2007 Summer Training

1. 2007 Summer Training Innovative Financing Solutions for Public Infrastructure Projects Thursday, August 9th, 2007 2:45 p.m. – 4:00 p.m. Presented By: Grant Hamill, Mike LaVallee, Terry Maas & Mark Reader 2555 E. Camelback Road, Suite 280, Phoenix, Arizona 85016 (602) 794-4000

2. 2007 Summer Training Case Study Outline Page 1

3. Town of Cave Creek - Water Company Acquisition Project Summary:Acquisition of 2,400 customers, 7 ground water wells, 100 miles of distribution lines, 2,606 acre feet of CAP surface water allocation, 12.5 miles of 16” pipelines, booster stations and a water treatment plant. Public Policy Purpose: Enables the Town to manage and control its critical water resources in terms of supply, quality, capacity and utility rate structure – based upon comprehensive vision and water master plan. Page 2

4. Background: Town negotiated potential acquisition with owner for several years – could not come to agreement Town passed successful $50 million bond election (66% in favor) Owner eventually sold to a private water company Town initiated condemnation proceedings Court required mediation hearings Both parties completed valuation appraisals and negotiated a $19.5 million settlement Expensive seller short term note financing required, until permanent financing could be arranged Settlement enabled Town to pursue efficient WIFA financing Town of Cave Creek - Water Company Acquisition Page 3

5. Town of Cave Creek - Water Company Acquisition • Economic Model & Financing Plan: • Initially maintain existing utility rate structure • Debt service repaid through user fees, water development fees and sales tax revenues • Water development fee approximates $14,000 (1” line), up from $538 • Seller note paid off within 30 days through interim 3.8% variable rate bridge loan • Secured new A2 underlying credit rating and AAA insurance on revenue obligation; general obligation bonds upgraded to A1 • Secured 3.6% fixed rate permanent financing through WIFA. Simultaneously paid off bridge loan and reimbursed Town for initial payment • WIFA Loan Covenants: • Annual debt service coverage equals 2x pledged revenues (excise taxes and impact fees) • Pledged revenue release provisions based on future net revenue coverage Page 4

6. Town of Cave Creek - Water Company Acquisition • Recommendations: • Complete comprehensive water master plan including a thorough understanding of capital improvement needs based on municipal standards • Work diligently to settle. If possible, avoid condemnation or mediation • Upgrade capital improvements to conform with municipal standards • Use prudent/conservative assumptions in the development of the economic model • Educate community on benefits of owning and operating the utility • Historical Perspective Comment: • Majority (if not all) Cities and Towns have been very pleased with the Public Policy decision to acquire their local water company(s) Page 5

7. Yavapai County – Variable Rate Demand Note Financing for Highway Acceleration • Project Summary:State Route 260 is a highway that runs from Cottonwood in the Verde Valley south to Camp Verde, then southeast to Strawberry, Pine and Payson. The project involves the widening and realignment of the highway from milepost 208.6 at Western Drive in Cottonwood to milepost 211.7 at Thousand Trails Road. The project is broken down into two segments totaling $32.5 million. Project design and specs are near complete and ready for bid. • Public Policy Purpose: State Route 260 is inadequate to meet the area’s economic expansion, especially in the general area of the SR 260/Interstate 17 interchange. In addition, as a two lane, undivided highway, the road represents a significant health and safety risk that the County wants to mitigate as soon as possible. The Board of Supervisors after long and careful study, made the decision to finance the cost of advancing $25 million to ADOT to expedite construction of the project. ADOT has work crews in the area and is committed to commence work on the project later this year. Road Construction Location Page 6

8. Yavapai County – Variable Rate Demand Note Financing for Highway Acceleration • Background/Program Description • Counties are limited by statute regarding their financing options and at the time this financing need was identified in 2003, no laws existed for a County to issue debt for highway construction • State law (laws 2004, chapter 167) now enables counties to accelerate construction of highway projects on the Department of Transportation’s Five Year Transportation Facilities Construction Program (5-Year Plan) • County advances funds to ADOT for the accelerated projects. Advances can be financed through issuance of bonds • ADOT acknowledges and accounts for each advance • ADOT is required by law, to repay advances not more than five years from the date of the advance • The net cost to the county is the cost of advancing the funds to ADOT (interest on bonds and issuance costs) • Bonds are debt obligations of the County payable from pledged revenues • Pledged revenues include County excise taxes and any loan repayments from ADOT • Bonds are not obligations of the State or ADOT – They are obligations of the County payable only from excise taxes and loan repayments from ADOT Page 7

9. Yavapai County – Variable Rate Demand Note Financing for Highway Acceleration FUNDING DIAGRAM Capital is advanced to ADOT by County through IGA County raises capital through borrowing County secures and services debt with excise tax revenue ADOT accelerates project ADOT repays County for advance within five years Page 8

10. Yavapai County – Variable Rate Demand Note Financing for Highway Acceleration • Financing Solution: • Consider a short term financing option that best matches the anticipated cash outflows (i.e. advances) and loan repayments from ADOT • Look to invest the $ in the Advancement Fund to lock-in the highest yield possible and use interest earnings to offset the monthly debt service payments on the financing • Bonds bear interest at a weekly variable rate approximating the prevailing BMA (Bond Market Association) swap rate • Letter of credit on the Bonds adds credit enhancement to the issue by adding an additional party between the investors and the County • Current BMA swap rate is about 3.65% • Investors accept low interest rate in return for liquidity – ability to tender bonds with 7 business days notice • County can redeem bonds at par with 30 days notice to investors • Any bonds tendered by investors are remarketed to other investors by Stone & Youngberg as County’s Remarketing Agent • Bond principal is retired as loan repayments are made by ADOT • Helaba Bank (Germany) – selected through a bidding process to provide LOC • LOC fees equal .10% per annum based on principal amount of Bonds outstanding and specified number of days interest [ approximately 53 days ] • Initial term of the Letter-of-Credit is 7 years • LOC fees are paid quarterly in arrears Page 9

11. Yavapai County – Variable Rate Demand Note Financing for Highway Acceleration • Results • County issues variable rate Demand Highway Construction Advancement Revenue Bonds, Series 2007 on July 12, 2007 • Letter-of-credit and liquidity provided by Helaba bank, a German state owned institution rated A/A-1 by S&P • Initial term of the LOC is seven (7) years • Initial weekly interest rate = 3.63% • $25 million placed in a fully collateralized guaranteed investment contract, structured to provide four (4) equal advances to ADOT per Intergovernmental Agreement between County and ADOT • When advances repaid by ADOT, $ is given to Trustee to call and retire bonds at a price of par with 30 days notice • End result is that County responsible for interest cost on the Bonds, and costs of issuance, less interest earned on the $ deposited at closing in the Advancement Fund • ADOT accelerates construction of highway improvements a couple of years ahead of schedule Page 10

12. City of Nogales, ArizonaInternational Wastewater Treatment Plant Project Summary:Upgrade the wastewater treatment plant serving Nogales, Arizona and Nogales, Sonora using a combination of local and Federal funding. Public Policy Purpose: Provide for clean water discharge to meet State and Federal water quality rules required under a 2001 Federal Court Consent Decree. • Background: • The City of Nogales wastewater treatment plant is co-owned by the United States Section, International Boundary and Water Commission (“USIBWC”) and the City of Nogales, Arizona • The plant serves a combined population in excess of 450,000 with the Mexican side exceeding the flow to be processed and paid for under the International Treaty • City received a $59.5 million grant administered through the North American Development Bank, to help defer initial cost estimate of $69 million Page 11

13. City of Nogales, ArizonaInternational Wastewater Treatment Plant • Challenge was to provide for the City’s $2.5 million matching portion, allow for growth in the City’s portion of the system, pay down the existing WIFA loan and allow for future redemption of Bonds by several loan sewer connection fees and grant monies • Delay any fiscal impact on the City’s budget • Financing Solution: • Issue $14.0 million Series A (tax-exempt) and $2.5 million Series B (taxable) bonds backed by a AA-rated Letter of Credit from JP Morgan Chase Bank • Secure the Letter of Credit with a combination of sewer enterprise funds and a subordinate pledge of excise taxes • Set up refinancing of any remaining debt in 2009 and allow for flexible structure • Provide sufficient time for sales tax growth to increase debt service coverage on City’s existing excise tax senior lien debt to enhance credit rating • Results • $16.5 million in debt issuance in October 2006 to retain NADBANK grant and provide flexible solution for City’s portion of plant. Page 12

14. City of Kingman, ArizonaAirway Avenue Railroad Underpass Project Project Summary:Construction of the Airway Avenue Railroad underpass to allow access across Burlington Northern Santa Fe rail lines on the northeast side of Interstate 40 and Route 66. Public Policy Purpose:Improve City traffic flow and ease congestion, spur economic development northeast of I-40 and Route 66 • Background: • The City received a request from developers to provide easier traffic access to large swaths of primarily raw unimproved land for development • Traffic Flow – Other than the airport road further north, the City had no real access across the railroad to the northeast side. Residents had to drive south of I-40 approximately 2 miles, cross the tracks and then proceed back north under a tunnel through I-40 to access the land • Economic Development - Several subdivisions and master-planned communities, with commercial development, are expected on the properties adjacent to major road and highway intersections • City and Developers agreed that 65% of the project was a direct benefit to the landowners with undeveloped land on the northeast Page 13

15. City of Kingman, ArizonaAirway Avenue Railroad Underpass Project Page 14

16. City of Kingman, ArizonaAirway Avenue Railroad Underpass Project Page 15

17. City of Kingman, ArizonaAirway Avenue Railroad Underpass Project • Financing Solution: • 65% Developer Portion – Kingman Airway Avenue Railroad Crossing Improvement District • District includes 1,677 total acres, 36 tracts and 303 parcels • $6,325,000 Special Assessment Improvement Bonds sold on 1,639 acres, 35 tracts of land and 302 parcels (one parcel paid cash) • Repaid through a range of approximately $742 to $1,243 assessment per residential lot, with a total assessment per acre set at approximately $4,000. • Capitalized interest through construction period • 35% City Portion – Cash and Excise Tax Revenue Obligations • $2,850,000 Excise Tax Revenue Obligations sold through a trustee structure • Improved City’s covenants by closing the parity lien on previously issued bonds and created new senior lien level (lower coverage and additional bonds test) • No funding of a reserve fund – Springing reserve fund only if revenues fall below certain coverage • Capitalized interest through end of current budget year Page 16

18. TOWN OF BUCKEYE, AZWatson Road CFD Project Summary:18 developer/landowners decided to form Watson Road CFD to provide a financing mechanism to build the much needed wastewater utility infrastructure collection lines and capacity to serve the extremely fast paced development in the area. The bonds issued by the District were used to finance a 3 million gallon/day treatment plant expansion and the completion of nine miles of collection lines. • Background: • Location: Town of Buckeye • Acreage: ~ 2,000 • Residential Homes: ~ 8,000 • Bonds: • $49,000,000 Special Assessment Revenue Bonds, Series 2005 repaid through a special assessment per residential lot ranging from ~$4,000-7,000. • S&Y Role: • As underwriter S&Y was responsible for coordinating the due diligence needed in preparing the offering document which included input from and about 18 different landowner/developers and ~ 10 different homebuilders. S&Y also was in charge of educating prospective investors of the bonds and ultimately was responsible for being able to offer the bonds at the lowest possible interest rates. Page 17

19. OTHER CASE STUDIES • Town of Marana, Tangerine Farms Road Improvement District, Special Assessment Bonds • Town of Prescott Valley, Commercial CFD • Town of Oro Valley, Reclaimed Water Improvement Project • Pinal County, Gantzel Road/Ironwood Road, Infrastructure Revenue Bonds (GADA) • Town of Oro Valley, Naranja Park Center Project Page 18