Meeting Minutes
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State Finance Committee Meeting Minutes |
           
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August 29, 1996The State Finance Committee met in special meeting after notice duly given to the press and radio of Thurston County.
Lieutenant Governor Pritchard moved that the minutes for the meeting of June 25, 1996, be approved. Chairman Grimm seconded the motion. The motion passed and the minutes were adopted. Mr. Sheeran spoke to proposed Resolution No. 842. The resolution authorizes the negotiated issuance and sale of up to $75,000,000 State of Washington General Obligation College Savings Bonds, Series 1996. He explained the bonds are the ninth issue of a series of annual borrowing programs designed for the in-state investor. The bonds are non-callable, zero-coupon, in $1,000 denominations, with the state’s general obligation pledge which together make them attractive to smaller retail investors. He stated the College Savings Bonds would be on sale from September 3 until October 3, 1996. As indicated in the June 25th meeting, Seafirst Bank was selected from an RFP process to act as senior manager for the 1996 sale. All locally-based banks and securities firms with licensed salespersons will be asked to participate in the sale to achieve the highest level of distribution. The proceeds of the sale of the 1996 College Savings Bonds are intended to be applied to but not limited to, appropriations made from the State Building Construction Account to the State Board of Education for providing assistance to local school districts for school building construction, as well as construction projects at state institutions of higher education. Lieutenant Governor Pritchard questioned why the increased amount from last year’s $50,000,000 to this year’s $75,000,000 for the bond sale. Mr. Sheeran stated he didn’t know if the demand would be larger than last year, but that it was easier to do a resolution at the higher level and reduce the amount in the final resolution if the demand was less than authorized. Mr. Torkelson spoke to his handout. Page one summarized approximately $450 million College Savings Bonds sales from 1988 to 1995, pages two and three were graphs showing prior sales and current interest rate trends. Mr. Sheeran introduced Beth Frothingham of Bogle & Gates as bond counsel. Mr. Sheeran presented proposed Resolution No. 842 to the committee.
Resolution No. 842 authorizing the issuance and sale of up to $75,000,000 State of Washington General Obligation College Savings Bonds, Series 1996, Chapter 12, Laws of 1993, 1st Special Session and Chapter 17, Laws of 1995, 2nd Special Session. Lieutenant Governor Pritchard moved the adoption of Resolution No. 842. Chairman Grimm seconded the motion and the resolution was adopted. Mr. Kerr spoke to proposed Resolution No. 843. The resolution appoints The Bank of New York and Wells Fargo Bank, N.A., fiscal agent banks for the State of Washington, pursuant to RCW 43.80. He spoke to his handout. He stated the par value of bonds covered by the fiscal agency contract totaled $27 billion with 39 counties and 310 obligors as participants. On the fourth page of the handout, he noted that over the past three years $7.8 million has been earned on float balances and $2.8 million has been paid out in fees Mr. Kerr continued by explaining to the Committee, at its May 24th meeting, the Committee was informed that the current fiscal agency agreement was set to expire in February 1997 and if a new fiscal agent was to be appointed, there would need to be substantial amount of time to effect a conversion to the new fiscal agent bank(s). The Office of the State Treasurer enlisted the assistance of a local government working group in the development of the RFP and draft agreement and circulated the RFP to interested banking institutions. He mentioned that Attorney General Rusty Fallis attended the local government meetings and assisted in drafting the RFP and services contract. The Office of the State Treasurer received expressions of interest from seven banking institutions. On the due date of the RFP, four proposals were received: The Bank of New York (BONY), First Trust, Chase and Mellon Bank. A team comprised of Scott Sheeran, Tim Kerr, and Svein Braseth evaluated the proposals. The evaluation team initially focused on experience, operations, application of technology, SEC turn-around compliance, organization, bondholder and obligor relations, and references. All respondents had local fiscal agency arrangements, or had made provision for them if selected. An evaluation was then made of the fee proposals. The RFP included a proforma “menu” which respondents completed. This allowed for “apples to apples” cost comparisons. To be responsive to the RFP, all respondents agreed that obligors would receive full credit for float earnings, as is the case for the current contract. The outcome of the team’s analysis is a recommendation to retain The Bank of New York and Wells Fargo Bank as fiscal agents for the 1997-2001 contract period. The Bank of New York submitted the lowest cost proposal. In addition, the quality of BONY’s proposal, their steady gains made in the quality of service to obligors over the past three years, and the hidden, but very real, cost of conversion all lead to, and support, this recommendation. Finally, the evaluation team applied the fee structures of the respondents against a sample of various sized obligors and bond issues. BONY’s charges are lower than those of the other respondents 77% of the time. Under the new fee structure, no obligor would pay more than what is paid for similar services under the existing fiscal agency contract. The outcome of this study was shared with working group members at a meeting on August 20th and all concerned agreed with the recommendation to maintain the Bank of New York and Wells Fargo. Mr. Kerr presented proposed Resolution No. 843 to the committee.
Resolution No. 843 appointing fiscal agent banks to the State and its political subdivisions pursuant to RCW 43.80. Lieutenant Governor Pritchard moved the adoption of Resolution No. 843. Chairman Grimm seconded the motion and the resolution was adopted. Mr. Kerr spoke to proposed Resolution No. 844 which authorizes the issuance and sale of $66,950,000 State of Washington General Obligation Bonds for the (State Housing Trust Fund), Series 1997C. He explained that in 1986, the Legislature established the Housing Assistance Program under RCW 43.185. The program was intended as a “continuously renewable resource” of loans and grants to 501(c)(3) non-profit organizations, local housing authorities and governments, and other entities with an interest in providing housing to low income persons or persons with special needs. RCW 43.185.010 says that “whenever feasible, assistance should be given in the form of loans.” Coincidentally in 1986, congress passed the 1986 Tax Reform Act. Embedded within this act were many provisions governing the issuance of tax exempt bonds that are still in force today after modifications in the intervening years. These provisions included measures to reduce or eliminate arbitrage and measures respecting the purposes for which tax exempt bonds could be issued. Among these latter measures are those relating to “private activity.” One of these restricts the amount of tax exempt bonds used for private purposes to $5 million or 5% of a bond issue, whichever is less. Mr. Kerr continued, beginning in 1989, the Legislature began appropriating bond proceeds from the State Building Construction Account (057) for use by the Housing Trust Fund as it is popularly called. Under the 1986 Tax Reform Act, the use of bond proceeds to loan to 501(c)(3) organizations for low income housing constitutes a private purpose. Determining the amount “spent” for these private purposes is complicated by the fact that the assistance is in the form of loans to the 501(c)(3) organizations. This creates a situation where proceeds are “spent” when initially loaned and then “spent” again when repayments are recycled for future loans. As a result of these factors, an evaluation by tax counsel, and review by the Office of the State Treasurer and the financial advisor, it is recommended that the State now issue taxable bonds for Housing Trust Fund purposes. This will allow financial segregation of these resources and elimination of any risk that Housing Trust Fund uses will taint the State’s regular tax exempt borrowing. The Department of Community, Trade, and Economic Development’s Housing Division estimates that it disbursed $25 million for Trust Fund purposes during FY96 and will disburse another $40 million before the end of the biennium. Since tax exempt proceeds cannot be used for these purposes (the amounts are in excess of private activity restrictions), $25 million of the proposed issue will be used to reimburse the Treasury for the FY96 disbursements. The response to the proposed issuance of taxable bonds will be to seek the lowest cost method of financing. When compared to the normal tax exempt serial repayment schedule, taxable bonds are approximately 200 basis points (2 percentage points) higher. In the current interest rate environment, a ten-year tax exempt bond would yield approximately 5.10%. Its taxable counterpart would yield 7.25%. As a result, staff has circulated a request for proposals (RFP) to members of the bond underwriting pool soliciting ideas for the most effective method of financing consistent with the Committee’s Debt Issuance Policies. The most advantageous financing proposal will be presented to the Committee before the end of the year to initiate this financing. Discussion followed on the sale of taxable versus non-taxable bonds. Mr. Kerr presented proposed Resolution No. 844 to the committee.
Resolution No. 844 authorizes the issuance and sale of $66,950,000 State of Washington General Obligation Bonds (Housing Trust Fund), Chapter 17, Laws of 1995, 2nd Special Session (Taxable). Lieutenant Governor Pritchard moved the adoption of Resolution No. 844. Chairman Grimm seconded the motion and the resolution was adopted. Ms. Rodeheaver spoke to proposed Resolution No. 845 which approves a financing lease to finance the construction of a Consolidated Information Center on the Tri-Cities Branch Campus of Washington State University, authorizing the State Treasurer to approve terms and conditions and to execute and deliver a certificate purchase contract and authorizing the negotiated issuance of $7,500,000, more or less, certificates of participation. In accordance with the provisions of Section 802(6)(b) of the 1995-1997 Capital Budget Act, Chapter 16, Laws of 1995 and RCW 39.94, Washington State University has requested that the State Finance Committee authorize the above-referenced real estate project. The proposed transaction will finance the construction of that portion of the building designated to be occupied by the United States Department of Energy under the terms of a lease negotiated by and between Washington State University and the General Services Administration. The terms of this lease specify that the federal government will make rental payments equal to the debt service on the certificates of participation issued to finance the construction of the space to be occupied by the United States Department of Energy. The rental payments will commence upon beneficial occupancy of the facility by the federal agency. Under the 1986 Tax Reform Act, the use of proceeds from municipal securities issued for the beneficial use of the federal government constitutes a private purpose. Consequently, the terms of this agreement mandate that the certificates of participation be issued subject to federal income tax. Pursuant to the Lease/Purchase Financing Plan approved by the State Finance Committee at its August 1, 1995, meeting, a Request for Proposals (RFP) was distributed to firms previously approved to serve as underwriters for lease/purchase transactions. The RFP was designed to determine expertise in the issuance of taxable municipal securities. Based on the review of the submitted proposals by State Finance Committee staff, the firm of Smith Barney has been selected to act as senior manager and the firm of Dain Bosworth has been designated co-manager for this transaction. Chairman Grimm questioned what benefit to the state this financing would have. Ms. Rodeheaver stated this would construct a library and environmental and technical center which would serve that region. She further stated that the state would finance only the portion of the building occupied by the federal government and the balance of the financing will be paid by the Washington State University. Mr. Sheeran interjected that this financing had the legislative authority required and that all of the financing cost would be paid via the lease to the federal government resulting in no additional burden on the state. He also commented that Resolutions 845 and 846 are financing leases in excess of $4 million and in accordance with the lease/purchase financing plan are being submitted for approval by the committee. Ms. Rodeheaver presented proposed Resolution No. 845 to the committee.
Resolution No. 845 authorizes the execution of a financing contract for $7,500,000 plus issuance expenses and required reserves for Washington State University (Consolidated Information Center), authorized by Sec. 802 (6)(b), Chapter 16, Laws of 1995, 2nd Special Session (Taxable). Lieutenant Governor Pritchard moved the adoption of Resolution No. 845. Chairman Grimm seconded the motion and the resolution was adopted. Ms. Rodeheaver spoke to proposed Resolution No. 846 approves a financing lease to finance the construction of a new distribution center, including the installation of materials handling equipment, for the Washington State Liquor Control Board, authorizing the State Treasurer to approve terms and conditions and to execute and deliver a certificate purchase contract and authorizing the negotiated issuance of $30,000,000, more or less, certificates of participation. In accordance with the provisions of Section 802(2) of the 1995-1997 Capital Budget Act, Chapter 16, Laws of 1995 and RCW 39.94, the Washington State Liquor Control Board has requested that the State Finance Committee authorize the above referenced real estate project. In support of its request, the Liquor Control Board has obtained the approval of the Office of Financial Management for the financial plan for the construction of the facility and the acquisition of the materials handling equipment, as well as the subsequent repayment of the financing contract. The plan provides for the demolition of the current distribution center and the construction of a new facility on the current site. The acquisition of the materials handling equipment will be administered by the Office of State Procurement, Department of General Administration. The Department of General Administration Division of Property Development will assume the responsibility for negotiating a lease for temporary operations during the demolition and construction of the new distribution center. The cost of relocation and temporary operation will be paid from Liquor Board operating funds. Both Chairman Grimm and Lieutenant Governor Pritchard questioned the cost effectiveness of demolishing a current structure and rebuilding. Mr. Hoing of the Liquor Control Board explained that the building was built in 1948, is outmoded and unsafe and it would cost more to bring it to code than the building is worth. Studies conducted concluded it would be more cost effective to demolish the current building, locate temporarily at another location and rebuild on the current site. He also stated that the City of Seattle has approved temporary quarters for the LCB warehouse. Ms. Rodeheaver presented proposed Resolution No. 846 to the committee.
Resolution No. 846 authorizes the execution of a financing contract for up to $30,000,000 plus issuance expenses and required reserves for the State Liquor Control Board (Distribution Center and Materials Handling Center), authorized by Sec. 802(2), Chapter 16, Laws of 1995, 2nd Special Session, and RCW 39.94. Lieutenant Governor Pritchard moved the adoption of Resolution No. 846. Chairman Grimm seconded the motion and the resolution was adopted. Mr. Sheeran summarized agenda items for future committee meetings. He also mentioned that financial advisor Susan Musselman has formed her own company. Ms. Musselman was formerly with Piper Jaffray which had been retained to advise the staff and committee on lease/purchase financings. Piper Jaffray had requested that they be allowed to assign the advisory services contract to Ms. Musselman. Attorney General Rusty Fallis reviewed contract provisions to assign Ms. Musselman’s duties from Piper Jaffray to Susan D. Musselman, Inc. and found no conflict of interest. Mr. Sheeran stated that the firm Piper Jaffray since no longer serving as an advisor, would now be included in the underwriters pools. There being nothing further to come before the committee, the meeting was adjourned at 10:15 AM.
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