GFOAz May 11, 2007

1. The ABC’s of Municipal Financing GFOAz May 11, 2007

2. The ABCs of Municipal Financing in Arizona • Overview of Capital Project Needs • Sources of Revenue • Debt vs. Pay-As-You-Go • Types of Debt • Case Studies

3. Public Infrastructure Needs for City of Phoenix • New Streets and Improvements • Fire and Police (Public Safety) • Parks and Open Spaces • Water, Sewer, Flood, Solid Waste • Neighborhoods and Housing • Libraries • Education and Cultural Facilities • Airport Improvements

4. Revenue Sources to Pay for Infrastructure • Secondary Property Taxes • Local Sales (Excise) Taxes • Special Designated Sales Taxes (Transit) • State Shared Revenues • Water, Sewer, Solid Waste Fees • Airport Fees and Charges • Impact or Development Fees • Other User Charges

5. Historical Secondary AVCity of Phoenix $ Billions Based on Full Cash Value from County Assessors Office

6. Historical Water Development Occupational FeesCity of Phoenix $ Millions Fees constant throughout period at $600 per equivalent 5/8 inch meter.

7. How Can Revenue Sources be used to Fund Infrastructure Needs? • Pay-As-You-Go (Cash)? • Debt Finance (Short or Long Term Borrowing)?

8. Reasons to Use Pay-As-You-Go or Cash for Capital Project Funding • Capital needs can be met through current revenues and the annual budget process • Revenue sources uncertain from year to year for debt service payments • Issuing additional debt will jeopardize current credit rating

9. Reasons to Use Pay-As-You-Go or Cash for Capital Project Funding(continued) • Municipal market is not favorable (high interest rates) or projects difficult to market • Projects can be phased or deferred while revenues are collected • The assets being funded have short lives

10. Advantages of Pay-As-You-Go Funding • No interest costs • No issuance costs • No restrictive debt covenants • No over-issuance of debt • Projects not pursued until funds available

11. Reasons to Consider Debt Financing • Capital facilities are needed today (regulatory or growth pressures) and current revenues are insufficient • Reliable future revenues are available to service the debt • Issuance of debt will not jeopardize credit rating

12. Reasons to Consider Debt Financing(continued) • Favorable municipal bond market • Assets financed are longer lived • Assets needed for growth are paid by current and future residents (intergenerational equity)

13. TYPES OF DEBT

14. CASE STUDIES CITY OF PHOENIX • Public Process for G.O. Bond Program • Public-Private-Partnership for Downtown Development (CITYSCAPE)

15. City of PhoenixGeneral Obligation Bond Program • Primary mechanism used historically to fund non-enterprise fund capital needs • Debt secured by secondary property taxes of City • Require voter approval

16. History of Voter Approved G.O. Bond ProgramsCity of Phoenix $ Millions $1057.4 $878.5 $753.9 $525.7 $436

17. Programs Funded by 2006 G.O. Bond Program($ Millions)

18. Public Review Process forGeneral Obligation Bond ProgramCity of Phoenix • Departments develop requested capital projects ($3.2 billion in requests) • Operations and maintenance costs for projects developed • Citizen Bond Committee and subcommittees appointed (700 citizens, 17 subcommittees) • Fiscal Capacity Subcommittee reviews Assessed Valuation forecast and debt capacity analysis

19. Public Review Process forGeneral Obligation Bond ProgramCity of Phoenix • Subcommittees hold public hearings • Subcommittees recommend projects to Executive Committee • Executive Committee develops recommendation within fiscal capacity • Council approves Bond Program • Citywide vote on Bond Program

20. Financing Downtown Public/Private Partnership Project (CITYSCAPE)

21. CityScape Project Location N

22. Cityscape Project • Project to develop 3 blocks between in core of Downtown between Jefferson and Washington 1st Street and 2nd Ave. • Lead by Red Development in partnership with Baron Collier • Planned 2.5 million sq. ft. of four mixed use residential and commercial towers, including 150 room hotel and 220,000 sq. ft of retail space in core of downtown • Total project cost approximately $900 million

23. Challenges of City Participation • Non-general fund City Excise Tax capacity leveraged for Convention Center Expansion and for backing of new Downtown Hotel • No reserves or pay-as-you-go funding available due to other City commitments • Speculative nature of the project and large financing required by the Developer (more than $800 million) • Uncertainty of revenue and sales tax generation from the project

24. City Participation TERMS OF DEVELOPMENT AGREEMENT • City purchases parking facilities upon completion of the following minimum improvements. • 220,000 sq. ft of retail • 500,000 sq. ft of commercial • 500 unit residential tower and 150 room hotel • 2,500 below ground parking spaces • Upgrades and repairs to Patriots Park Garage • Developer guarantees projected level of City sales tax revenues from project for first five years through a letter of credit (LOC) from a bank approved by the City. LOC burns off each year as sale tax targets are met. • City provides Government Property Lease Excise Tax (GPLET) to the Project.

25. City Participation TERMS OF DEVELOPMENT AGREEMENT • Developer prepays Phase II construction sales taxes that will be refunded in the event Phase II is constructed within five years. • City purchases parking facilities through the sale of $70 million in excise tax bonds and allots $2.5 million of Street G.O. Bonds and $4.0 million in 2006 G.O. Bonds approved for Patriots Garage rehabilitation. • City sells Jefferson Street garage near U.S. Airways Center to provide for $20 million to purchase additional underground parking from the Project. • Developer operates the garage and makes lease payments to the City.

26. Questions?