rate What tax rate? Source: NEISD Finance

30. NEISD Proposed Bond Sale Summary One Sale One Sale Tax Rate 2008 $.3495 Tax Rate 2008 $.3629 $40M Interest Earnings $40M Interest Earnings [$23.5M] Capitalized Interest [$6.1M] Capitalized Interest $16.5M in Net Earnings $33.9M in Net Earnings I&S increase of $.0405 I&S increase of $.0539

31. Recommendation Negotiated Bond Sale • In order to structure debt to maintain tax rate for dollar savings to North East taxpayers

32. RecommendedUnderwriters • RBC Dain Rauscher • Banc of America • Bear Stearns • First Southwest Company • The Frost National Bank • Morgan Keegan & Co., Inc. • SAMCO Capital Markets

33. Preliminary 2007-2008 Tax Rates Tax Rate Tax Rate 06-07 General (M&O) $1.3600 $1.3600 07-08 General (M&O) $1.0400* $1.0400* Change in Tax Rate ($0.3200) ($0.3200) 06-07 Debt Service (I&S) $0.3090 $0.3090 07-08 Debt Service (I&S) $0.3495* $0.3629* Change in Tax Rate $0.0405 $0.0539 06-07 Total Tax Rate $1.6690 $1.6690 07-08 Total Tax Rate $1.3895* $1.4029* Change in Tax Rate ($0.2795) ($0.2661) *Estimated Source: NEISD Finance

34. Concerns: Tax Rate What tax rate? Source: NEISD Finance

35. Questions?