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by Luke MullinsA Senate subcommittee that has been examining the effectiveness of, government, agencies will take a close look this week at the embattled Small Business, Administration., The subcommittee will hear testimony Thursday from proponents and critics, of the SBA, including a witness who will call on Congress to eliminate the, 53-year-old agency, which has been harshly criticized for its response to, Hurricane Katrina., Sen. Tom Coburn, an Oklahoma Republican, leads the Homeland Security and, Governmental Affairs Subcommittee on Federal Financial Management, Government, Information, and International Security., Capitol Hill lawmakers are looking for ways to trim spending in the face, of widening budget deficits, and so far Sen. Coburn's committee has held 29, hearings on the effectiveness of agencies and programs throughout the, federal, government., Still, that the SBA is under review at all has at least one, small-business group nervous., In a news release last week, the American Small Business League said the, indicates that rumors about government plans to close the, Conservatives have generally taken a dim view of the SBA's lending, programs, and some SBA advocates say they think President Bush would, abolish, the agency if he had enough political support. It is well known in, Washington, that the Reagan administration tried to do so in the 1980s., But Sen. Coburn insisted that the hearing is about government efficiency, by the trade group's, scare, It is absurd to suggest that I have a hidden agenda to harm small, said Sen. Coburn, I believe the Senate has, responsibility to ensure that the government is operating efficiently so, economy can sustain the costly war on terror, hurricane recovery effort, expanding Medicare, Medicaid, The SBA, for its part, says it does not view the hearing as a threat to, its existence. Its administrator, Hector V. Barreto, is scheduled to, testify., Our understanding has always been that this hearing is about the, financial management of the SBA, particularly the capital access programs, a spokesman said Friday, in an e-mailed statement., Though the hearing itself may not focus on the elimination of the SBA, the testimony of at least one witness will., Veronique de Rugy, a research fellow at the American Enterprise, Institute, a conservative think tank in Washington, plans to tell lawmakers, should be cut from an overloaded, Ms. de Rugy said., Ms. de Rugy slammed the SBA's flagship 7(a) loan program, which backs, loans to small businesses with a government guarantee, saying that it, causes, SBA lenders to loosen their underwriting standards, which leads to higher, defaults., Of the $126 billion of loans it has guaranteed since *1992-, the SBA has, charged off about $7.3 billion, or about 5.7%, according to a recent SBA, report. The default rate on its direct loans, which it makes to businesses, and homeowners affected by disasters, is above 10%., Ms. de Rugy said the tax dollars used to bail out bad SBA loans are an, inappropriate use of public funds., Moreover, she criticized the SBA for gauging its effectiveness by the, amount of financial support it provides, rather than by the performances of, the loans themselves. The SBA said that in fiscal 2005 it guaranteed or, made, $19 billion of loans to small businesses, the most in any year in its, history., Another SBA critic scheduled to testify before the subcommittee is, Jonathan Bean, a professor of American history at Southern Illinois, Big Government and Affirmative, Like Ms. de Rugy, Mr. Bean pointed out that SBA-backed loans make up a, small fraction of business lending and said that businesses would still, have, access to capital without the SBA guarantee. In fact, has more support from banks and members of Congress than from the business, community., projects,, Mr. Bean said. After the 9, 11 terrorist attacks, the loans were provided to, firms far removed from the World Trade Center, including fishermen in, Alaska, and wedding photographers in Cape Cod, Mr. Bean said., Still, If Ronald Reagan couldn't do it, it's unlikely that this Congress will, said., Paul Merski, the chief economist at the Independent Community Bankers of, America, said the criticism from Mr. Bean and Ms. de Rugy misses the point., He agreed there is plenty of capital available but said that many small, businesses are start-ups with no track records, and that banks would not, lend, to them without the security of the SBA guarantee., The whole purpose of the SBA guarantee is to get more capital to, businesses that are on the margins and would not qualify for commercial, Mr. Merski said., He added that most conventional commercial loans must be repaid within, five years, but that the SBA guarantee lets banks extend repayment terms, 10, 15, even 30 years, which keeps monthly payments low., For a small company that is just starting out, cash flow matters, said.
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by Matt AckermannGoldman Sachs Corp.'s cash management business says it wants to develop, share by mining more banks in the United States and by looking abroad for, clients., The business, which has developed $125 billion of assets under management, since opening in *1981-, has increased managed assets by 20% to 25% in the, past, 12 months and ranks among the top three institutional money market fund, managers globally. Dave Fishman, a co-chief investment officer at the unit, the Wall Street company, said half of its distribution is through banks, and he, hopes to develop share in this segment., Mr. Fishman projected 10% to 20% annual growth for the next three to five, years., Our mission statement is to be the preeminent partner, the top, and [to], connect our clients to other resources at Goldman Sachs. We are working to, The business has relationships with 1,000 U.S. banks., We have a pretty robust roster of clients that runs the gamut from small, community banks to large global banks and everything in between, Beth Anderson, also a co-chief investment officer at the unit, said, Goldman's success in cash management would rely on continued organic, growth., Going forward, we are going to have to target the large banks' offshore, We have had good distribution through U.S.-based, global banks. Offshore growth is one of our largest distribution, The company plans to target Europe with its cash management products and, services. Ms. Anderson said that banks doing business in Europe have a lot, interest in Goldman's offshore and onshore products. Mr. Fishman said, that, to, be the preeminent provider, the cash management business must add products, satisfy client demand, but he did not specify any potential new product., Its products for institutional and individual investors worldwide include, taxable and tax-advantaged, onshore and offshore, and dollar-, euro-, As banks get larger and, larger, they are dealing with multinational corporations that have onshore, Ms. Anderson said Goldman Sachs' cash management unit is developing its, The more outgoing calls the, This is the kind of sale where it can take a year to get on a, bank, platform. This is not low hanging fruit. We are trying to develop long-term, The unit also wants to continue adding share in the United States where, Mr. Fishman said, cash management and money market funds are mature, business, Virtually every bank in the U.S. has heard of us and uses money, Some multinational corporations haven't. We want, grow market share with our existing customers and grow share as a whole by, using education to convert new users that are not familiar with our, and more names to, Many smaller U.S. banks are potential partners, Mr. Fishman said., Analysts said it is difficult for companies to gain share in cash, management and money market funds because so many banks offer proprietary, money management products. For the most part customers do not mind whether, these products are proprietary, the analysts said, because most money funds, Most large banks have their own money market funds, Ms. Anderson, conceded, and large competitors such as JPMorgan Chase & Co. (which is No., Federated Investors Inc., and Reserve Funds also have considerable, share., Mr. Fishman said Goldman can grow if it secures partnerships with more, If these institutions can grow their assets, we will grow, with, We will be able to distribute our funds, and they will be, Ms. Anderson said that beyond Europe Goldman plans to expand its cash, management business into Asia., We are looking into China and Japan, and we think that there is a great, We don't have specific plans in China yet,, we think there will be some great opportunities early next year or later, this
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by Paul DavisAs Bank of America Corp. announced its second investment in a Latin, American bank in three years, chief executive Kenneth D. Lewis expressed, concern about an issue that could affect its hold on the Hispanic market in, the U.S., In a wide-ranging presentation, Mr. Lewis said Tuesday that Wal-Mart, Stores Inc. could threaten B of A's Hispanic strategy if the retailer gets, bank charter., We're the bank that has more Hispanic customers than any other, and one, of the issues in that community ... is that they don't trust banks, said, I think, they, would be more likely to go to a Wal-Mart because they do so already, rather, Mr. Lewis, who is also B of A's chairman and president, weighed in on, recent reports that he is interested in building his own credit card, network., is something that I threw out as an idea that we have the, but there's nothing on the, There would be many variables to consider before starting such a network, but I threw it out as something that will always be on the table, from, the Bentonville, Ark., retailer and he does not oppose its getting a, charter,, as long as it would have to answer to the same regulators as other banks, Banks have long coveted more business from the Hispanic community but, have found that documentation and language can be barriers. In March *2003-, help develop its business contacts with Hispanics by offering products, such as, money transfers, B of A bought a 24.9% stake in the Mexican Grupo, Financiero, Santander Serfin., On Tuesday, B of A announced a deal that Mr. Lewis said would enhance its, ability to serve its customers in Latin America. It said it had agreed to, sell, its BankBoston operation in Brazil to Banco Itau Holding Financiera SA, Brazil's second-largest bank., In return, a spokesman said, it will get a 5.8% stake in Itau, valued at, $2.2 billion. The deal is expected to close by yearend., Bank of America also agreed to negotiate on the sale of its BankBoston, operations in Chile and Uruguay exclusively with Itau, such a sale would, enable the $1.4 trillion-asset Charlotte company to increase its stake in, Brazilian bank., The B of A spokesman said the Brazil, Chile, and Uruguay operations are, the last Latin American businesses remaining from the company's April *2004-, acquisition of FleetBoston Financial Group., The deal announced Tuesday appears to underscore an emerging market, strategy that has favored investment over outright ownership. However, while, past investments in Grupo Financiero and in China Construction Bank (B of A, paid $3 billion last year for a 9% stake with the right increase it to, 19.9%), the latest deal involves the divestiture of an entire business, unit., On Tuesday's call, Mr. Lewis said the BankBoston Brazil sale would allow, just aren't big, enough, to really move the needle or be an important factor in any particular, in Brazil, and the deal will, Jonathan B. Balkind, an analyst at Swiss Reinsurance Co.'s Fox-Pitt, allows B of A to enhance its, while reducing the operational, B of A has sold several Latin American operations. Last year it agreed to, sell its asset management business in Mexico and the assets of BankBoston, Argentina., The Banco Itau deal may be the last time it takes a minority stake in a, foreign company for a while. Mr. Lewis said in an interview after last, summer's deal with China Construction Bank that there would be a limit to, such deals.
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by Katie Kuehner-HebertLove of the arts was not the only motive behind First National Bank of, Arizona's first art show last week., After more than 40 invited guests got a look at work by a local artist, Diana Clauss, at a gallery in tony Old Town Scottsdale, the bank gave a, presentation on how to use artwork to enhance the value of a trust., said Jane Puplava, a, We'd, to let more high net-worth, people know about it., For years big banking companies such as Citigroup Inc. and Bank of, America Corp. have run divisions that manage trusts with art holdings, advise, clients, and finance their purchase and sale of art., Large banks have gone to great lengths to entice people who own valuable, art and jewelry collections to use their services, said MaryAnn Johnson, associate director of the American Bankers Association's professional, development group. For example, some routinely treat preferred clients to, exclusive previews of art auctions at prominent houses like Christie's and, Sotheby's., Burton J. Greenwald, an analyst at BJ Greenwald Associates in, Philadelphia, said art shows are a creative way for a community bank to, These are natural hunting grounds for, highly affluent people, and it's a good way for bankers to ingratiate, Ms. Puplava said First National gives advice about using art in, charitable remainder trusts. These can sell the client's holdings, invest, proceeds in securities, and pay the investment income to the client or, someone, else for life or until the trust ends. Any balance goes to a designated, charity, such as the American Red Cross., Ms. Johnson said charitable trusts are getting more popular because more, and while they may be altruistic in, making these types of donations, The trust shields the sale proceeds from capital-gains and estate taxes, and the trust income generates annual tax deductions for the client., First National receives fee income -- Ms. Puplava would not say how much, -- for administering such trusts. They make up only a small percentage of, assets under management, but more art shows and other events, should, help that figure grow., the end of last year the bank's wealth management department, set up, about two years ago, was managing $800 million of assets, said Bob, Blakemore,, the executive vice president who runs it. By the end of this year that, figure, should be $900 million, last, year, to $3.6 million, and should hit $5 million this year, During last week's art show, First National officials also informed, attendees on how they could donate art directly to museums. Ms. Puplava, said, the bank would get no compensation from such donations but thinks giving, advice will encourage clients to consider it for estate planning., If we build deeper relationships with customers, the fee income will, First National may also give presentations at a prominent Scottsdale, jewelry store about the benefits of using jewelry in estate planning, said. It may also put on a fashion show to reach affluent people who, frequent, such events.
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by Erick BergquistDiversification may be paying off for payday lenders that have large stakes in other businesses, judging from the earnings this week of two of the industry's major players., Cash America International Inc. reported Thursday that its third-quarter net income jumped 35% from a year earlier, to $12.94 million, or 42 cents a share, beating the average of analysts' expectations by a penny, according to Yahoo Finance. The Fort Worth payday lender, check casher, Advance America, Cash Advance Centers Inc. of Spartanburg, S.C., the nation's largest monoline payday lender, reported Wednesday that its third-quarter income rose 13.2%, to $18 million, or 22 cents a share, matching the average of analysts' estimates, according to Thomson First Call., Cash America said Thursday that a 14% rise in revenue from a year earlier caused earnings to increase to $165.6 million. Revenue from cash advance fees rose 20%, to $48.4 million. Revenue from finance and service charges on pawn loans and from merchandise sales rose 12% from a year earlier, to $114.3 million., Daniel R. Feehan, Cash America's president and chief executive officer, said, Advance America said Wednesday that its total revenue for the third quarter rose 3.4% from a year earlier, to $178.6 million. Excluding branches in Arkansas, Illinois, Indiana, and Pennsylvania, where legislative and regulatory changes hurt revenue, third-quarter revenue for branches opened before July 1, *2005-, and still open Sept. 30, *2006-, rose 11% from a year earlier., Gross profit for the centers was $48.4 million, compared with $45.7 million a year earlier., Cash America provides pawn loans through 474 locations in 23 states that use the brand names Cash America Pawn and SuperPawn. It offers short-term cash advances in many of its locations, check-cashing centers., Advance America was founded in 1997 and is the country's largest provider of payday cash advance services through roughly 2
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by Humberto SanchezA burgeoning trend kicked off when private foreign firms started leasing, toll roads from state and local governments around the nation has sent U.S., transportation infrastructure finance players scrambling -- including, funneling billions of dollars into infrastructure investment funds and, rethinking their traditional roles -- to get a piece of the action., It all started with the Chicago Skyway, which was leased for 99 years by, the city of Chicago to a consortium led by Australia-based Macquarie, Infrastructure Group and Spain-based Cintra Concesiones de Infraestructuras, de Transporte SA. The deal closed in January 2005., The 7.8-mile toll road was built in 1958 and connects the Dan Ryan, Expressway on the west end to the Indiana Toll Road on the east end., Under the deal, Chicago received a $1.83 billion cash payment from the, Cintra-Macquarie group, which took over operation and maintenance of the, road, and keeps the toll revenue collected through 2104. The deal allows the, private, group to raise the tolls on a schedule negotiated with the city. Tolls for, passenger cars are capped at $2.50 until 2008 and rise incrementally to, $5.00, starting in 2017., This transaction between the consortium and Chicago was the first, privatization of an existing toll road anywhere in the United States., Most recently, the same pair of companies is close to closing a deal with, Indiana on a 75-year lease deal for its toll road, a 157-mile highway that, runs east to west along the state's northern boarder, in exchange for a, $3.8, billion upfront payment., While it is too early to declare that the nation is in a new era of, transportation infrastructure finance, several traditional transportation, finance firms are betting that if we aren't yet, we ultimately will be., Many companies, including investment banks Goldman, Sachs & Co., JPMorgan, Chase & Co., Morgan Stanley, as well as the giant construction and, engineering, firm Parsons, are actively seeking out concession deals, and Macquarie is, exploring the possibility of leasing U.S. airports, according to recent, interviews with company officials and representatives., Their interest also comes as the Virginia Department of Transportation, last month agreed in principle to a 99-year concession deal -- including, operations, maintenance, and collection of toll revenue -- with Transurban, Ltd., an Australia-based toll road operator, for the Richmond-area, Pocahontas, Parkway. Under the deal Transurban would pay VDOT $525 million., Traditionally states and localities have relied on federal, state, local gas taxes vehicle fees and other revenues, along with municipal bonds, to finance transportation infrastructure. But those sources have not kept, pace with the nation's growing infrastructure needs., THIRD FINANCING OPTION, The private sector capital now interested in public infrastructure, that should be considered as part of any, said Mark Florian, chief operating officer of Goldman's, municipal finance and infrastructure group., The gist of this business really grew up out of need, in places such as, Europe and Australia, and other parts of the world where there is not a, big,, Governments needed to build, projects,, but didn't necessarily have access to the very liquid municipal bond market, that we have in the United States. What they would do is ask the private, sector to come in and build facilities and give the private sector the, ability to collect revenue as an enticement to get them to build it in the, Following the Macquarie-Cintra group's execution of the Skyway concession, in January *2005-, Goldman reorganized its municipal finance group in March, 2006. As part of the reorganization, Tracy Wolstencroft was brought in to, head the group from Goldman's corporate investment banking team., The reorganization at Goldman Sachs took place with a couple of things, One is to grow our existing, municipal, finance business, which is a debt and derivatives business. The second is, is really about growing the existing business and as well, Henry M. Paulson Jr., Goldman's chairman and chief executive, very, of the change towards moving into the private concession, sector,, according to Florian. Paulson was nominated late last month by President, Bush, to become Treasury secretary., Florian does not believe that there are any tax rules or regulations that, Paulson could change in order to help the private concession market grow., The federal government has been relatively accommodating to date -- this, There is nothing that the, A sign of the administration's general support came last month when, Transportation Secretary Norman Y. Mineta spoke before opening the day's, trading at the Nasdaq stock exchange. He urged investment and engineering, firms to lead the privatization charge., The time is now for United States investors -- including our financial, construction, and engineering institutions -- to get involved in, Their involvement will be, crucial, if we ever hope to have the funds necessary to build the transportation, network required by our rapidly growing economy. Private capital will give, those communities willing to embrace it an opportunity to augment public, Florian did, however, point out that loosening tolling restrictions on, the Interstate highway system would be beneficial to expanding the public, infrastructure privatization market., One initiative local governments could take that might attract private, investment is to build new high-occupancy toll lanes on existing free, roads,, he suggested. HOT lanes, which are actively being planned in Virginia, Maryland, and other states, would increase capacity on the road and, relieve congestion, while leaving a drive-for-free option., RAISING CAPITAL, Meanwhile, Goldman Sachs, the Carlyle Group, a private equity firm, other investment companies are putting together funds -- Goldman's is, estimated to be worth about $3 billion and Carlyle's roughly $1 billion --, that are designed to acquire transportation infrastructure assets around, nation, according to published reports., In March, around the same time as the Goldman reorganization, Carlyle, announced that it established a team to conduct investments in the, infrastructure sector., Carlyle's Infrastructure team will invest primarily in U.S., infrastructure in transactions ranging from $100 million to more than $1, The team will engage in, public-private, partnerships with governments at all levels as well as purchase projects, Morgan Stanley is putting together an infrastructure fund, which is part, of its asset management business, firm officials said in an interview. But, they did not provide any other details citing restrictions during fund, raising., Their interest in privatization comes as the firms increasingly see, municipalities look to corporate finance frameworks to solve public finance, problems, according to Robert Collins, a Chicago-based Morgan Stanley, executive director who heads the mergers and acquisition group., We are having dialogues with those clients that have underfunded pension, plans or vast budget deficits to explore unlocking any latent equity value, These kinds of dialogues have been, The firm is exploring private deals for both existing infrastructure, sometimes referred to a brownfields, and to build new infrastructure, known, as greenfields., We are looking at both sides of it, the greenfield and the brownfield, we are looking at working with municipal entities to advise them on all, said Eugene Devlin, a Morgan, Stanley, managing director and head of the firms public finance department., Devlin also noted that he was skeptical that the privatization trend, I think, this will supplement the projects that would not normally get done, said., Banks are typically raising dollars primarily from foreign pension funds, and insurance companies, which are seeking investments that yield more than, municipal bonds, but are not as volatile as stocks and equities., These types of investments make a lot of sense for pension funds because, a lot of these pension funds have very long liabilities where they are, going, to be paying out a lot of money for the next 30, 50 years, said one, For them to have a long duration asset that is generating cash, flow, that is pretty steady cash flow over a long period of time is perfect. It, is a, A lot of insurance companies have investment pools that last for a long, They have reserves they need to, The recent influx of available capital is coming from nations like, Australia, where Macquarie and TransUrban are based. Australia introduced, compulsory pensions 15 years ago., The Australians have an awful lot of pension money to put to work and, they are looking for stable long-term investments that produce stable, returns, said Michael C., Finnegan, a, managing director with JPMorgan., JPMorgan is building a fund, but Finnegan did not have any other details, about it. He noted that the bank's leaders keep Finnegan's group -- which, advises state and local governments on concession deals -- separate from, side of the business that raises private dollars., With capital in hand, the investment firms are actively seeking out, concession projects., For example, Goldman is currently working on several concession projects, including seven Texas greenfield toll road facilities., JPMorgan has submitted a study to Harris County, which includes Houston, that explores a sale of its extensive toll network. The county is, considering, other financing studies and deciding what avenues to pursue., Also in Texas, two groups of private firms last week submitted proposals, to finance the extension of Interstate 69 through the state. Each one of, groups includes one of the two firms that worked together on the Chicago, Indiana deals., Morgan Stanley is part of a consortium led by Spain-based FCC, Construccion S.A. that is bidding to design, build operate and finance a, tunnel that will improve access to the Port of Miami. The other two bidders, include a group led by French firm Bouygues Travaux Publics, of which ABN, AMRO Bank NV is a partner, and a team led by Spanish firm Dragados, Concesiones de Infraestructuras SA., Under the proposed deal, the Florida Department of Transportation, once, the tunnel is built, would pay the winning team an annual payment over 35, years, instead of requiring drivers to pay a toll when using the tunnel., would be reduced by, number of hours that lanes are closed or the tunnel does not meet, negotiated, operating requirements. The technique has been used primarily in Europe., PARSONS, Parsons is traditionally known as an engineering, design, construction firm, as the privatization of the public infrastructure, sector has appeared on the horizon, they too intend to branch out from, project design, development, and delivery., We are trying to stay current with new approaches to financing and, said Jeff Squires, a vice president with, Parsons., At this stage we are starting to talk to concessionaires about being a, full, partner, not just in the delivery of the project, but also in the long-term, Squires -- a former aide to Sen. Jim Jeffords, I-Vt., on the Senate, Environment and Public Works Committee and the Senate Finance Committee --, stressed that discussions are still in their early stages. He also did not, specify what firms are involved or what projects were being considered., beyond project, as we expand the nature of our, participation,, As an example of the firm's interest in the growing business, Squires, pointed out that Parsons is part of a consortium building the Kicking Horse, Canyon project in British Columbia., The project involves phase two of the construction of the Kicking Horse, Canyon roadway and bridge, and a 25-year concession for the operation, maintenance and rehabilitation of approximately 26 kilometers of the, Trans-Canada Highway between the Highway 95 intersection in Golden, British, Columbia, and the western boundary of Yoho National Park., Squires noted that while foreign firms currently are the leaders private, I think there are a lot of familiar domestic [firms], that, He pointed out that the established foreign firms have an advantage, because they have a portfolio of assets that allows them to mitigate risk, associated with taking on these deals., Each of these projects has a different performance curve with different, points in time that are expected to yield different outcomes and if you, can blend that it helps you to advance more comfortably, Squires said., RISK OF REGULATION, Efforts by Congress to limit how states or cities could spend private, concession dollars or protect consumers from unreasonable toll increase, schedules could also pose risks for the fledgling business, sources said., Sources said that Democrats on the House Transportation and, Infrastructure Committee have been meeting with experts, but that it is, unclear if the lawmakers will draft or introduce legislation that would, regulate infrastructure privatization., At a hearing last month on private transportation infrastructure, financing before the committee's highway subcommittee, Rep. Peter DeFazio, D-Ore., raised concerns over allowing private firms to profit from the use, public infrastructure., During the hearing, Gov. Mitch Daniels, who appeared before the panel, said that tolls on the Indiana Toll Road, which is run by the state, been raised since *1985-, in part because no Indiana politicians wanted to, back, such a politically unpopular move., DeFazio argued that by leasing the Indiana Toll Road, Daniels was, to raise tolls to the private sector., In response, Daniels stressed that the $3.8 billion Indiana Toll Road, concession deal would allow the state to finance nearly $5 billion of other, badly needed road projects that it could not have done otherwise. The $5, billion figure includes the $3.8 billion upfront payment plus $900 million, interest the state expects to earn., Opponents to the toll road deal last week argued before the state Supreme, Court that the planned use of proceeds from the lease is unconstitutional, that the money should instead be used to pay off debt. A lower state court, recently ruled that under state law the opponents would have to post a $1.9, billion bond in order to pursue the case on its merits. The lease deal is, expected to close by June 30., More recently, another observer raised the possibility that congressional, partisan divisiveness could also rear its head in conjunction with, privately, financed greenfield projects because those projects would not have, requirements that come with using federal dollars, for example, compliance, with the Davis-Bacon Act requirements on prevailing wages., I think that the ability to do major projects without federal funding, could represents a concern in some quarters that maybe some of the, protections that are built into the federal program would be absent, As I listen to the early discussions I think it portends, Davis-Bacon is a Depression-era labor law that requires payment of, prevailing wages on projects financed with federal funds., The issue is controversial in Congress and often pits labor against, management and the interests of Northern and Northeastern states, which, have, a heavily unionized labor forces, against Southern and Western states, where unions are not as entrenched., MACQUARIE EYES U.S. AIRPORTS, Macquarie manages a $24 billion investment portfolio, which includes, investments in more than 90 infrastructure facilities in more than 20, countries. The firm specializes in different types of infrastructure, including toll roads, airports and airport-related assets,, telecommunications, water, rail, port, energy generation, transmission and, distribution assets, as well as water and wastewater., Given the scope of the types of infrastructure that have been privatized, around the world, some are looking to expand the phenomenon in this country, beyond toll roads., everyone is starting to look at power generation assets,, health care assets, surplus real estate, JPMorgan's Finnegan said., One area that the Macquarie hopes to develop in the U.S. is airport, privatization, according to John Cline, a lobbyist with C2 Group, which, represents the firm., Macquarie believes that now is the right time to explore that avenue, because the Vision 100--Century of Aviation Reauthorization Act expires at, the end of fiscal 2007. Debate on renewing the law, which governs the, Federal, Aviation Administration and authorizes funding for its programs, expected, to intensify as lawmakers focus on the issue next year., Cline said that the hurdles are higher for airport privatization than for, highways. He cites language in current law that mandates that revenues, generated from an airport have to be used on the airport. While a few, airports have deals with private operators to run their facilities, such as, Indianapolis International Airport with airport firm BAA, the language in, current law prevents private firms from owning or leasing U.S. airports on, It makes it very difficult for a private entity to come in, earn a profit, and not be able to take the money off of the airport, However, the firm sees an opportunity because airport infrastructure is, crumbling and traditional financing sources -- federal dollars and bonds --, will not be adequate to make the needed improvements., The landscape is also changing on the airport side, there are, insufficient resources for the capital investment that is needed, both for, airport runway redesign and additions, as well as terminal developments, [The FAA wants] to move from a, ground-based radar system to a satellite-based system, which is a $10, billion, to $15 billion investment. There are lots of investments in the aviation, world, Cline said that Macquarie, which owns shares in airports in Copenhagen, Rome, Sydney, and Brussels, is well-positioned to privatize U.S. airports., The lobbyist said discussions with lawmakers and the U.S. Department of, Transportation about the issue are underway., One issue that has concerned some public airport operators and airlines, over the prospect, according to Cline, is that cities would use the funds, they make from a long-term lease deal to pay for pension or post-pension, costs at the expense of growing airport and other transportation-related, needs., But restricting the use of proceeds from a concession deal to, reinvestment in infrastructure could alleviate the issue. Along with, seeking, airport deregulation, Macquarie plans to continue to seek out concessions, highways, Cline said., Certainly this [privatization movement] cannot be depicted yet as a, infrastructure projects are going forward as publicly financed traditional, But there is no doubt that with the Skyway and the Indiana toll road, transactions there are people out looking at all sort of deals, Cline, said.
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by Adam L. CataldoChange is in the wind for Puerto Rico's Government Development Bank., Since its creation in *1942-, the GDB has played a vital role in protecting, the commonwealth's fiscal stability and promoting social and economic, development. The bank also helps provide financing public entities to pay, infrastructure and public works projects, services, and for private company, projects that promote economic development., The commonwealth's political and financial difficulties in recent years, have prodded Puerto Rico to increasingly rely on the GDB for its expertise, and support. And that, in turn, has weakened the bank's finances., Bank officials are working to make significant changes in its, relationship with the commonwealth., During a recent interview with The Bond Buyer, GDB chairman Alfredo, Salazar said the bank wants to step away from its role as a lender to the, government and other public entities., Some of [the issuers] as their financial structure improves, and some of, them have an excellent financial structure and they have high ratings --, they, have higher ratings than the central government -- they can go to the, market,, and in cases like the water authority. They are not in the market now but, expect a year from now they will have a investment grade rating and will be, said Jorge Irizarry, the bank's executive vice, In that sense, they will not need to borrow from, the GDB. They might issue commercial paper on their own credit as a bridge, loan or they might borrow directly from the bank rather than from the GDB, then eventually they go to the long term-bond market when there is enough, deal, Irizarry said the bank thinks commercial institutions are ready step in, to make loans to the government and other public institutions., The banks have been talking more and more about this. They have appetite, for government risk because they have very low exposure to the government, So in light of that and the fact that we have been lending, more to the government than we have in the past, we said lets let the banks, take this role of GDB's traditional role of lending to the government and, According to Thomson Financial, Citigroup Global Markets Inc., Securities LLC, Lehman Brothers, and Goldman, Sachs & Co. have been the top, senior managers of Puerto Rico debt by par amount from January 2001 through, last Thursday., Over that time Citigroup has underwritten $6.75 billion of debt and UBS, has underwritten $6.53 billion, while Lehman has underwritten $5.49 billion, and Goldman $4.28 billion. Calls to five banks who have underwritten Puerto, Rico debt were not returned at press time or were unavailable for comment., Stepping back from its current role would allow the bank to return to its, role of fiscal agent and liquidity provider to Puerto Rico and its, governmental entities. Irizarry said letting private bank's step somewhat, into the GDB's current role would also allow the bank to change its loan to, asset ratio., The effect on GDB is that we go back to lets say a 40% loan to asset, radio instead of a 60% loan to asset ratio, and the difference is in, investments. We will be buying more marketable securities instead of loans, which are much more liquid because there is a secondary market, Irizarry, The loan to asset ratio used to be more in the neighborhood of 40%., What happened was we started lending more to the government and having less, Irizarry said that as recently as 2003 the bank did not have any loans to, the government. In the early part of this decade the bank loans totaled, about, $3 billion. Now, about $6 billion of the bank's $10 billion of assets are, outstanding loans., Back then our liquidity was twice as large and the loans were half as, much. So what we did was shift from liquid assets into loans, Irizarry, said., The assets were obviously smaller but proportionally our loan to asset, ratio, The decision to shift GDB's focus and its holdings occurred when the, current board of directors took over in *2005-, Irizarry said., Some of this was already being developed as a new strategy for GDB, Irizarry said., In late March, Standard & Poor's placed its GDB ratings on CreditWatch, with a negative outlook., They were placed on credit watch because of the local government, said Victoria Wagner, an analyst with the financial, institutions, They are more embedded in meeting the, financial, needs of the local government overall rather than just providing interim, financing for local municipalities and agencies before they go to the bond, The CreditWatch applies to the GDB's counterparty credit rating, senior, debt, and certificates of deposit, which are all rated BBB, and the bank's, commercial paper, which is rated A2. The agency rates the commonwealth's, general obligation debt BBB. The agency has tracked the GDB since 1991., when we first rated them, was a pure liquidity provider and fiscal, agent to the government. The use of its financial resources and its balance, The role of GDB has changed and as a, result of a change in its role we see some changes in its financial, Wagner said GDB is now providing liquidity support for longer periods of, time than it did in the past, and spending some of its capital., The agency's CreditWatch came before a fiscal crisis in May led to the, suspension non-essential operations for two weeks after the government said, it did not have enough money to maintain operations through the current, fiscal year., Operations were restored after GDB agreed to provide a loan expected to, total $500 million. GDB officials have said it will be the last, deficit-financing loan they will make to the government., Prior to last month, the GDB had already made more than $1 billion in, deficit financing loans to the government's general fund over helping, contribute to a shift the bank's loans to assets ratio., In 2004 the government had the bank make its first ever dividend payment, totaling $500 million to pay for public works projects. The bank also, provided an additional $500 million in loans for the program., Puerto Rico's governor appoints the GDB's seven-member board of, directors. As a result changes at the political level can help or hurt the, GDB from a ratings perspective., Under the administration of former Gov. Sila Calderon had the GDB, provided $1 billion, including $500 million in direct aid in the form of a, dividend payment, to the Special Communities Trust. That program paid for, capital improvement projects in the most economically depressed communities, within Puerto Rico., They never did a capital distribution before [Calderon] authorized, Wagner said., Part of our fundamental view is we view it as the GDB's direction is, beholden to the commonwealth's direction, or their activities are beholden, the commonwealth's direction and the commonwealth's needs, said Tim, Blake, an, They can try to become more, effective, in what they do and influence what the commonwealth does, but ultimately, they, The agency recently assigned a rating of Baa3 to the GDB's sale of about, $740 million of notes last month. While it rates the commonwealth and, several, of its credits, Blake said it was the first time the GDB had been rated in, about 20 years. That rating mirrors Moody's GO debt rating on the, commonwealth, which was downgraded in May to Baa3 from Baa2, just a notch, above junk-bond status., Fitch Ratings does not rate the GDB or the commonwealth., There are two parts of their plan and they both make sense, Blake said., One is to shift there funding from short-term sources to long-term, sources., That is good. The second plan is to try to revert to a smaller loan book, that's positive. Their loan book has swelled to over $6 billion. That, requires a lot of funding. The strategy of reducing the loan book and, reducing the reliance on short term funding, those two components will
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by Jill D'ambrosioA mutual fund launched last year by YieldQuest Funds that seeks to, produce high tax-exempt income through a variety of instruments including, municipal bonds and closed-end funds has so far produced successful, returns., the Atlanta-based firm is planning to debut a short-term tax-exempt, fund, in 2007., Since its Nov. 1 inception, the YieldQuest Tax-Exempt Bond Fund has, produced a total return of 4.62% through Wednesday, according to Jay, Chitnis,, a portfolio manager and chief investment officer at YieldQuest Advisors, LLC,, which manages the fund. That compares with a return of 1.56% for the Lehman, Brothers Municipal Bond Index over the six-month period from Nov.1 through, the end of April., The $34 million fund generally invests at least 80% of its assets in, municipal bonds that are not subject to the federal income tax or, alternative, minimum tax, either directly or indirectly through closed-end funds whose, underlying investments are also exempt from taxes, according to the fund's, prospectus., As part of its focus on undervalued securities and those with the, greatest yield opportunities, the fund also invests in non-investment-grade, tax-exempt bonds to boost its income. A 25% maximum limit of net assets has, been set for junk bonds, according to the prospectus, but Chitnis maintains, that the actual percentage is typically far lower., The reality is that we will rarely, if ever, get to that ceiling, said, noting that the percentage of junk bonds in the fund has typically, been, in the single or low double digits., According to the fund's most recent quarterly schedule of portfolio, holdings filed with the Securities and Exchange Commission, as of Jan. 31, roughly 58% of its assets consisted of 66 individual muni bond issues. An, additional 36% of its assets were invested in 28 different closed-end, funds., Almost 13% of the fund's assets are invested in a tax-exempt money market, fund., The fund may also invest up to 20% of its net assets in preferred stocks, taxable bonds, and other securities. The fund had 2% invested in CharterMac, and Municipal Mortgage & Equity LLC, both of which are affordable housing, providers that invest heavily in municipal bonds and therefore produce, dividends that are partly tax-exempt., The fund's prospectus also allows for the use of hedging transactions for, the purposes of duration management. According to the latest schedule of, portfolio holdings, the fund had investments totaling slightly more than 9%, of its assets that were listed as liabilities. One market analyst said, those, liabilities may consist of short positions in Treasuries or interest rate, swaps., It's, For us, it's, One of the fund's strategies includes increasing or reducing its duration, -- a measure of sensitivity to interest rates -- based on the firm's, interest, rate outlook. The fund will keep a longer portfolio duration when rates are, expected to fall, and a shorter duration when they are expected to rise., While the fund's prospectus allows it to buy maturities ranging from, three months to 30 years, its weighted average duration and, or maturity, will, typically range from two to 12 years., Mutual fund analysts at Lipper Inc. and Morningstar Inc. were not able to, comment on the fund., Formed in *2004-, YieldQuest Advisors grew out of YieldQuest Investment, Group, which began in 1998 as a group of traders and analysts at First, Union, Securities, which is now Wachovia Securities LLC. YieldQuest Advisors has, since completely spun off from its parent. YieldQuest also operates a core, equity fund and a total return bond fund that also invest in, exchange-traded, funds. The three funds total more than $100 million, Chitnis said., In addition to the short-term tax-exempt fund YieldQuest plans to open, the firm is also planning to launch a short-term taxable fund in 2007.
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by Michael ScarchilliThe Bond Buyer's weekly yield indexes were mixed this week as uncertainty, in the bond market abounded surrounding Wednesday's meeting of the Federal, Open Market Committee, during which the committee raised the federal funds, rate 25 basis points to 5% from 4.75%., After three largely unchanged days Friday, Monday, and Tuesday, market experienced a modest sell-off Wednesday following the release of the, statement. Munis outperformed Treasuries., We're taking some cue from Treasuries, but we have our own supply-demand, equation, which is further limiting our correlation with Treasuries, said, Gary Strumeyer, managing director of municipal sales at BNY Capital Markets, in New York., I think the muni market is still hanging in there relatively well on bad, Issuance is, down,, and retail demand seems to be creeping back up again. I think we've hit, some, magic numbers, and I see retail coming back into the market. So, Treasuries are falling, we're going to have a negative tone to our market, but we're continuing to outperform Treasuries since we have very, constructive, Market participants stood on the sidelines late last week and early this, week, for the most part, in anticipation of the FOMC statement. On Friday, string of strong data releases was snapped by weaker-than-expected growth, non-farm payrolls during April, which increased the chances that, policymakers, would pause their ongoing rate hikes., Market consensus is largely mixed as to what the Fed will do at its next, meeting, to be held June 28 and 29, but several economists feel the, language, in Wednesday's statement suggests a pause at that meeting. In the aftermath, of the Fed's hike, tax-exempts weakened by one to two basis points, yesterday, on a jump in commodity prices that could indicate building inflationary, pressure., The new-issue market was largely quiet. In the largest transaction of the, week, Bear, Stearns & Co. priced $491 million of taxable bonds for the, Michigan Tobacco Settlement Finance Authority. The deal was comprised of, $363, million of fixed-rate paper, $72 million of floating-rate debt and $55, million, of zero-coupon bonds., The Bond Buyer 20-bond index of GO yields was unchanged this week at, 4.63%. The last time it was higher was Aug. 26, *2004-, when it was 4.66%., The 11-bond index fell two basis points to 4.57%., The revenue bond index rose one basis point to 5.25%, its highest level, since July 29, 2004, when it was 5.31%., The 10-year Treasury note rose one basis point to 5.16%, its highest, level since May 16, 2002, when it was 5.19 %., The 30-year Treasury bond fell one basis point to 5.23%., The Bond Buyer one-year note index fell one basis point to 3.65%., The weekly average yield to maturity on The Bond Buyer 40-bond municipal, bond index finished at 4.85%, unchanged from last week.
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by Shelly SigoFlorida's Citizens Property Insurance Corp. now expects to issue $3.05, billion of taxable auction-rate bonds, because bond insurance bids, received last week provided more than $5 billion in capacity., Citizens has been structuring a $3 billion finance plan to pay high-risk, account claims, if needed, during the upcoming hurricane season., Initially, the insurer considered selling $1.5 billion of auction-rate, bonds and using various liquidity and credit support arrangements., Negotiations with liquidity providers were under way when the bond, insurance bids came in with unexpected capacity, said chief financial, officer Terri Slack., We received bond insurance for over $5 billion in capacity ... with, pricing that was lower than what we received for the 2004 pricing, said, Slack, referring to Citizens' sale of $750 million of taxable auction-rate, So because of that, staff's recommendation for the, The proposal will be presented to Citizens' Board of Governors for, approval when they meet Wednesday. The board will also be asked to approve, a slate of co-managers for the deal, which is expected to sell the week of, June 26., Bear, Stearns & Co., Citigroup Global Markets Inc., Merrill Lynch & Co., and UBS Securities LLC will be senior managers on the upcoming, transaction. The same team senior managed Citizens' auction-rate sale in, 2004., We're very excited about the deal and we're looking for strong market, Slack said, noting that recent ratings for the deal should, help with pricing., Standard & Poor's last Wednesday raised its rating on Citizens' high-risk, account to A-plus from A., The agency also assigned an A-plus preliminary rating and stable outlook, to the $3.05 billion auction-rate bonds., The rating is preliminary due to ongoing revisions to the bond documents, prior to the bond pricing, Standard & Poor's said., The upgrade reflects state involvement with Citizens, including providing, funds to offset statewide assessments on policies to pay for a large, portion of a deficit from last year's hurricane season, and significant, growth in the state's population, which supports the assessments that, secure the debt, said Standard & Poor's analyst Robin Prunty., Strong state oversight and a significant statewide assessment base, continue to provide a high level of bondholder security, Prunty said., The assessment base is geographically diverse and has expanded, However, the potential exists for significant additional debt issuance, Prunty added., Gov. Jeb Bush last week signed a bill into law that appropriates $715, million in cash to reduce Citizens' deficit., Bush's action was also a major reason that Fitch Ratings revised the, outlook for Citizens on May 10 to stable from negative and affirmed the, A-minus senior-debt rating for its high-risk account. Fitch said it, expects to assign an A-minus to the upcoming auction-rate bond sale., Citizens is a state-run agency that provides windstorm and property, insurance where the private market will not. The high-risk account, consists of windstorm and property insurance policies in Broward, Dade, Monroe, and Palm Beach counties., As of April 30, the high-risk account had 362, 256 policies collecting, premiums totaling $801.5 million covering an exposure of $139.3 billion., In an account separate from the high-risk policies, Citizens also provides, residential and commercial-residential insurance in the state's remaining, 63 counties if people cannot get it from private insurers. Those accounts, consisted of 488, 000 policies with premiums of $748.5 million covering a, total exposure of $87.4 billion as of April 30., Moody's Investors Service currently rates Citizens' high-risk account A3, and the residential and commercial-residential accounts A2, with a, negative outlook., As of press time Friday, Moody's had not released a rating report for the, upcoming sale., The Florida Hurricane Catastrophe Fund, a state-run reinsurance agency, that provides coverage to private companies and Citizens, plans in early, June to sell $1.22 billion of tax-exempt revenue bonds to pay reinsurance, claims from last year. The Cat Fund is also preparing a $2.75 billion, liquidity program to pay claims this hurricane season, if needed., Although Citizens and the Cat Fund are state-created entities, they, operate and produce financing plans separately.
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by Tedra DesueMoody's Investors Service yesterday upgraded about $350 million of sales, debt sold by Lafayette, partly because of the credit's sizable tax, base,, which has a large oil and gas industry influence., About $146 million of outstanding sales tax debt secured by a 1% sales, tax approved in 1985 was upgraded to A1 from A2. The higher rating also, applies to about $205 million of debt secured by another 1% sales tax, approved in 1961., In addition, Moody's raised to A1 from A2 its rating on the city's, roughly $48 million of taxable refunding bonds that were sold in 2002., About, $50 million of general obligation bonds sold by the Lafayette Parish were, upgraded to Aa3 from A2., Agency analyst Kristin Button said the higher ratings reflect the city's, expanding and diversifying local economy and general fund fiscal, operations,, The upgrade on the sales tax bonds also reflects healthy coverage levels, supported by growing pledged revenues and a strong additional bonds test, said., Button noted that in fiscal *2003-, the city's general fund balance was $20, million, which was equal to 30% of general fund revenue. As projected by, officials, the 2004 fund balance was $18 million, which is 27% of general, fund revenue., Over the last five years, the unreserved fund balance has exceeded $9, million, or at least 15% of general fund revenues, which exceeds the city's, target of maintaining 10% of operating costs in reserves, Button said., Located in the south-central portion of Louisiana, Lafayette, through its, consolidated government, has been trying to issue bonds so that the, Lafayette, Utilities System can enter the telecommunications business. Last month, government signed off on an ordinance that will allow it to issue $125, million of revenue bonds to expand its fiber optics network., Voters have already approved the issuance, which will allow the system to, offer high-speed Internet, phone, and cable services. However, private, telecom, companies have repeatedly blocked the deal with lawsuits., This year, government officials worked to address key concerns, and have, placed the bond ordinance in the local newspaper. If there are no more, challenges, the deal could price this summer.
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by Humberto SanchezSenate panel currently rewriting federal telecommunications law should, include a provision that would prevent states from blocking localities, from providing broadband services, Dianah Neff, chief information officer, of Philadelphia, and other municipal broadband network supporters said, yesterday., A century ago municipal leaders across the country knew that without, electricity their communities would be left behind as our nation moved, Neff told the Senate Commerce, Today, Philadelphia Mayor John Street and many others across, the country have recognized that without affordable high-speed broadband, access, our communities will be left behind as the world moves from an, The term broadband typically refers to a communication network in which a, wide band of frequencies is available to transmit information through a, single portal. It includes video, voice, and data services, such as, Internet access, cable television, telephone, and related services., Last year Philadelphia contracted with Earthlink to design, build, maintain high-speed wireless Internet access in the city. The project, announced in *2004-, would consist of a 135-square-mile wireless Internet, zone that would give city residents access to affordable high-speed, Internet service, including low-income residents who would pay about $10 a, month and receive assistance to purchase computers., Verizon opposed the project and tried to get legislation enacted in, Pennsylvania to prevent the city from providing the service. But a, compromise was reached that allowed the Philadelphia project to proceed., The Philadelphia project is expected to cost between $15 million and $18, million, which will be funded by Earthlink., Public power utilities are also interested in offering broadband services, because they often have parts of the necessary infrastructure already in, place, according to the American Public Power Association. Public power, utilities have sold tax-exempt revenue bonds to finance their broadband, infrastructure, but those issues tend to be small in size., The result of an APPA survey in December 2004 of the more than 2, not-for-profit utilities that the group represents showed that more than, the report, said., However, private telecommunications companies have lobbied state, legislatures to bar municipalities from providing the services and about, 14 states have tried to enact laws., Supporters of municipal broadband are urging the Commerce Committee, which, is drafting a telecom bill, to include a provision that would allow, localities to offer the service. The committee could consider the bill as, soon as next month, according to chairman Ted Stevens, R-Alaska., We won our battle in Pennsylvania, but other communities need your help, Neff said., One member of the panel, Sen. Frank Lautenberg, D-N.J., introduced, stand-alone legislation last summer that would prevent states from, standing in the way of a municipality offering the service., But another member of the panel, Sen. John Ensign, R-Nev., has introduced, legislation that some believe would dissuade municipalities from providing, broadband. The legislation, among other things, would require localities, that intend to furnish Internet or other such services to its citizens to, provide a detailed description of the proposed scope of the service. The, Ensign bill also stipulates that private companies would have the option, to participate in an open bidding process conducted by a neutral third, party to provide the service under the same terms as listed in the, municipality's notice, including financing.
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by Jim WattsAn Oklahoma budget dispute that pits the Democratic majority in the Senate, against Democratic Gov. Brad Henry and the Republican-controlled House, could, result in a special session if it is not resolved in the next two days., The dispute must be resolved by Wednesday if the 49th session is to end, at 5 p.m. Friday, as required by the state's constitution., Everybody's saying that if we can get around this by Wednesday, then we, can pass everything we need to pass, so that we can adjourn on Friday, said, Ray Carter, media director for the Oklahoma House., The impasse has resulted from Senate Democrats' wish to spend record tax, revenue on improved health care and better schools, and a compromise plan, proposed by the governor and supported by the House Republican leadership, that would deliver the biggest tax cut in Oklahoma's 99-year history as a, state., There were no budget negotiations over the weekend, and nothing seems to, Legislators are working on the largest budget in state history, totaling, about $7 billion, including $1.1 billion in surplus revenue and windfalls, to strong economic growth and high oil and gas prices., Negotiations between the House and Senate were stalled for weeks as House, Speaker Todd Hiett, R-Kellyville, pushed for a package that included, elimination of the estate tax and reduction of the top income tax rate to, 4.9% from 6.25%., The budget compromise proposed early last week by Henry and state, Treasurer Scott Meacham, his chief financial adviser, was intended to, resolve, the budget impasse between the House and Senate, but seemed to sharpen the, dispute., Hiett agreed to drop his proposal for a top 4.9% state income tax rate, and endorsed the plan to cut the income tax rate to 5.5%., However, Senate Democrats, who instead proposed increasing Oklahoma's, standard income tax deduction to the federal level, rejected the, compromise., The Democratic tax reduction plan in the Senate would raise the standard, deduction to $5, 150 from $2, 000 for an individual, and to $10, 300 from, $4,000, for a married couple filing jointly. The Democrats also proposed a 5% pay, raise for state employees and an increase in teacher salaries of $3, 000 a, year, compared with the compromise plan's no across-the-board raise for, state, employees but an additional $2,400 a year for teachers., When fully annualized, the Democrats said, increasing the standard, deduction would reduce taxes by $172 million. Under their plan, according, Senate president pro tempore Mike Morgan, D-Stillwater, the vast majority, Oklahomans will receive a larger tax cut than they would under the $255, million plan proposed by the governor., I'm not willing to throw the people of the state of Oklahoma under the, Morgan said., Both plans eliminate the state's estate tax, which brings in about $66, million a year., Morgan said the proposal advanced by Henry and Hiett was an effort to, tell the Senate what to do., There is still time, to reach a budget agreement, but all parties need to be at the table. The, Senate has negotiated in good faith throughout the session and we will, Henry said his budget compromise would result in record investments in, education and roads and bridges. The governor shelved a series of targeted, tax reductions he had proposed in February, and reduced funding for several, of his investment initiatives., My compromise proposal strikes a good balance between tax relief and, the governor said in a statement, urging, I've attempted to meet House and, Senate leaders in the middle, implementing a major portion of each, chamber's, The House speaker said Senate leaders rejected the plan because they fear, Democrats will lose control of the upper chamber at the November elections, the first time since Oklahoma became a state in 1907., Senate Democratic leaders have controlled this state for 100 years with, an iron fist, and they've spent a century holding Oklahoma back. Now as, they, face losing power for the first time, Senate Democrat leaders are being, The plan I worked out with the governor achieves great things for our, state -- the largest tax cut in state history and investments in priorities, like salary increases for teachers. It is time for Senate Democrat leaders, accept bipartisan tax relief, or step aside so that we can have new, leadership, Hiett said.
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by Robert WhalenThe Buffalo Fiscal Stability Authority this week will sell about $27, million of tax-exempt, fixed-rate bonds to help the city and its school, district fund general capital projects., BFSA chief financial officer Bertha Mitchell said Lehman Brothers plans, to price the debt on Wednesday. The bonds -- which are backed by sales tax, receipts and state aid allocated to the city of Buffalo -- will have a, final, Public Financial Management Inc. is the authority's financial adviser., Mintz, Levin, Cohn, Ferris, Glovsky and Popeo is BFSA's bond counsel., Mitchell said the BFSA has met with analysts at Fitch Ratings and Moody's, Investors Service, and expects a rating report by as soon as today. Fitch, rates the authority's outstanding debt AA-minus, and Moody's rates it Aa3, State lawmakers created the authority in 2003 to help guide the western, New York city through trying fiscal times. The state's second largest city, had historically relied upon manufacturing -- a sector that has greatly, diminished -- and as the jobs have left, so too have many members of, Buffalo's more economically mobile population., The city must submit for approval by the BFSA board its annual budgets, and four-year financial plans. The authority came into being as a control, board, and has the power to direct some fiscal functions and borrow up to, $175 million on the city's behalf. As part of its corrective actions, board has imposed a wage and hiring freeze on the city's workforce, Mitchell, said., We're not out of the, Gov. George Pataki last week sent some good news to Buffalo and its, school system when he boosted state aid to the city by 22.8%. State aid is, increase to $142.3 million this fiscal year from $115.9 million the yearn, before, a $26.4 million boost.
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by Rich SaskalStandard & Poor's reinstated its credit ratings on outstanding Richmond, Calif., debt Thursday, raising it to investment grade and assigning the, city, a BBB-plus issuer credit rating., The ratings had been downgraded to speculative grade and suspended in, January 2004 because of incomplete financial information. Standard & Poor's, restored its outstanding ratings following the San Francisco Bay Area, city's, release of audited financial statements for fiscal years 2004 and *2005-, said, analyst Paul Dyson., Standard & Poor's issued its first ever issuer credit rating for the city, government at Richmond's request, BBB-plus issuer credit rating., Standard & Poor's reinstated ratings on three outstanding bond issues:, Series 1995A Richmond Joint Powers Financing Authority refunding revenue, bonds, 1999 joint powers financing authority port terminal lease revenue, bonds, and a 1999 series of wastewater bonds issued by the city. Those, ratings were reinstated Thursday at BBB, an upgrade from the BB rating that, Standard & Poor's assigned before it suspended its ratings in 2004., The suspension followed a financial crisis that developed in *2003-, culminating with the city's 2004 announcement that its general fund revenue, for fiscal 2003 had come in more than $14 million shy of expenditures., In assigning Richmond an investment-grade rating, Standard & Poor's cited, improved financial management practices, substantial cuts to personnel, spending through layoffs and labor concessions, and voter adoption of a, half-cent sales tax to improve revenues., Moody's Investors Service, which had dropped Richmond's credits to, speculative grade during the crisis, upgraded the city's issuer rating to, Baa2 from Ba3 in January 2005. Fitch Ratings does not assign underlying, ratings to Richmond debt.
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by Andrew AckermanA week after the completion of the District of Columbia's $535 million, ballpark bond transaction - which will finance the construction of a new, home for the city's professional baseball team - district officials are, gearing up for a number of other redevelopment projects that promise a, steady stream of the city's paper in the coming year or two., Many of the projects have been planned to utilize a combination of tax, increment financing and some revenue bonds, district officials said. The, reliance on TIF financing for new retail space comes after the District, Council gave preliminary approval earlier this month to raise the city's, nearly exhausted TIF cap of $300 million to $500 million. A final vote is, expected next month., TIF debt is backed by future taxes generated by the project being, financed, making the local government a de facto partner with project, developers. The district has used up, or committed to use, about $280, million of existing TIF authority, according to one estimate., Of the major projects for which TIFs will be used, the most expensive may, be a massive convention center hotel, which could cost $500 million and, feature up to 1, 400 rooms, located across the street from the existing, convention center., The council in April approved a proposal to authorize the issuance of $187, million in TIF debt for construction of the building. Marriott, International Inc. and RLJ Development LLC, owned by Robert L. Johnson, founder of Black Entertainment Television, will pay for the balance of the, costs., Sometime next month, the council must approve the purchase of a $30, million office building on the site of the future hotel. Once it purchases, the building, the district will take about six months to structure, financing for the hotel and about 12 months to sell bonds, which would be, issued by the convention center, district officials said., A source who asked to speak on background said that the city was aware of, some studies that have warned about an oversupply of convention hotels, but officials who work at the convention center believe a hotel will only, improve their bottom line., The convention center had a number of studies done over the last couple, of years, and they all say that to fully use the center we need a, the source said., TIFs may also play a role in the redevelopment of several culturally rich, but blighted neighborhoods, specifically along H Street by Capitol Hill in, the northeast quadrant and along Georgia Ave. in the northwest part of the, city., We're looking at a number of problems, and using TIFS to see how much, they could support some of the smaller neighborhood projects, said, Michael A. Jasso, a special assistant in the office of planning and, economic development., TIFs would represent only one component of developing each neighborhood, Jasso said, adding that his office hoped to have legislation finished for, the council to approve in the fall., TIF financing of some sort may also play a role in the redevelopment of, the historic 25-acre McMillan Reservoir filtration site, though the city, hasn't decided which type of debt it will issue because it is several, years away from redeveloping the site., The project could involve both residential and commercial retail, development, but developing the area might prove difficult given the, architecture of the site, which looks somewhat like rows of oversized, pizza ovens along North Capitol Street. For instance, there is an, extensive network of sand-filled catacombs under the site that the city, wants to preserve., When constructed in the early 1900s, the McMillan filtration plant was, considered an engineering marvel that served as a model facility for other, water filtration plants nationwide, according to a brochure written by the, district., After 80 years of service, the plant was shut down and the Army Corps of, Engineers gave control of the site to the General Services Administration, which in turn sold it to the district for $9.3 million in 1987. In *1990-, the district issued a request for proposals for the site but no award was, made., redevelopment in March, the city has put together a plan to transfer its, control to the National Capital Revitalization Corp., the district's, redevelopment arm., Under the plan, which the council is expected to approve this summer, city will give the NCRC control over the reservoir plus $25 million. In, exchange, agency will transfer control of land around the Anacostia River, to the Anacostia Waterfront Corp., an area-specific redevelopment entity., Anacostia is the focus of a major redevelopment effort by the district and, the site for the new stadium., In December, the AWC unveiled a $3 billion mixed-use entertainment, that will, surround the future home of the Washington Nationals baseball team. Much, of the development surrounding the stadium's 21-acre footprint will come, from private equity. There may be some bond-financed projects, but it's, still early in the process, according to district sources., The NCRC is making progress on its plan to redevelop the 18.5-acre Skyland, Shopping Center, a strip mall in the city's Hillcrest neighborhood. After, buying property from owners and condemning some of the parcels, corporation now has control of about 98% of the site, though it's taking, longer than anticipated to gain full control of the area., An NCRC spokesman said the group was still in negotiations with a handful, of remaining tenants. The group initially planned to have cleared the area, this month, but the process is taking much longer than expected, according to a source., The Skyland plan called for about $25 million of tax-exempt financing -, probably TIF notes - to be used to prepare the site to be transformed into, a more upscale retail center with a discount department store and a, supermarket. The notes would be backed by future taxes generated by the, project., To prepare the site for redevelopment would cost a total of about $48, million. The remaining $23 million may be privately or publicly funded or, a combination, an NCRC official said., Looking further into the future, another district official said that the, city would consider issuing some debt secured by payments in lieu of, taxes, or PILOTs, to finance areas such as those that are federally owned, but are being transferred to the district. Pending legislation in the, House would transfer two parcels known as Poplar Point and Reservation 13., Reservation 13 could become home to a bond-financed National Capital, Medical Center, which would be run by Howard University and financed, partially through the sale of $210 million in tax-exempt zero-coupon bonds, backed by tobacco payments. Williams has backed off his support for the, hospital and a task force will deliver recommendations on its construction, the end of June. He has promised that tobacco bonds will be issued, sometime and be devoted to financing the district's health care needs, though not necessarily the hospital., The other location, Poplar Point on the Anacostia River, could become home, to a new 25, 000-seat soccer stadium. The $75 million facility would be, located across the water from a site where the district intends to build, the Nationals stadium., The House legislation cleared all of its committees with jurisdiction in, early February and has been waiting for a vote on the House floor. A, spokeswoman for Del. Eleanor Holmes Norton, the district's non-voting, congresswoman and the author of the bill, said she had no idea when it, would get a floor vote., D.C. United, the district's Major League Soccer team, currently plays at, Robert F. Kennedy Memorial Stadium, which is also the temporary home of, the Nationals. A source in the city's planning office said that the city, would probably try to develop the parking lots and green areas around RFK, Stadium when the teams leave. The National Parks and Planning Commission, would probably plan a mixed-use, commercial neighborhood there, and would, recommend some bond financing for the infrastructure, the source said.
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by Alison L. McConnellSJohnson City, Tenn., is the latest issuer to face Internal Revenue Service, scrutiny over a deal that allegedly used an abusive yield-burning strategy, put together by CDR Financial Products and Bear Stearns Capital Markets, Inc., participants in the city's 1997 advance refunding, according to a, material events notice., The city disclosed Friday that it received a preliminary adverse, determination letter from the IRS that approximately $33 million of school, sales tax revenue bonds and general obligation public improvement, refunding bonds, both Series *1997-, are taxable because the issues violated, the arbitrage rules of the tax code., The audit is part of the agency's widening investigation of CDR, formerly, Chambers Dunhill Rubin & Co., and Bear Stearns, which allegedly included a, liquidation option in a forward supply agreement associated with the, transaction., As in a recently disclosed case out of Fargo, N.D., the IRS believes the, two firms agreed to burn yield on escrowed securities purchased with bond, proceeds by including the cost of a put option in the transaction, according to the notice., The bonds - $29.5 million of school sales tax revenue and tax refunding, bonds, and $3.8 million of general obligation public improvement revenue, bonds-were issued to advance refund Series 1994 and Series 1994B bonds on, May 1, 1997, according to the city., Most of the proceeds from the sale were placed in an escrow with, SouthTrust Bank and invested in government securities. SouthTrust then, entered into a forward supply agreement with Bear Stearns under which an, affiliate of the latter firm paid a premium payment to Johnson City for, the option to deliver substitute tax-exempt securities for the escrow, according to the notice., CDR served as the bidding agent for the forward supply and option, agreements, and Fulbright & Jaworski LLP in Houston served as special tax, counsel on that part of the transaction, certifying that the bonds were, not arbitrage bonds, according to a letter included with the bonds', official statement., The city relied on this opinion in connection with the issuance of the, the notice said., Bass, Berry & Sims PLC of Nashville, the city's bond counsel, provided the, traditional bond opinion. Cumberland Securities, a subsidiary of Morgan, Keegan & Co., was the underwriter., The IRS opened its investigation of the deal in May 2004 and concluded in, its Dec. 30, *2005-, preliminary adverse determination that the option, agreement inflated the forward supply agreement's purchase price, thereby, down the escrow's yield to the level permissible under arbitrage, regulations., Without the inclusion of the option agreement cost, the escrow yield would, have exceeded the bond yield, making the bonds taxable arbitrage bonds, the city said., The IRS found another trouble spot in the transaction and alleged that, more than 1% of bond proceeds was used to purchase the put option, which, is illegal under laws governing advance refundings., The IRS concluded that [a] portion of the proceeds...allegedly allocated, to the option was not used to pay debt service on the refunded bonds, the notice said., Officials at CDR, Bear Stearns, Fulbright, Bass, Berry & Sims and, SouthTrust - which was bought by Wachovia in Nov. 2004 - did not return, calls for comment., Janet Jennings, finance director for Johnson City, said Friday's, disclosure, which was filed with the nationally recognized municipal, securities information repositories, represented the city's understanding, that the IRS is concerned about the relationship between CDR and Bear, Stearns., We figure that...just by association [we] prompted the audit, adding that correspondence from the agency in January 2005 indicted that, the IRS was looking closely at the Fulbright tax opinion and the roles, played by the two firms., Jennings said she and city manager Pete Peterson came on board well after, the 1997 bond sale, making it necessary for them educate themselves about, the deal., Bass, Berry & Sims will likely represent the city before the IRS in any, closing agreement proceedings, but the city is still in the process of, setting up a conference with enforcement personnel, Jennings said., The Johnson City case appears to mirror that of Fargo, which disclosed in, early December that a $47.8 million advance refunding series had been, declared taxable for the same reason - the inclusion of put option costs, in a forward supply agreement brokered by CDR and purchased by Bear, Stearns., And the IRS is investigating the roles CDR and Bank of America played in a, $1.1 billion bond deal done for Atlanta in *1999-, according to a disclosure, filed by the city in late November., In that case, Bank of America and CDR entered into a post-issuance swap, agreement that may not have been priced at fair market value and may have, diverted funds to deal participants, the IRS has alleged., Charles Anderson, field manager of the IRS' tax-exempt bond office, said, he could not comment on the Johnson City, Fargo, or Atlanta cases., noting, having come in through the voluntary closing agreement program., Under VCAP you have to admit that the put option is a violation, so the, issue is fairly well settled to the point where we have denied a number of, Anderson said., One of the strengths of our argument is that there is no need for a put, The defeasance escrow is sufficient without the put., If the price of the put is more than 1% of gross proceeds, you have a, Anderson said the TEB office has several related closing agreements in the, works and yesterday received an executed closing agreement on a put option, case that also involved excess gross proceeds. He would not comment on how, many bond deals are part of the CDR-Bear Stearns investigation.
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by Alison L. McConnellNorth Little Rock, Ark., is facing an Internal Revenue Service, investigation of its Series 1997 bonds that could cost bondholders up to, $1.4 million in penalties, according to a municipal disclosure., The city on Friday became one of more than a dozen issuers to disclose an, IRS audit in recent months, announcing the agency's preliminary adverse, determination that interest is taxable on $15 million of electric system, bonds deemed to contain an abusive arbitrage device - a put option that, was included in the cost of an advance refunding escrow that had an, impermissibly high yield., The $15.35 million of Series 1997 electric system refunding revenue bonds, were issued to advance refund and defease $17 million of Series 1992B, electric system refunding revenue bonds, as well as to fund a debt service, reserve fund. Friday, Eldredge & Clark LLP of Little Rock was bond counsel, and Morgan Keegan & Co. and Stephens Inc. were co-managers., In an April 28 preliminary adverse determination letter, disclosed by the, city Friday on the nationally recognized municipal securities information, repositories, the IRS said it had found that the inclusion of the city's, for the use, of the advance refunding escrow yield -, caused the yield on the escrow to exceed by more than one-thousandth of a, percentage point the yield on the bonds, which is the amount permitted, under tax code rules., eligible defeasance securities at fair market value in the, also caused the escrow yield to surpass, the bond yield, the IRS said., Allegedly masking the discrepancy, the city's inclusion of the cost of a, put option, purchased from Lehman Brothers Special Financing Inc., in its, the yield on the advance refunding escrow below, the permitted arbitrage yield., The IRS also concluded that the cost of the put option exceeded 1% of the, bond sale's gross proceeds, violating the tax code rule that no more than, 1% of proceeds can be used for purposes other than paying the principal, interest, or call premium on a series of bonds., The cumulative effect of the violations, other than the excess proceeds, violation, resulted in an escrow yield of 5.07480466%, higher than the bond yield of 5.03932901%, the IRS said. That difference, causes the bonds to be arbitrage bonds and the interest on them to be, treated as taxable., The agency estimated that Series 1997 bondholders' tax exposure was, based on an application of 29% to collectible past and future, according to the disclosure., Calls to the city's finance division, trustee Regions Bank, and attorney, M. Jane Dickey of the Rose Law Firm in Little Rock were referred to city, mayor Patrick Henry Hays, who was unavailable. The city said in the, intends to continue its efforts to bring [the] matter, but did not say whether it planned to, appeal the IRS' determination., Tax-exempt bond field operations manager Charles Anderson said he could, not discuss the North Little Rock case. In audits in general, the IRS, looks at the tax-exempt bond interest open under the statute of, limitations and estimates tax exposure with an average 29% tax rate, said., Some yield-burning settlements in the past have involved a disgorgement of, arbitrage earnings, but very often the bondholders' tax exposure is more, than the arbitrage earned in a deal, Anderson continued., A preliminary adverse determination is typically issued before a proposed, adverse determination, which becomes final 30 days after an issuer's, appeal of the IRS' findings fails in the Office of Appeals., North Little Rock owns and operates an electric system with a service area, including the city and adjoining areas in central Arkansas, according to, the bonds' official statement.
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by Shelly SigoThe Broward County, Fla., School Board today is pricing for institutions, approximately $200 million of certificates of participation and plans to, sell $65 million of auction-rate COPs today or tomorrow., Proceeds will be used to build new elementary and high schools, make, improvements and additions at various schools, and purchase land in the, school district, which encompasses the entire county., The transaction is structured in two series - about $200 million of, fixed-rate COPs, Series 2006A, and $65 million of auction-rate COPs, Series 2006B, with the interest rate set initially in the weekly mode. The, COPs are insured by Financial Security Assurance Inc, The auction-rate deal includes the district's second swap - a, floating-to-fixed rate swap with Bear Stearns Financial Products Inc. The, school board will pay a fixed rate, still being negotiated at press time, and Bear Stearns will pay the board payments based on 70% of the London, Interbank Offered Rate. The swap will be insured by FSA., This week's deal is structured similarly to one in 2004 when the school, district did its first swap with the sale of $113.8 million of, auction-rate COPs and $110.5 million of fixed-rate COPs., The 2004 swap has saved the district more than $600, 000 a year and is, expected to save the district over $1 million this year, said David Moore, with Public Financial Management Inc. PFM is co-financial adviser on the, Broward deal with Fidelity Financial Services LC., That's real dollars the district has saved and its motivation for the, Moore said, noting that anticipated savings from the current, swap are estimated between $400,000 and $500,000., The district held retail sales on the fixed-rate COPs yesterday for, serials maturing in 2012 to 2028. Moore said he expects to price premium, COPs in today's institutional sale, which will offer those investors, blocks ranging from $8 million to $16 million., The district hasn't been out [in the bond market] since last year, said, It's a large county, a good credit and this is one [investors], Moody's Investors Service has assigned an A1 to both series of COPs and an, A-plus has been assigned by Fitch Ratings and Standard & Poor's., The school board has a $3 billion capital improvement plan through *2010-, and will have approximately $1.4 billion of COPs outstanding after this, week's sales., Bear, Stearns & Co. is the book-runner and other members of the syndicate, are A.G. Edwards & Sons Inc., Apex Pryor Securities, Banc of America, Securities LLC, Citigroup Global Markets Inc., Morgan Stanley, and UBS, Securities LLC., Greenberg Traurig PA and the Knox Firm are co-special tax counsel., Moskowitz, Mandell, Salim & Simowitz PA and Steve E. Bullock PA are, co-underwriters' counsel.
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