The Issuer Roundtable (CPE)

Transcription:

Alexis Platis (00:00:09):

So welcome to the issuer rectangle. Just kidding, round table. My name is Alexis Platis. I work at Build America Mutual. We are a bond insurer and we are the ones that marry the deals. As that was said in the last panel. We are going to be joined by some folks here who are going to introduce themselves. And why don't you go ahead and start.

Anne Harty (00:00:45):

Sure. My name's Anne Harty. I'm the Chief Financial Officer for the City of Rock Hill, South Carolina. I have been working for governments, just two for my, pretty much my entire career. I spent about four years at a CPA firm and then transitioned to being the finance director at age 27 for the county that Rock Hill is located in. So I spent 14 years with York County, South Carolina as the finance director in treasurer, and then moved on to the City of Rock Hill in 2005. So I've been there 17, 18 years. I'm kind of losing track now, but 33 years total in South Carolina, all in the same county. So I've lost track of how many bonds I've issued, but it's been a lot. And I'm on the National Government Finance Officers Association executive board. I'm in my third year on the executive board, so that's been a great highlight to my career and have been the president at the state level a couple of times. So I'll pass it on to the next person.

Alexis Platis (00:01:53):

Charlie.

Charlie Yadon (00:01:54):

Charlie Yadon. I'm a Senior Associate at the Florida Division of Bond Finance. I interned with Ben Watkins at the division around 2009 when I was undergrad at FSU. Worked there about three years, went to grad school and then went and worked in public finance, investment banking, covering Florida clients for about four years. And then depending on perspective, Ben recruited me or tricked me to come back to the state in 2017 and I've been there since. And at the division we issue probably north of 35 different credits for state agencies, universities, kind of a wide spectrum, so get a lot of exposure. I think we're kind of a mini investment bank at the division where we do a lot of stuff. We do all the DVC numbers, so good experience there. And that's all I got on Larry.

Larry Spring (00:02:49):

Good morning everyone. My name is Larry Spring. I'm the Chief Financial Officer for the City of Miami. Now for the second time in my municipal career, first 10 years of my professional career, I was in commercial banking, internal audit, treasury management and accounting, various banks from Louisiana back to Florida. I settled into municipal government back in 2002 at the city of Miami. Started out over strategy and budget and was promoted to chief financial officer back in 2006. Since then, I've worked as an executive of Public Health Trust here, Jackson Health Systems, which is also a county agency. Also been a city manager of City of North Miami, which is a small municipality in Miami-Dade County. And my side hobby between jobs is I'm a real estate development consultant, so I've probably delivered on in the last four or five years, maybe 3000 units throughout South Florida. So I'm happy to be here with you guys.

Alexis Platis (00:04:09):

Do you guys have other side hustles you want to.

Anne Harty (00:04:14):

Grandma?

Alexis Platis (00:04:17):

Well thank all three of you. And when we met initially, we tried to think about a common thread that they all had. And I think what really felt like the best topic for us to start with was each of you guys have indicated that you've all been through the rating agency process many times or are currently going through it. And so I thought it would be interesting to talk about the trends that you guys have seen with the rating agencies and their questions and concerns and focuses whether in your opinion you feel that the focus is appropriately placed or not, but kind of expound upon that and can kick it off with Anne.

Anne Harty (00:05:10):

Okay. I will say we've been through the rating process twice recently. In December, we talked to the rating analyst about water and sewer and electric bond, 162 million. We heard in the first panel the cost of regulatory issues with water and sewer. And we are in the process of just completing a water plant expansion and are moving on to expanding our sewer plant. So Rock Hill is located about 20, 25 miles south of Charlotte, North Carolina, and we are the regional water and sewer provider in our area supplying several other cities. So that was a large issue that we did in December and then closed in February. And just last week we met with the analyst virtually for a hospitality tax issue for sporting events. So also due to our proximity to Charlotte, we are big into sports tourism industry. And one thing going on in Rock Hill right now is the World Championship BMX event, which brings people in from 40 different countries.

(00:06:21):

So we are looking, of course our BMX facility is in good shape for the world championship, but we did do a hospitality tax issue recently. One of the things I'll first point out and we'll have some other comments from other people is that I think there's focus on the expense side of things. How are we dealing with retention? What's happening with the inflationary aspects, particularly in salaries and wages? Since we're service industries, there's a lot of focus on CFP's. What are we doing? Do we have problems with deferred maintenance because of the increased cost of capital projects? So I'll start out mentioning those as a few things that I'm seeing as a trend in the rating calls that are a little bit unique and current trends happening right now with inflation.

Charlie Yadon (00:07:17):

So I'll pick it up. We're basically, given the amount of credits we cover, I'm basically 365 and some sort of rating surveillance, never ending questions. There's not a piece of data that they don't, some analyst doesn't want to see at some point in time. So we all went through the ESG phase of the three different approaches from the three big rating agencies, Moody's, Fitch, and S&P. I think at this point in our view, S&P and Fitch are generally getting it right. We still struggle with Moody's assigning a real numeric score and I think that's driven by a top down approach where they want to have every single entity they rate across the entire spectrum with a uniform ESG score. And that just doesn't necessarily fit. I mean we went to battle with them early on about their score and our social and basically our education score that they had us in Florida ranked the same as some countries like Cuba or something where I think I'd much rather have a child in school in Florida than some of the countries that they ranked us even.

(00:08:20):

And their explanation was basically, well, we can't have that many S two ranked or education ranked in the second whatever their rating is in the us. So we had to kind of pull you guys down. But we've seen a real positive shift in that I think sort of away from that focus on ESG. And from our perspective there is very clearly if it's related to the credit, and obviously in Florida it makes sense, you have to talk about hurricane risk, you have to talk about some level of environmental risk. But having the separate ESG score and our sort of bright line definition was you cannot have that ESG scores start factoring into your rating analysis of the state. And we haven't seen that so far. So I think we're in a good space there. One thing that we've seen recently, so we just did the 1 billion cap fund transaction and that's top of everyone's mind in Florida is property insurance.

(00:09:15):

And sort of where that goes to is affordability. We're getting questions a lot about is it still affordable to move to Florida? That's been one of the legs of a three-legged growth story of Florida. You have people moving in because it's cheaper to live here, it's low cost of living, great weather, stuff like that. And starting to question are we seeing anything in terms of net and migration and factors like that, housing starts, things like that. And we just have not seen that in Florida yet. And on the flip side of that, not that anyone wants to pay more for property insurance, but I think we might just be a little bit ahead of the curve of insurers in our state pricing in risk like they should. And that's one positive. I look at the way we've approached property insurance versus something like California where they're sort of pushing on rates is that we're allowing the market to price the risk as it should and that short-term pain, but I think long-term, it develops or helps maintain a solid private market for insurance, which is our ultimate goal. We don't want to be in the business of property insurance. And so that's been a big aspect. And so those are I think the two things that we've seen most recently.

Larry Spring (00:10:33):

Thanks, Charlie. I guess I'm a little bit of an old dog here, actually just got off a due diligence call not an hour ago. Half of my team is sitting here in the audience as well. One of the things from, and I'll give an age perspective, you have the state of Florida where Charlie is and then you have the city of Miami. It almost stands on its own. It's been the epicenter of the real estate boom and bust over the last 20 years. One of the things that always is on the forefront when we're doing rating calls is where are we in that? Are we at a hill or win a valley on our real estate market? And I've probably been around now both privately and publicly for four or five different ups and downs and cycles. So that seems to be a big thing, particularly now on our last set of calls, the commercial real estate market is a huge concern office, but in Miami, our mixed use, our residential, our resi business is so vibrant and we get investment from all over the world every other day or from depending on what our esteemed mayor is doing, attracting techs from California, people are here.

(00:11:58):

So we seem to be staving it off. So they ask about that Charlie and also brought up insurance costs. Yes, Florida is the hurricane alley and both commercially residential single family insurance costs has gone up. So they take a real hard look at where we are in that as well. Over the years I've seen, I think we've all experienced that. The rating agencies have. Charlie said, we're now we're all on one form kind of evaluation form, check the boxes and we move on. And there's not as much engagement as it used to be where I'm really talking to the analysts and we're going around, we're going to a building. So we don't have that as much. So you're really just, your numbers got to be good. You're the disclosure questions have to be good and answers to them and you move on. The last thing that I'll say that has come to light, and I see my good friend Albert Del Castillo sitting there is what's happening in the media.

(00:13:03):

And particularly if you've been watching Miami, our mayor just ran for president and a lot of things have popped up around his involvement in the race and that became, and Albert's here, when you guys talked to him individually, it became a thing and we argued about it. We went back and forth around it, but we had to answer, Hey, what's going, I read this or I saw this. What's going on with that? And really try to create, while we don't know anything about those matters, right, not city matters, we had to still put disclosure and answer those matters and address them as best we could. Ultimately, we just did a $285 million deal that sold oversubscribed five times and we were fined, the ratings were great. The rating agencies recently just upgraded the city's AA based on management stability. So my city manager, myself, the team provides for the stability.

(00:14:09):

They have experience. We're getting our projects done, we are reinvesting in resiliency. So they're looking like you said, the capital plan, what are you guys, what are you being proactive about at the end of the day? But the real kicker to me is really responding to the social media or the reports if you will, that quite frankly have nothing to do with the fact that people are paying their avalor taxes at 95% collection rate or we have strong other revenue sales tax, we continue to have new residents moving in every day. All of that stuff, which is what should be mattering isn't as important anymore. So those are the things I've been noticing.

Anne Harty (00:14:57):

I'll add to questions on cybersecurity. I'm sure y'all have had those, but there are a lot more questions on cyber insurance, what we've done for cybersecurity, ransomware, those types of questions that are relatively new, I think in the rating process.

Alexis Platis (00:15:21):

And if there are any rating agency analysts in the room, you can feel free to, we love you all yourselves at any point. But so why don't we stick to this topic a bit and why don't you guys talk about some of your issuing plans. I know we also touched a little bit in our discussions on the uptick in alternative financings, which I personally do not prefer, but as an insurer. But feel free to kind of weave that in as well.

Larry Spring (00:15:56):

I'll speak to, so I've seen a lot, you're out in the market and I have another municipality that I do some work with, help advise 'em a little bit, and they need to redo their water plant and their utility. Well, it's a small municipality with 60,000 people and they just don't have an extra 600 million sitting around. So they have gone to the public-private partnership market to look at a means of financing a very well needed reinvestment into their infrastructure. That process was kind of protracted in that we had to go reeducate the entire council because I'm sure you guys see this all the time. Oh P three, that means someone's giving me something for free. No, you're going to pay for it. They're just putting it on their balance sheet and we're going to get it done for you. Or they're going to have operating and rate control for the next 35 years.

(00:17:06):

And politically you have to deal with that. So it's been an education process, but that's been kind of the one that I've seen. The other one in particular to the city of Miami, we've already done 2 85. We're in the market in two weeks for another 300 million. And so we're getting to our debt capacity limit for right now, but we have another, we need to replace our police station, our fire station and the current locations sit on prime real estate in downtown Miami. So hey, instead of us just going to the traditional market, let's take advantage of this prime real estate value that's right here in our hands that's not taxed and let's work out a deal. So that transaction will be done as a P three in order to take advantage. Even the debt issuance we did for our new administration building, which I referred to the 2 85, there's a public private partnership component of it because giving up our existing location and thanks to the team, we were able to structure our debt in a way that we can defease about 80 million of it short of 10 years because we're going to receive an option payment the day we move out of the building, the existing building.

(00:18:25):

So looking at those alternatives, and at the end of the day, if you have on 2 85, you got 80, that's a big savings in your interest going forward. You really have to take advantage of those value propositions that exist there. And that's something I'm seeing, that's something I'm personally leading and recommending from my city going forward.

Anne Harty (00:18:49):

In Rock Hill. I spent about two years of my life working on the Panthers deal that eventually fell apart. But so alternative financing has been something in Rock Hill that we've used for different developments. And our structure has sort of been that we've issued installment purchase revenue bonds overlaid by municipal improvement district. So we have the developers come in and agree to a municipal improvement district as a backstop on the debt for the installment purchase revenue bond so that if they don't produce the taxable investment within the timeframe to pay the debt service, an assessment kicks in, which makes the debt service payment there regardless of if there's taxable development or not. And if there's not taxable development and there is a mid and they don't pay the mid, then we have a lien on the real estate of the developer so that we can go in and take the property.

(00:19:49):

And that structure has worked very well in Rock Hill with development and developers and sharing in the risk or not putting the risk of the developer onto the people of the city of Rock Hill to pay that debt. So that structure has been one that we have used with several different developments. It's been very successful. We do hear a lot of, I can't think of another word other than whining right now from developers about how this isn't going to make our project work, but we stand pretty firm, as you can tell from the situation with the Panther headquarters not being issued in the end and they walked away, I never would've thought in negotiating that deal that every time they built more things, I thought there's no way they're going to walk away from this. They had over a hundred million dollars in infrastructure on this piece of land, but I underestimated the ability of very rich people to walk away.

(00:20:58):

But Rock Hill does have the piece of real estate now. We are a marketing in it for sale, and we never did issue debt. So that has been the story of that two years of wasted time. But anyway, so the installment purchase revenue bond with a mid backstop has been one that we have used. We've also used the installment purchase revenue bond structure as a mechanism for allowing the developer to use textile mill credits. So Rock Hill is a historically textile town, and with the textile mills going, we have these sites that can be cleaned up with the help of the government and help of different grants to clean up the sites and redevelop them into something useful. And we have textile mill credits available. So we've used the installment purchase revenue bond coupled with a purchase contract to have developers build and sell to us parking decks or other infrastructure related to the development.

(00:21:57):

And then we use the installment purchase revenue bond to make for the city to make lease payments that ultimately make the debt service payment of the installment revenue bond, which is issued in the name of a corporation. So that has worked in terms of allowing the developer to capture textile mill credits during the construction period. They have to own the asset until it is completed. So at co, we've entered into purchase contracts to purchase the completed project, whatever it be, but usually it's parking deck at the point of co. And we purchase that through an installment purchase revenue bonds. So we've been able to do that successfully to spur development in our area.

Charlie Yadon (00:22:46):

So I think I'm more on the line of Alexis. We're big fans of traditional municipal bonds at the state in general. I think we just view that the state can do the finance part of A-D-B-F-O-M better than the private market can with availability payment structure. We view it as you're leveraging the state's balance sheet and you're taking AAA rated state and you're turning into something like a triple B rated piece of credit, and that doesn't make any sense for us. And then we look at, we've had some history on these and some of them have been successful, some mostly successful. But one of the questions we struggle is how much risk is actually being transferred? You always hear people like to say, well, you're putting on the developer's balance sheet, but we've seen it in the higher ed space where the rating agencies have caught onto that basically in saying, well, you're building something on your land that's primarily for your students and you're making an annual payment of availability payment, that's debt, that's your debt.

(00:23:46):

You're in a position where you cannot let that fail. You haven't really transferred that risk, and it's certainly debt. And that's how we look at it for all of our state debt metrics. I think that was one of the appeals of p threes early on was, oh, we have all these rules around debt, but this isn't debt so we can do something that we couldn't otherwise do. And we've closed that loophole. The state level, when you see our debt affordability report, all the p threes are captured in that and viewed exactly the same as debt for our approval processes like with the board of governors for again, higher ed debt. Those are all, they go through a very similar review process to the board and then back to the risk transfer, I think about the I four ultimate, one of the appeals, again with I guess p threes is you can do I think DOT view that is we can take what we would have to parcel out piecemeal over years and years and years.

(00:24:34):

We can sign one contract and have one construction firm, one consortium step in and do the whole thing. But then this consortium hadn't really built in Florida and there were troubles with piling, sinking and shifting, and all of a sudden you're a year or two delayed and they're asking for an additional couple hundred million to finish the project. And if you're the state's respective, you're back into a corner, you have to kind of step up and pay that because a major interstate through one of our major cities. So the developer kind of messes up and you haven't transferred that risk at all. So we haven't done many P threes recently, and I don't know of any in the pipeline. There were a couple in the higher ed space that were moving, but got killed for various reasons. I mean, we struggle even just from the terms of a P three where we've hit it on a couple of them where when you want to refi the debt, the developer wants to take 50% of the savings from that refunding, and that's a non-starter for us. We don't think they necessarily need any, but we push for 80, 20 or 90 something where they have a little bit of skin in the game. But really, again, you're leveraging our balance sheet. Why are you benefiting from a refinancing on that balance sheet? So yeah, we're very focused on traditional municipal bonds.

Alexis Platis (00:25:59):

Fair enough. Just in terms of plans going forward, and can you speak to what do you guys have in the hopper for debt issuance or potentially alternative financing, but generally speaking for the city, do you have any big plans? I know you're in the middle of, you just met with them.

Anne Harty (00:26:22):

Yes. So we are working on a couple of things right now, a sewer plan expansion, which is very expensive as we've already talked about, and how to spread that over a term so that we don't have rate shock with our customers in our utility system. So we have incorporated into our budget about 1% for Pego capital projects, and we've done that in order to stabilize rates so that we're raising our water and sewer rates like 3% a year in anticipation of that line item for Pego projects becoming our debt service payment in the future when we take on the very large amount for the sewer plant expansion. Some of the frustrations, I think the panel before us talked about were the federal regulations related to the plants and the cost and the affordability. So those are all concerns. So we've been working on that plan expansion in order to meet the capacity requirements predicted, and of course you have to start that way before.

(00:27:31):

So we have a lot of long-term financial plans in terms of our water and sewer and electric. We also have an electric system, so we have a lot of long-term plans there. The hospitality tax issue, we met with the rating analyst last week. We have a big sports tourism niche I guess in Rock Hill, our proximity to Charlotte and then international airport is something that we capitalize on for that. So I don't know if anybody in here has brought children through a U or other sports activities through Rock Hill, but we have a lot going on there in terms of high school age and college age tourism we had last year, and I'm going to vary off the subject a little bit and talk about some of the things that we did during Covid to keep our city going during the economic downturn. We did host the thinking outside of the box.

(00:28:33):

We had a basketball facility and we hosted the first live ESPN televised sports event, which was the American Cornhole Championship in order to keep our restaurants and hotels and facilities going. So that was held in May right after covid shut the world down in March. So we've had that and that has spun off into other events that we've, again, thinking outside of the box this year we had ESPN Ocho, which how many are familiar with ESPN Ocho, the weird sports. So we used our basketball arena for the National Pillow Flight contest, which was televised on ESPN as well as the slippery stairs, the revenue. So I think these stories are kind of fun. When we went up to New York in December, we did a little bit of a preview on our hospitality tax bonds and talked about how we think outside of the box in terms of not only financing, but how to keep our economy going.

(00:29:46):

And I told, I don't know why I said this and I don't know why I'm saying it now, but I said, I even got a selfie with Shamar Moore and the analysts truly gasp. Then the men in the room said, who is that? So anyway, so ESPN Ocho was a good event, but that's just some of the things that we've done and we're doing with our hospitality tax issue. We're getting ready to build an annex to our basket arena because of the popularity there and the teams that we've had, we have a big Adidas group that comes in. We have combines for sports for college basketball players. We have the BMX worlds coming, sort of unique sporting events that we've found to be very successful. But our hospitality tax bond that we had a rating call on last week also has in it some focus on some other areas of a renovation of a 1960s high school that the city took ownership of after segregation that we're going to renovate into an arts and dance competitions, those kinds of gymnastic competitions, more stage events plays and that kind of thing.

Alexis Platis (00:31:18):

Nice. Yeah, go ahead. With the bond financed projects.

Charlie Yadon (00:31:24):

So I'll start staying on the sports theme In the higher ed space, Florida's fully engaged in the college sports arms race. We've seen USF did a pretty significant bank loan for a new stadium on their campus. UCF is going through in June, I think seeking board of governor's approval for a stadium enhancement project there. It's a little bit different there. They got $90 million of tourist development tax dollars from Orange County and that's paying for the bulk of the project. So just a little bit of long-term bonds there, but I don't think that qualifies as alternative financing. And then FSU, if you guys follow college sports, there's a lot of uncertainty in general about the future and I think specifically with FSU, but we're in the market right now or printed the POS on Friday for about 327 million of debt for FSU to finance, stadium improvements kind of renovations there and more premium seating and then a football operations standalone facility.

(00:32:27):

And I wanted to circle back real fast to the rating side of it. That's one thing that I've seen a positive development at the rating agencies is looking. I think they're starting to anchor their ratings more on the actual issuer IDR and I think we've benefited that or benefited from that with FSU where it's a AA one, AA plus rated issuer. And so even though you have kind of this more volatility on the athletic revenue side, they're ultimately saying, is FSU going to step up even if they under state law can't legally pledge regular university dollars, will they step up? And I think that was one kind of tying to covid we always talked about, that's kind of the assumption if you have a high rated issue, are they really going to tarnish their name in the credit markets over one of their credits?

(00:33:18):

And we saw kind of firsthand, and I think it's benefited, our ratings since then is during covid, all the universities across the state stepped up in Florida. We have segregated credits for housing, parking, student union, all of that. You're not allowed to just pledge a university go. And pretty much across the board, every single university stepped up providing her funds or other revenues to each auxiliary to keep them functioning and paying debt service. And so that's been a positive. And I think maybe it's, Moody's has a criteria coming out for tax back revenue bonds where they're also going to more anchor it, I think start their analysis with the issuer credit rating and then kind of notch down from there rather than the other way around. Because we see that if you look at our cap fund bonds, we're AA from three rating agencies and still AA three from Moody's.

(00:34:09):

And I think that was a little bit of their criteria boxing them in, and they're sort of reevaluating that. And that obviously benefits a AAA rated state like Florida. It could have the opposite effect. I think in the past you've seen where Chicago was lower rated and they could turn around and issue AAA rated sales tax securitization bonds, and I think the rating agencies moved away from that because push comes to shove. If Chicago's in default, the legal can say all they want to say, what's going to happen with those sales tax revenues? So that's a big thing we're working on. I've spent probably two years on that FSU deal and so hopefully looking forward to good execution. We've sent it to some colleagues of yours at BAM to see if they'll wrap it, which we should find out in the next week or so. And then switching to the state, we've had the luxury of using pego for a lot of things. Most of our bonding right now is focused on transportation infrastructure. I'm sure Crystal mentioned it in the next panel, the moving floor forward program of 4 billion of additional accelerating big meaningful infrastructure projects in the state. And a lot of that is going to be general revenue funded, but a good bit is going to be debt issued as well.

(00:35:23):

And then we have, I think the state right now, 15 to 20 billion in unallocated GR reserves or I guess total state reserves. And so we've had, again, the luxury of not needing to bond as much. One example, we were looking at a state resiliency program that was originally going to be debt funded, secured by the same documentary stamp taxes that we use for Florida forever and Everglades Restoration. But ultimately the state decided we're just going to do an upfront payment with cash instead of those bonds. Kind of along those same lines, we just finally, I think might still be some legal challenges, I don't know, but the seminal gaming compact is basically in the free and clear and money is flowing and all of that money that may have in another situation been debt funded to fund these projects. That's all going towards environmental priorities in the state. So that's again sort of a lack of issuing because we have so much money to that point. We've actually, we're going the opposite way of issuing. We're also actively trying to buy down debt and defe debt. Last year we got a $200 million appropriation of general revenues and we use that along with some funds in two programs to defease $400 million of bonds in PICO in our state revolving fund credit. And then this year, the next fiscal year, starting July one, we have $500 million appropriated for buybacks, tenders, DFEs, kind of a wide flexibility to deploy that money to buy down state debt. And then again, going back to the Pego, we've seen sort of a dramatic shift in some of our credits. So Pico, our public education capital outlay, I think it's still probably our largest single debt program. We've issued one new money in the past 10 years, probably in 2016. And so we've kind of went on a diet there where your pay go, but your debt service is going down slightly.

(00:37:23):

And we used to have a billion, billion one of gross receipts taxes, which is the pledge revenue, and we would bond up to a billion, billion one. We're now at a point where we're at probably 1.2 billion of gross receipts and our debt services down to 550 million, 600 million. So we've kind of crossed that threshold where a majority of those tax dollars are now going and available for Pego projects, whereas in the past they were levered up entirely. So it takes some discipline to get through that period where if you've been leveraging a tax stream forever and you stop, it takes some time before you really see that benefit. But we're starting to see that there. And that's again, going back to not necessarily bonding. The state is providing a lot of additional funding to universities for deferred maintenance and capital because we have all those dollars freed up in PICO right now.

Larry Spring (00:38:13):

Well, I wish I had as much money as Charlie.

Charlie Yadon (00:38:18):

They don't give me that.

Larry Spring (00:38:22):

So like everyone else, city of Miami is dealing with extreme capital needs. We are a unique city in that for many, many years. I know people love coming down here. We're both the richest and the poorest city at the same time because we have such a diverse population and that brings diverse needs. I've spent the last 24 months working with our mayor and our city commission trying to develop a five-year plan to do more PayGo for deferred capital needs. That number right now is in excess of a hundred million dollars. And that's just police cars, fire trucks, garbage trucks, heavy equipment needs. Of course the departments, they're like, oh, just go borrow. Let's go borrow money and we can just borrow. And I'm like, no, that because there's a bunch of different programming and leasing options out there, but it gets us into a dirty cycle that I don't like as a CFO in the traditional market where I told you we're getting ready to sell 300 million of a $400 million authorization, the remaining a hundred million is all towards affordable housing, which is a critical need here in South Florida.

(00:39:53):

And I think probably the country as a whole, we've been working on a plan with the mayor to analyze what our geo capacity is. I think there's a desire to do more in that vein. And when I say more maybe like a half a billion dollars in geo authorization just solely towards affordable housing, I would say the city has done a good job. They had a geo approved towards resiliency, so flooding issues, flood mitigation drainage, and that's what we're selling here in a couple of days. And those projects, we've done our intent resolutions and we're off to the market on that. But the biggest need, which is unfortunately not in our control here in south Florida is transportation. If you guys have been driving around, I'm sure you've gotten stuck on I 95 at some point in the last 15 minutes. So working with the county, I know my mayor and the county mayor, they've been having some conversations about is there an opportunity to do something in the way of transportation because it's really needed. People just love their cars here in South Florida again, but our bonding plans are going to be pretty traditional. It's going to be the affordable, it'll probably be some more structure and then the inventory of the buildings too. Like we are getting a new administration building. We are getting new fire headquarters, new police headquarters. When you add that, just those two things you're talking about, I don't know, 600, $700 million, just three buildings, not much room. I would love to do more pay, but I wish the Seminoles were paying us too.

Alexis Platis (00:41:52):

So speaking of Pego, one of the questions that I was going to ask, but I think Anne segued nicely was during Covid or right after covid, the federal government made some nice injections into a lot of these municipalities and the budgets, you guys received some relief. So question is sort of how did you guys put that money to work? And clearly some of you still have a lot of it. Are you seeing a need to adjust from that as well? And that's probably part of the rating agency questions I would assume. So it ties nicely into that first question.

Larry Spring (00:42:37):

If you allow me, I'll jump into it first. So yes, there is hundreds of millions of dollars that were given to the city of Miami, either directly or indirectly. What I've seen is the elected officials felt that those resources really should get pushed out to the citizens for the most part. So basically it was divide by six. So the mayor has his pot, the commissioners have their pot, and then they're deploying it via CBOs. Now they are supporting housing projects, but most of it is really just being given out. We did a little bit by way of some public safety reinvestment with some of the dollars because our fire rescue department deployed a lot of the covid recovery stuff. So they got some equipment needs and some logistical needs satisfied, but for the most part that money is literally going out. Matter of fact, with our upper dollars, we did something a lot of cities have done, which is we took it all in as revenue recovery and then we put it in a special revenue fund for them to give out to the public.

(00:43:53):

So I hate to use the word washed it, but in essence what we did and now we have a deadline to get the money out and it is like pulling teeth. I think they're kind of using it as they're, Hey, we are doing the right thing as elected officials to really help the residents as much as possible. But we're like, Hey, there's still a deadline out here and we have to go through this compliance. Hey, does it meet this, this and this? And a lot of 'em, I remember we had an agency, we gave a million dollars to support their operations and their programming. They don't have the infrastructure to even comply with what's needed. So I know that money is about to come back and then we'll have to figure how to get it out and get it spent before we lose it. And I know there's some initiative to just go ahead and say, just turn it all back in at this point by the federal government too. But that's kind of what we've been doing. So we've kept it out of our, we've not let it go into our recurring operations at all. We've kept it separate, so there's really nothing to recover from. We didn't use it in that way. And I know that's not the case for a lot of municipalities here in south Florida.

Charlie Yadon (00:45:08):

I will say that is the same kind of for the state, not that I'm the expert on federal aid. Again, I think Chris probably he lived that a lot more than I did on getting those dollars in and out the door. But I do know we never used ARPA funds to balance our budget. We didn't create new recurring spending programs we're going to have to backfill later. It was really focused on deploying the funds on strategic capital investments for the same things I mentioned earlier, transportation environment, resiliency, things like that. So again, similar to Larry, there's not going to be a hangover from ARPA funds in the state's budget. We're going to be rocking and rolling like normal.

Anne Harty (00:45:48):

I would say the same for Rock Hill. We funded our transit system for a couple of years from cures Act funds and set aside, we still budgeted the money for our transit system and set that aside in reserves and ended up purchasing more buses with or replacement buses with the money that we were able to put aside. But we really didn't change. I mean we pretty, we didn't use any type of federal aid money for ongoing purposes. It was all planned so that we would not get ourselves into a situation where we could not continue operations. We did some one-time bonuses for employees, mainly police and fire. We ran a vaccination clinic, we did. That was something new for me being in the finance world. But every department participated in the vaccination clinic and we had probably over 500 volunteers, doctors and nurses that helped administer vaccinations.

(00:46:55):

So we used some of our federal aid to do that. I think we administered 59,000 vaccines in about two months through volunteers and city workers. We used all of our bicycle racks to route people through the process to receive injections, but we didn't use any of our federal aid. We did give some out. We had a program to help people with paying their utility bills, which was kind of self-serving, right, because we were the utility. But we did use some of our federal aid to help pay our utility bills, which kept our utility system financially stable and have weaned people back into being accustomed to pay their utility bills now.

Alexis Platis (00:47:48):

Do you guys have anything else you wanted to touch on? Because I know that I think we've covered it and I'll obviously hand it over to questions, but I did want to give you guys a chance if you had anything else.

Larry Spring (00:48:03):

Wow, we were that exciting, huh?

Audience Member 1 (00:48:15):

So this question's mostly for Charlie. You kind of said after several years when a P three is up and running and doing well, the GP likes to refinance and oftentimes in the process extracts some equity and that kind of rubs you the wrong way. I believe you said it was a non-starter part of that. My question is why? I mean they took the risk. Things are working out in the state's view. Is it immoral for a GP to make money? And I don't mean that. That's basically the best way I know how to ask that. And then does it make the state or the state's negotiating abilities look bad when the gps do well? Is that something you want to avoid basically? Maybe put more succinctly, is this an economic thing or a PR thing?

Charlie Yadon (00:49:06):

I think it is really more economic ties back to the fact I think we can do it cheaper. I mean, I'm trying to remember the exact, maybe it was the I 5 95 refi, one of them where I think initially they had an 11% IRR or something and two or three years later they refi that out and they've got a 25% basically they earned that for renting their money for two or three years and just goes from the state's perspective. Why are we paying that level of IRR when we can finance that tax exempt interest rates, especially during that time period rates were historically low, just feels like we can get a better deal doing it with municipal bonds. And we did with DOT and it's been a stop and start thing. We created the DOT Finance corporation specifically to offer them a vehicle that if they want to do a DBOM or basically P off the finance part of a DBFOM and hand it to the state and we'll finance it and backfill it. I don't know that the outside the consortiums, I don't think they ever thrilled with that or we haven't seen much uptick in it. But kind of at the same time, we've just generally moved away from p threes since we kind of instituted that. But that was first used, I think it's a 95, 595 or 395 interchange. I don't know. All the 90 fives get confused.

Larry Spring (00:50:28):

Now 395 it, 595.

Charlie Yadon (00:50:29):

That was one. Well, there's one that DOT Finance corporation actually did. We did it three tranches over three or four years, and that was sort of an alternative to doing that as a P three that they went out and did a design build and we did the finance part. And again, it goes back to the cost of funds. We just think it doesn't make sense. And again, not that there's some moral repension with someone earning 25% or other than we don't think that's a necessary cost that we need to be paying out that level of ILR.

Audience Member 2 (00:51:02):

Did that cost more money?

Charlie Yadon (00:51:09):

I'd have to think back of it. I don't know that it explicitly cost us more money when they refinanced it versus I think just looking back, had we done that deal as a municipal bond.

Larry Spring (00:51:18):

It would've been cheaper.

Charlie Yadon (00:51:18):

It's less about the refinancing I guess, than the overall P three.

Larry Spring (00:51:22):

I'd like to address that. Having been on both sides, I have a client in Michigan that I'm working on a redevelopment of a town center, which is requiring about $150 million of infrastructure investment. And the answer to your question is it's a PR and political answer. They've allowed us to put an IRR in the model as they're approving it, but it's limited to, they told us we can go to 15% I think and it'll be okay. But if the market shifts or something like that, to your point, yeah, they would. They'll say, well, we're going to reduce, instead of giving you 150 million, we're going to make that a hundred or we're going to make it 120. Because politically I think for them it looks bad. The adage of, oh, the developer, the rich developer is making a bunch of money on the backs of the public regardless of where the real factual corners are for the transaction.

(00:52:27):

And it's something I think it is incumbent upon all of you who are in this market. It's an education thing. At the end of the day, we have to, if we are leveraging someone else's balance sheet for whatever period, we have a good understanding of what that might mean to the people who are making the political decision the approval so they really understand it so they can frame it properly. What is the true public benefit side of this at the end of the day, and it happens, I mean we just finished negotiating $2 billion deal with Hyatt City on land. It's 99 year lease, but they're about to put $2 billion into the ground. So should we really care how much they make? As long as I get my conference space, my taxes, my affordable housing that we've been promised out of the transaction. So that one, it passed referendum and it passed city commission. Everybody's happy and we'll be off to the races in six months with a new facility under construction.

Alexis Platis (00:53:47):

You have time for one more question? Oh yeah, sorry. Okay, sure.

Audience Member Rebecca (00:53:49):

I'm Rebecca Reynolds Russell with Regions Bank, and my question is really for Anne and Larry, when you all look at building a new venue or facility in your cities and what economic benchmarks are you looking at to justify the investment and then at what point do you decide to do it taxable versus tax exempt so that you can really open up the use to commercial enterprise?

Anne Harty (00:54:23):

I think we look at a lot of different things on our sports venues. We look at needs of our local residents, all of our sports venues, we always have some type of a local benefit to the people and then the hospitality tax, we look at what might be generated through the new venue in order to grow that tax source. And we're seeing anywhere from 6 to 11% growth in our hospitality tax revenues every year. So far on the unique type sporting events that we've targeted the taxable versus tax exempt, we have done most of our parking decks taxable. I think the market's changing a little bit now where that may not make as much sense as it did a few years ago, but we are trying to consider tax exempt issues when it does. As to Larry's point, make some activity that our community needs happen that probably would not happen without that tax exempt financing such as affordable housing. So I think it ties to the need, but we do take those considerations into account when we plan our projects.

Larry Spring (00:55:52):

For me and my experience in this space is solely a wrapped around the Marlins, the Miami Marlin Stadium deal that we did some years ago. There were a lot of considerations. Initially we had the historic Orange Bowl facility, 70 years old in need of major repair. We were negotiating with University of Miami. We put up 250 million for a renovation and I remember the day Paul D and Joe Nato, my counterpart CFO at the University of Miami, we made the offer, they got up and they left and the next day we got a letter saying that they were leaving the ob. So we had an elephant in the middle of our city that we weren't going to use anymore that only had one tenant. Anyways, so that was a what do you do with that? That was a major consideration. You also had the situation, and these are the outside things where the University of Miami, the Marlins and the Dolphins were all going to be in one venue, so a lot of conversion and stuff like that.

(00:57:00):

So there was an opportunity ultimately if any of you've read about that story in the public. I was personally sued by a very wealthy gentleman in the city of Miami as well as the city and the county for doing that deal. They felt we gave too much public benefit, if you will, to the operator on the city side. I think it was a great deal. We had had a 30 acre parcel with no use. At the end of the day, we turned it over the drip line to the county. The county gave us TDT money to build parking garages. The team pays for the parking outright at the beginning of the season, which more than satisfies the debt. And at the end of now another 20 years allegedly we'll get the stadium back. Not that we need it.

(00:58:03):

I think I'm okay to say because it's happening now. We've acquired land the city around the stadium footprint and we are actively pursuing doing some community enhancements, parks, more retail around the footprint to actually deliver on what the original hope and goal was, which is to create an economic engine, which typically does not come with just building a stadium. It's what you do around it that creates that. So more jobs, more housing opportunity, more retail, more commercial and a destination. So many things come into play. And I go back to that litigation. The lawsuit basis was did you look at the Marlins financials and know how much they were making before you guys made this decision to give them 250 million on a $550 million, $15 million bill? The question was officially know it doesn't matter as long as we all the elected officials and everybody agrees this is what we want to do. So a lot of things come into that and I'll be at my son's football game now and somebody, oh, that dag on Marlin Stadium. I wish I knew the idiot who did that thing. Yeah, me too.

(00:59:29):

It's the thing, and that goes back to your question, where's the right balance? Was it okay for us to do that with the private operator, the team, we've gotten them committed now for probably another 50, 60 years to be at that location and the upside potential for things to happen. The team has turned hands now two times since then, but you never know what could happen out of it. So those are those political questions. Hey, are you getting enough out or not? We also did the soccer stadium. I just caught the back of it with the inner Miami team. I'm sure you all are messy fans. Everyone is right, and that team's value in that case. We're not putting a dime in the team's doing everything now. We gave up half of my beautiful golf course that I built when I was at the city the last time, and I hate that, but it was a decision.

(01:00:33):

It was voted on by the voters and it is what it is. In that case, it's all public benefit because they're putting all the money, they're cleaning up the site, they're turning back over a city park and now we get all this tax money. So it wouldn't be done tax exempt in that case. It would all be taxable and that situation, and we're going to make quite a bit of money on that transaction. In the Marlin Stadium, it was both anything that was going to be predominantly privately used had to be taxable anyways, we did have some arguments with that deal as we settled down who should own what, which is we made some decisions here. County, you take it, you have home rule charter, so at least the stadium won't get taxed. And I think Albert probably remembers that. We went back and forth on the taxable tax exempt on the garages. It got little sticky and we settled on something at the end of the day and it's in the bond covenant and we're working through it, but it's now fully leased up now, so we're getting somewhere. Finally, it only took 15 years, but we're getting somewhere.

Alexis Platis (01:01:48):

I love the fact that they pulled you back the city, they recognize competency and they were not going to let you go. I think we're over. Thank you, all three of you.

Larry Spring (01:02:01):

Thank you all.