Agenda - Council - 11/22/1983 - Laserfiche WebLink

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.THE EVENSEN DODGE REPORT ' "':' ~ ' ~' 'iTrends In Public Finance '-... . ,,...:~.-: '-, :- 3608 IDS Tower, Minneapolis, Minnesota ~r 612/338-3535 ~' 800/~28-8200 800/328-8100 Minnesota Market Trends Rates Down, Volume Up For Tax-Exempts in 1983 After sizal~le declines· through . Ma;', 1983, tax-exemPt interest watts eased higher and have gertJ~'. e/ally .stabilized at rates 50-75 basis points above 1983 loWs. The graph on the reverse side dem- onstrates movement in rates from 1982 to the present using the Bond .Buyer Index of 20-year bonds and ~ one-year U.S. Treasury bills. Volume of mx-exempt financ- ings smashed previous records for the fn'st half of 1983. This high" volume was attributed to a resurg-'~'~ ence in advance refundings, lower ? interest rates, and a preference on ]~. the part of numerous issuers.for. selling bonds before the'i July 1983, registration deadline. July, 1983, tax-exempt volume~' have returned to more cus~.omary :. It is not known how the tax- exempt market Will rede{ to "lation under consideration in Con:'~ gress to restric: certain.private_- purpose tax-exempt financings.~ Known as the "Pickle" or ':Ros--:- tenkowski" Bill, this legislation.· would restrict bonds issued for multi-family, student loan and private Projects to state-by-state . volume caps. The Bill.also changes arbitrage rules for stu- dent loar~ bonAs, depreciation rules for solid waste facilities, and imposes other re straints. The Bill has been withdrawn from floor ac- ti~,n by Rep. Ro:-tenkowski pead- ina furthrr committee discussi 3n. Bond Registration ·Update New. Regulations LesS Burdensome' T°' .Tax-Exempt Issuers -q~n'~-Tai~Equity-an~l Fiscaq Re~0hsF- ~ bility Act of 1982 made widespread changes to the federal tax laWsl ~n! amendmefit to the Internal Revenue Code requires that almost all municipal bonds] sold after June 30, 1983, be in registered form. This provision prohibits tax-i exempt intereSt on an unregistered mUnici- pal bond. Anticipated investor resistance~ to registered municipal bonds has not materialized. - - 'Many major banks have begun serving issuers as Registrar/Transfer Agent/ Paying Agent/Trustee~ To be acceptable to the underwriting community, these institutions must be capable of perform- ing these specific dutieS within industry standards based on SEC regulations for corporate ~ecurities. The fee for this comprehensive service varieS. Compari- Son is difficult since ~'egistrars have altered fee schedules frequently in this initial period and fees are sensitive to the number of ownership transfers. £vensen Dodge assists clients in obtaining current fee scheduleS from registrars and select- ing an institution .aG provide effective' services at a competitive fee. '.' - Advance'Refunding - A 'Widely Used . Financing Tool Returns 'After Court Ruling Refunding an outstanding bond issue is an important tool for the financial management of stat.-and municipal gov- ernmen:s. The ~efunding procedure pro- rides a means to reduce interest costs, restructure debt service payments, lengthen maturities (reducing annua! debt service costs) and eliminate restric- tive bond covenants. Refunding transa:- tions can be among the most complex financings conducted by state and local governments. 'Their complexity resu]~ mainly from Internal Revenue Servic~ (IRS) arbitrage regulations restricting tl~ rate at which proceeds' of refunding bonds can be invested. The'investment rate 9an not be materially higher than the- rate on' the Yefunding (n~w) -The first half of 1983 saw 'a large' increase tax-exempt reftindin~' issues due to the IRS's acquiescence following favorable court decision in a suit brought by the State of Washington. This IRS decision, together .with_ substantially lower interest rates in early. 1983, allowed a number of governmental jurisdictions: of all sizes across .the nation' to:issue' refunding bonds to replace high c°u ,p~ n debt with low coupon debt~ ~.: ;'. L Low Interest Rates .Y-and Econ'omic Hard Time~] ;:;: Generate Higher ¥otame -~ Stat(~d 16cal jui4sdicti'6ns O'-fien"/i-21 ...7- perienee variations in cash 7-Le~. ipts'~ I clisbursements. Seasonal ~ash'~cles~miy cause temporary cash deficien_cies desp~ otherwise healthy financial statements. Bank-loansFlines-oF credit ~a,~d revenue~ and tax anticipation notes ar~ among financing tools used to meet~these cash flow needs. Secured by future 'revenues, taxes, or fees and structured propertt',' theSe borrowings can often be conducted at favorable rates. Early in 1983, highly rated one year notes sold at net interest rates as Iow as 5%, although recently one year rates have increased to about In structuring cash flow financings, an issuer must conform to state laws and federal arbitrage regulations, as well as cash flow needs. Careful analysis of alter- natives minimizes net borrowing costs. Evensen Dodge has assisted clients over $2 billion in short-term financing the last two years. Ill t~enser, l odg¢.lnc.,former v'l'.G. Evensen& ..ssociates, lnc..wasfoundedin1922asthena:ion'sfin::nS-:-:r/ s:ate, reg. nal and local govc/nments. The firm: ssist., its clients in planning, structuring and rnarketinc ca: ~. i~ . ._: . --' r. rc~em:nt ar:: a '~d a var .ty of additional f', ,ancial se~ces.