The Stimulus and South Dakota Bonds

1. The "Stimulus" and South Dakota Bonds August 6, 2009

2. 2 Presenters Presented by Thomas Grimmond,  Dougherty & Company LLC

3. 3 ARRA Overview Signed into law February 17, 2009 Full text available at: www.tinyurl.com/avu66p Section-by-section summary available at:  www.tinyurl.com/cx64tg

4. 4 New Taxable Bonds: Overview Tax credit bonds in brief - Investors receive interest + credits - Interest and credits taxable - New under ARRA � credit vs. direct pay Three new kinds under ARRA - Qualified School Construction Bonds - Build America Bonds - Recovery Zone Economic Development Bonds

5. 5 New Taxable Bonds: Overview �New� for federal (not state) law purposes May be issued in 2009 and 2010 Most requirements of tax-exempt bonds, including arbitrage rules (subject to certain  exceptions) apply to all of the new taxable  bonds

6. 6 Qualified School Construction Bonds Authorized Uses - Build, rehabilitate, repair public schools - Acquire land for public schools - Acquire equipment for use in financed facility - Costs of issuance (up to 2%) Volume Cap - $11 billion for each of 2009 / 2010 nationwide $29,884,000 for 2009 for South Dakota Marketability

7. 7 Qualified School Construction Bonds Bondholder Credit Only (no direct pay option) - Maximum maturity and credit amount determined according to schedule published by Bureau of Public Debt as of sale date - Credit amount determined to allow no discount, 0% financing to issuer - Tax Credit Rate: 7.17% on a 15 year term

8. 8 Qualified School Construction Bonds Pending further guidance, issuance must be reported on Form 8038 Federal prevailing wage (Davis Bacon Act) requirements apply - Bidders must pay the prevailing union wage for the project

9. Qualified School Construction Bonds Advantage of QSCB - 0% Interest expense to school district - Interest expense savings on a $2.4 million QSCB $866,000 Disadvantages - Marketability

10. 10 Build America Bonds (BABs) Issuer may elect direct payment in lieu of bondholder credit - Direct payment or credit = 35% of interest payable BAB are taxable bonds � why would a tax-exempt issuer want to issue taxable bonds Authorized Uses are same as tax-exempt governmental (non-private activity) bonds, except: - Direct pay BAB proceeds usable only for new capital  expenditures, reasonably required reserve funds, COI (up to 2%)

11. Build America Bonds (BABs)

12. 12 Build America Bonds No national volume cap Direct payment mechanics - Issuers must file new Form 8038-CP for each interest  payment date - Fixed rate BABs: Form 8038-CP must be filed 45-90 days  before applicable interest payment date; issuer receives  payment within 45 days after IRS receives form Variable rate BABs: issuer receives payments reimbursing quarterly interest costs; Form 8038-CP must be filed 1-45 days after the last interest payment date within the applicable quarterly period

13. 13 Build America Bonds BABs may not be issued with more than a de minimis amount of premium Issuance of BABs must be reported on Form 8038-G in accordance with more detailed IRS guidance Federal prevailing wage (Davis Bacon Act) requirements do not apply

14. 14 Recovery Zone Economic Development Bonds A �subspecies� of direct pay BABs - Direct payment = 45% of interest payable Proceeds must be spent for projects within certain geographic areas - Federally designated empowerment zones or renewal communities - Issuer-designated �recovery zones�: areas with significant general distress, home foreclosure, unemployment, or poverty rates, and areas economically distressed because of military base closure/realignment

15. 15 Recovery Zone Economic Development Bonds Authorized Uses - Capital expenditures for property in zone - Public infrastructure and facilities in zone - Job training and educational programs - Reasonably required reserve funds - Costs of issuance (up to 2%)

16. 16 Recovery Zone Economic Development Bonds Volume Cap - $10 billion for 2009 / 2010 combined nationwide - Allocation procedures expected to be released by IRS within next few weeks Federal prevailing wage (Davis Bacon Act)  requirements apply

17. 17 New Tax-Exempt Bonds Recovery Zone Facility Bonds - A new kind of private activity bond - Proceeds may be used for depreciable property within a recovery zone, used in connection with borrower�s conduct of a qualified business Tribal Economic Development Bonds - Tribal governments may issue these bonds for the same purposes as state or local governments issue tax-exempt bonds

18. South Dakota Considerations: Overview Does it constitute debt for constitutional purposes - School Districts � 10% - Cities � 5% for any purpose, additional 10% for water & sewer with 50% voter approval

19. 19 South Dakota Considerations: School Districts General Obligations - SDCL ch. 13-19 � voter approval 60% Capital Outlay Certificates ($3 per $1000) - SDCL ch. 13-16 ? Under 1.5% by resolution ? Over 1.5% hearing and resolution (referable) Covenants of outstanding indebtedness

20. 20 Expanded Bonding Authority Qualified Zone Academy Bonds (QZABs) - Provide no discount, 0% financing for �qualified zone academies� - Authorized uses: renovate buildings, acquire equipment, develop course material, train teachers and personnel - Impact of ARRA: raises nationwide 2009 volume cap to $1.4 billion ($3,538,000 for SD); authorizes $1.4 billion for 2010

21. 21 Expanded Bonding Authority New Clean Renewable Energy Bonds (New  CREBs) - Finance facilities that generate electricity from renewable sources - Impact of ARRA: raises nationwide volume cap to $2.4 billion, to be divided equally among three purposes: state and local government projects; projects of public power providers; projects of electric co-ops

22. 22 Incentives for Investors Additional interest expense deduction - 80% of interest expense allocable pro rata to tax- exempt bonds now deductible for financial institutions (for investment of up to 2% of their assets in tax- exempt bonds issued for new projects in 2009 / 2010)

23. 23 Incentives for Investors New bank qualification rules for bonds issued in  2009 / 2010 - Annual per-issuer limit raised from $10 million to $30 million - Limit passes through issuers to 501(c)(3) borrowers in  conduit deals

24. 24 Incentives for Investors Alternative Minimum Tax Changes for bonds  issued in 2009 / 2010 - Interest on private activity bonds not subject to AMT - Interest on tax-exempt bonds not included in corporate AMT adjustment - For above purposes, refunding bonds treated as issued on date of issuance of refunded bonds

25. 25 Incentives for Investors Alternative Minimum Tax Changes for bonds  issued in 2009 / 2010, continued - For bonds issued in 2009 and 2010 to refund bonds issued in 2004, 2005, 2006, 2007, or 2008, interest not subject to AMT and not included in corporate AMT adjustment based on current earnings

26. 26 For More Information For more information on any of today�s topics after the seminar, please contact: Thomas Grimmond, Dougherty & Company LLC 605-339-9800 or tgrimmond@doughertymarkets.com

27. 27 Presenter Biographies THOMAS GRIMMOND is a senior vice president at Dougherty & Company based in Sioux Falls. As an investment banker, Tom handles the financial modeling of issuers' capital requirements. Since joining Dougherty in 1992, Tom has structured financings for colleges, school districts, municipalities, and counties using certificates of participation, general obligation bonds, revenue bonds, and other obligations and revenue sources. His notable projects include financings for the Sioux Falls Convention Center and Sioux Falls� Lewis & Clark Project. Tom is a past council member for the City of Tea and served on the Revenue and Taxation Policy Committee of the South Dakota Municipal league. He was also a member of the South Dakota Army National Guard and served an 11-month activation in support of Operation Enduring Freedom in 2003.