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PSS General Obligation Bond – History & Current Balances Presented By: Tim Thornburgh CNMI PSS General Obligation Bond – History & Current Balances Presented By: Tim Thornburgh CNMI Public School System January 11, 2013 1

House Joint Resolution & Bond Plan • HJR 10 -36 endorsed PSS Seven Year House Joint Resolution & Bond Plan • HJR 10 -36 endorsed PSS Seven Year CIP Plan 1997 -2003 – HJR No. 10 -36 authorized in September of 1997 a public debt of $15, 685, 000 for a new high school and related CIP projects; – Pledged full faith and credit of the CNMI to back the debt issue; – Stated that the interest rate on the debt instrument must not exceed six percent simple interest with a term of ten years. • PSS and CDA teamed together to develop plan for the PSS bond – Issued a RFP for a financial management company to advise PSS and CDA on the bond issue; – California Financial Services (CFS) selected in response to RFP; – CFS brings with them bond underwriter Paine Webber and bond insurer Financial Security Assurance (FSA); – The firm of Orrick, Herrington & Sutcliffe LLP of San Francisco is the bond counsel with Roger Davis as the lead attorney; – PSS, CDA and CFS work together to develop the bond financing plan including a detailed history of the finances of the CNMI. 2

PSS Bond Issue • PSS Bonds were sold on May 1, 1999 by Paine. PSS Bond Issue • PSS Bonds were sold on May 1, 1999 by Paine. Webber – – – PSS bond rating was AAA by Standard & Poors and Moody’s; Interest rate was 3. 963% & term of 10 years; Bonds were sold in increments of $5, 000 per bond; Bonds were triple tax exempt (federal, state and city); Bonds were over-subscripted so bond holders paid a premium to purchase the bonds which netted PSS $540, 000; – PSS and CDA invested $14. 7 million of bond proceeds with Ambac Capital Funding in a guaranteed investment contract (GIC) with 5. 46% annual interest rate; – First year interest earnings were over $800, 000; – Interest on the funds in the GIC earned over $4 million across the ten year project period. 3

CIP Matching funds appropriated – Public Law 11 -89 appropriated $14, 980, 000 in CIP Matching funds appropriated – Public Law 11 -89 appropriated $14, 980, 000 in CIP funds on a $1 per $1 match basis; – Total CIP match and GO bond funds at $14, 980, 000 each total $29, 960, 000; – Repeals PL 11 -78 for MHS gym and adds remaining balances of $670, 937 to the $1. 8 million for completion of the MHS gym; – Gives expenditure authority of CIP funds to Secretary of Public Works in consultation with Chair of Board of Education. 4

School Project Summary n n n Saipan –new schools including Kagman High School, Saipan School Project Summary n n n Saipan –new schools including Kagman High School, Saipan Southern High, Chacha JHS, and MHS gym; Rota – completion of Sinapalo Elementary School, new classrooms and library at RJHS, air cons for RHS, showers and restrooms at RHS and fire alarms and electrical work at RJHS; Tinian – new elementary classrooms, electrical system upgrade at TJSHS, Tinian shower and restroom facilities, collateral equipment for TJSHS, Tinian elementary school playground, and modernization including fire alarms, electrical and plumbing upgrades. 5

Projects funded with bond interest Part 1 Garapan, Tinian and Rota Head Start Center Projects funded with bond interest Part 1 Garapan, Tinian and Rota Head Start Center classrooms at a total cost of $200, 000 each for a total of $600, 000 as per PL 14 -3; n n Additional classrooms (6) at Kagman Elementary School at a cost of $692, 000 as per PL 14 -3; Additional classrooms (6) at Kagman High School at a cost of $620, 000 as per PL 14 -3. 6

Appropriation of any remaining fund balances at closure of indenture of trust n n Appropriation of any remaining fund balances at closure of indenture of trust n n n PL 16 -10 appropriates $291, 210 from PSS GO bond any fund balances at the closure of the indenture of trust for critical classroom repairs, renovation and paving of school parking lots; Expenditure authority is the Commissioner of Education; The indenture of trust closed with the final bond payment on October of 2008; A review of taxes owed to the US based on arbitrage was completed in December of 2008 with no funds owed; On January 8, 2009 remaining funds on deposit with Bank of New York Mellon Trust in the amount of $2, 404, 733 were transferred to the PSS. 7

Projects funded with bond interest Part 2 n n n n Garapan second story Projects funded with bond interest Part 2 n n n n Garapan second story 6 classrooms @ $348, 322 Garapan School Fence @ $115, 161; GTC collateral equipment $95, 367; Rota school projects @ $50, 140; Tinian transformer @ $67, 834; All schools network repairs @ $300, 000; MHS classroom repairs @141, 725 MHS paving @ $118, 760 8

Projects to be completed with bond interest Part 3 n n n n n Projects to be completed with bond interest Part 3 n n n n n Dandan ES parking lot [email protected] $50, 000; Garapan School repairs @ $115, 235 GTC classroom repairs @ $67, 633; HJHS classroom repair & intercom @ $116, 000; Tinian projects TBD @ $532, 000; SVES fence, gutters, stairs repairs @ $ 94, 000; MHS classroom repairs & gutters @ $141, 336; Kagman ES roof and fence repairs @ $20, 000; SAES classroom repairs @ $90, 000; Koblerville ES school repairs @ $30, 000; 9

GO Bond and CIP Match Summary n Expended slightly over $30 million on the GO Bond and CIP Match Summary n Expended slightly over $30 million on the new schools and renovation projects on Saipan, Tinian and Rota; n Interest earned on the GIC funded several worthy school projects with a value of over $4 million on all three islands; n n n Governor reprogrammed $569, 674 of Tinian CIP match funds leaving $532, 207 unmatched in violation of the PL 11 -89 dollar for dollar project match and therefore a fund balance subject to PL 16 -10 with expenditure by the COE for critical classroom repairs and paving of school parking lots. Prepare a new PSS CIP Plan and execute the plan just as we did with the previous plan; Ultimate goal – School Facilities that are safe and conducive to teaching and learning 10