#1A STOWE MIDDLE & HIGH SCHOOL State of Vermont School Construction Aid Task Force NORTH COUNTER UNION WITH SCHOOL MAIN STREET MIDDLE SCHOOL School Bonding Program and Bond Debt Service Discussion October 23, 2023 RUTLAND HIGH SCHOOL NGTON HIGH SCHOO GA PROUD TRADITION PRAG#2[Mike's e-mail for reference delete after internal review] - hope all is well with you - I wanted to check in to see if PRAG might be able to assist with a presentation (virtual) at our upcoming school construction task force. We are still waiting to hear from AOE to confirm the agenda for Monday's meeting - but I wanted to see if PRAG might be in a position to present the following: 1. 1. An overview of the Rhode Island bond issuance with a specific eye toward how the transaction was structured to avoid being considered net tax-supported debt. A simple forecasting scenario where Vermont (more specifically an authority similar to Rhode Island - assume the Vermont Bond Bank in Vermont's case) issues $250 million in bonds to support a portion of the approximate $1 billion in immediate life and safety issues from the school audit. a. We could assume a $125 million bond is issued in year one and a second $125 million bond is issued in year four - both for 20 years - and calculate the annual interest & principle payments that would result for the term of the bonds. Please let me know if you have any questions - happy to visit to discuss as well. Many thanks. 2 ■ PRAG#3Overview and Presenters ■ Rhode Island School Bond Program Vermont Bond Bank and State Intercept Mechanism Bond Debt Service Scenarios ■ Questions and Discussion Public Resources Advisory Group (PRAG) Tom Huestis, Senior Managing Director Steve Wisloski, Managing Director 3 ■ PRAG#4Rhode Island's School Bond Program ■ ■ Facilitated through the Rhode Island Health and Education Building Corporation. (RIHEBC, pronounced "RYE-beck"). Called the "Public Schools Revenue Bond Financing Program" RIHEBC issues the bonds which are backed by loans from local Rhode Island school districts, cities or towns The bonds/loans are repaid through a combination of the local entity's dollars and State subsidy funds (State Housing Aid and various bonuses) State subsidy is paid as a reimbursement of entity's debt service, commencing after the project is completed. The State provides this subsidy in the form a proportional amount of debt service, which can range up to 96% of the bonds' debt service. 4 ■ PRAG#5Rhode Island's School Bond Program ◉ The structure of the program is beneficial in two important ways - ◉ it provides for a strong credit rating, and ◉ the bonds issued through the program are not considered State net tax supported debt. The main reason the bonds are not considered net tax supported debt of the State, is bonds are backed by the local entity's loans which carry a general obligation - a "full faith and credit" pledge includes a first lien on ad valorem taxes and general fund revenues of the municipality. The program is structured to provide a strong credit rating for all municipalities through an additional security structure - a State Aid Intercept requirement: RIHEBC's ability to intercept the borrower's State Basic Education and School Housing Aid and certain other appropriations of State aid and meal, beverage and hotel tax The program has a standing rating of Aa3 from Moody's Investors Service. 5 ■ PRAG#6Rhode Island's School Bond Program (Continued) ■ Program allows considerable flexibility as to amount borrowed and term of loan ■ Recent transactions shown below: Credit Ratings Date Local Issuer Amount Maturity Term Moody's S&P 9/13/2023 City of Warwick 20,000,000 8/22/2023 Exeter West Greenwich 7/26/2023 Town Cumberland 9/29/2022 Town of Johnston 6/28/2022 Town of Portsmouth 6/15/2022 Town of Burrillville 3/25/2022 City of Newport 3/09/2022 City of Warwick 1/07/2022 City of Pawtucket 9/30/2021 Town of Smithfield 5/15/2043 20 Years 5,540,000 5/15/2044 21 Years 74,125,000 5/15/2053 30 Years 85,000,000 5/15/2052 19,510,000 5/15/2045 5,950,000 5/15/2038 98,500,000 5/15/2047 23,830,000 5/15/2041 30,235,000 5/15/2042 35,985,000 5/15/2042 21 Years AA Aa3 AA+ 30 Years 23 Years 16 Years 25 Years 19 Years AA AAA AA AA+ AA 20 Years Aa3 AA Averages: 39,867,500 23 Years 6 ■ PRAG#7Vermont Bond Bank (VBB) and State Intercept Mechanism ■ ■ ■ The Vermont Bond Bank (VBB) is the closest Vermont analogue to RIHEBC Vermont's "state intercept" mechanism (Title 24, Chapter 119, Subchapter 1; 24 V.S.A. § 4555 (c)) is comparable to that used in the credit structure for Rhode Island's school bond program: (c) Upon receipt by the State Treasurer of written notice from the Bank, or the corporate trustee exercising rights on behalf of the holders of bonds issued by the Bank, that a governmental unit is in default on the payment of principal or interest on a municipal bond or revenue bond acquired or held by the Bank, the State Treasurer shall immediately withhold all further payment to the governmental unit of any or all funds appropriated and payable by the State to the governmental unit, until the default is cured. During the default period, the State Treasurer shall make direct payment of all, or as much as is necessary, of the withheld amounts to the Bank, or at the Bank's direction, to the trustee or paying agent for the bonds, so as to cure, or cure insofar as possible, the default as to the bond or the interest on the bond. VBB's state intercept has a programmatic rating of Aa2 from Moody's (i.e., high quality and subject to very low credit risk) 7 ■ PRAG#8Bond Debt Service Scenarios ■ All else equal, two key parameters affecting the annual cost of a bond issue are: ◉ Term of the issue, in years Amortization, or structure of principal repayment Regarding term, bond issues typically are structured to mature (end) on or before the end of the useful life of the asset; for school construction this is usually 20-30 years Regarding amortization, principal typically is repaid either in: ◉ ◉ Level annual amounts (the State of Vermont is required to do this by statute) Increasing installments (like a home mortgage) so that combined principal and interest payments are level annual (or for a mortgage, monthly) amounts. Principal typically is repaid once every twelve months, and interest every six months ■ Principal and interest payments are also referred to as “debt service" 8 ■ PRAG#9Bond Debt Service Scenarios (Continued) ◉ Example: Estimated annual debt service (principal and interest) cost of borrowing $250 million using two bond issues as follows: $125 million in the first year $125 million in the fourth year Four scenarios as follows: ◉ Level annual principal, 20-year term ◉ Level annual debt service, 20-year term Level annual principal, 30-year term Level annual debt service, 30-year term Consistent assumptions regarding the level of interest rates, credit ratings, issuance costs, etc. 9 ■ PRAG#10Bond Debt Service Scenarios (Continued) Summary of Scenarios Scenario 20yr Lvl Prin 20yr Lvl D/S Project Funds Total Debt Service Avg Annual Debt Service $250,000,000 $361,348,000 $250,000,000 30yr Lvl Prin $250,000,000 30yr Lvl D/S 25,000,000 $250,000,000 $381,287,000 $430,628,000 $480,014,500| 20,000,000 $18,067,400 $19,064,350 True Interest Cost (Rate) 4.29% 4.40% $14,354,267 4.69% $16,000,483 15,000,000 4.85% Annual Debt Service Schedules 10,000,000 5,000,000 Year 20yr Lvl Prin 20yr Lvl D/S 30yr Lvl Prin 2024 $11,849,000 $9,529,500 $10,110,750 30yr Lvl D/S $7,999,250 0 2025 11,552,750 9,530,000 9,908,500 8,001,750 2026 11,256,500 9,531,500 9,706,250 7,999,500 2027 22,809,250 19,063,000 19,614,750 16,001,750 25,000,000 2028 22,216,750 19,060,500 19,210,250 2029 21,624,250 19,063,750 18,805,750 2030 21,031,750 19,066,500 18,401,250 2031 20,439,250 19,062,750 17,996,750 2032 19,846,750 19,066,750 17,592,250 2033 19,254,250 19,067,000 17,187,750 16,002,000 16,002,250 16,002,000 15,000,000 16,000,750 10,000,000 16,003,000 15,998,000 20,000,000 2034 18,661,750 19,062,500 16,783,250 16,000,500 5,000,000 0 2035 18,069,250 19,067,250 16,378,750 15,999,500 2036 17,476,750 19,064,500 15,974,250 15,999,500 2037 16,884,250 19,063,250 15,569,750 15,999,750 25,000,000 2038 16,291,750 19,067,000 15,165,250 2039 15,699,250 19,064,000 14,760,750 2040 15,101,750 19,063,000 14,356,250 15,999,500 16,003,000 20,000,000 15,999,250 15,000,000 2041 14,509,500 19,067,250 2042 13,917,250 19,064,750 13,951,750 13,547,250 16,002,750 2043 13,320,000 19,064,000 13,142,750 2044 6,808,000 9,533,000 12,738,250 16,002,250 10,000,000 16,002,000 16,001,000 5,000,000 2045 6,512,000 9,531,250 12,333,750 15,998,250 0 2046 6,216,000 9,534,000 11,929,250 16,002,750 2047 11,519,750 15,998,000 2048 11,115,500 15,998,250 20,000,000 2049 10,711,250 16,002,000 2050 10,302,000 15,997,750 15,000,000 2051 9,898,000 15,999,500 2052 9,494,000 16,000,500 10,000,000 2053 9,090,000 15,999,250 2054 4,646,000 7,999,250 5,000,000 2055 4,444,000 7,998,750 2056 4,242,000 8,001,000 Total $361,348,000 $381,287,000 $430,628,000 $480,014,500 10 20-Year Level Principal Amortization Principal Interest 20-Year Level Debt Service Amortization Principal Interest 30-Year Level Principal Amortization Principal Interest 30-Year Level Debt Service Amortization 0 Principal Interest PRAG#11$144,539,200 30yr Lvl Prin $250,000,000| $172,251,200 $7,226,960 40% $7,625,740 40% $5,741,707 40% Example Aggregate Cost to State Assuming 40% Subsidy* Summary of Scenarios Assuming 40% State Subsidy Scenario 20yr Lvl Prin Project Funds Total Subsidy Amount Avg Annual Subsidy Subsidy Level $250,000,000 20yr Lvl D/S $250,000,000 $152,514,800 30yr Lvl D/S 25,000,000 $250,000,000| $192,005,800 20,000,000 $6,400,193 15,000,000 20-Year Level Principal Amortization 40% 10,000,000 Annual Debt Service Schedules 5,000,000 Year 20yr Lvl Prin 20yr Lvl D/S 30yr Lvl Prin 30yr Lvl D/S 0 I 2024 $4,739,600 $3,811,800 $4,044,300 $3,199,700 2025 4,621,100 3,812,000 3,963,400 3,200,700 2026 4,502,600 3,812,600 3,882,500 3,199,800 State Share Local Share 20-Year Level Debt Service Amortization 2027 9,123,700 7,625,200 7,845,900 2028 8,886,700 7,624,200 7,684,100 2029 8,649,700 7,625,500 7,522,300 6,400,700 25,000,000 6,400,800 20,000,000 6,400,900 2030 8,412,700 7,626,600 7,360,500 6,400,800 15,000,000 2031 8,175,700 7,625,100 7,198,700 6,400,300 10,000,000 2032 7,938,700 7,626,700 7,036,900 6,401,200 2033 7,701,700 7,626,800 6,875,100 6,399,200 5,000,000 2034 7,464,700 7,625,000 6,713,300 6,400,200 0 2035 7,227,700 7,626,900 6,551,500 6,399,800 2036 6,990,700 7,625,800 6,389,700 6,399,800 2037 6,753,700 7,625,300 6,227,900 6,399,900 State Share Local Share 30-Year Level Principal Amortization 25,000,000 2038 6,516,700 7,626,800 6,066,100 6,399,800 2039 6,279,700 7,625,600 5,904,300 6,401,200 20,000,000 2040 6,040,700 7,625,200 5,742,500 6,399,700 15,000,000 2041 5,803,800 7,626,900 5,580,700 6,401,100 2042 5,566,900 7,625,900 5,418,900 2043 5,328,000 7,625,600 5,257,100 6,400,900 10,000,000 6,400,800 5,000,000 2044 2,723,200 3,813,200 5,095,300 6,400,400 H 2045 2,604,800 3,812,500 4,933,500 6,399,300 0 2046 2,486,400 3,813,600 4,771,700 6,401,100 2047 4,607,900 6,399,200 State Share Local Share 30-Year Level Debt Service Amortization 2048 4,446,200 6,399,300 20,000,000 2049 4,284,500 6,400,800 2050 4,120,800 6,399,100 15,000,000 2051 3,959,200 6,399,800 2052 3,797,600 6,400,200 10,000,000 2053 3,636,000 6,399,700 2054 1,858,400 3,199,700 5,000,000 2055 1,777,600 3,199,500 2056 1,696,800 3,200,400 Total $144,539,200 $152,514,800 $172,251,200 $192,005,800 * Unlike Rhode Island, assumes immediate payment of the subsidy from the State. 0 State Share Local Share 11 I I PRAG#12Questions and Discussion