CDFA //BNY MELLON DEVELOPMENT FINANCE ......Cumulative (Right) Weekly (Left) 80,000 Expect stabilization soon as supply increases, buyers materialize Multi-week fund flows read: 40

WWW.CDFA.NET / / WWW.BNYMELLON.COM

CDFA / / BNY MELLON DEVELOPMENT FINANCE WEBCAST SERIESWill New Money Outpace Refundings in 2013?

The Broadcast will Begin at 1:00pm EDT

Submit your questions in advance using the GoToWebinar control panel

View previous webcast recordings online at www.cdfa.net

Join us live for the August broadcast at the CDFA National Development Finance, August 6‐9 in Washington, DC


Are you a CDFA Member?

Hello! Welcome to the webcast.

Members receive exclusive access to thousands of resources in the CDFA Online Resource Database.

Create your unique login today atwww.cdfa.net

Erin TehanManager of Legislative & Federal AffairsCouncil of Development Finance AgenciesColumbus, OH


Join the Conversation

Listen through the telephone for best audio quality.

Submit your questions to the panelists here.


Will New Money Outpace Refundings in 2013?

CDFA Training Institute

11 courses in development financedesigned for all skill levels. Learn more and register today at www.cdfa.net

PanelistsChristine Johnson, ModeratorBNY Mellon

Tom KozlikJanney Montgomery Scott LLC

Michael DeckerSecurities Industry and Financial Markets Association


What are you reading?

Your development finance toolbox isn’t complete without a set of CDFA reference guides. Members save 15% on every purchase.

Order today at www.cdfa.net.


Christine JohnsonSenior Product ManagerBNY MellonSan Francisco, CA

Information Security Identification: Confidential

MUNICIPAL MARKET: 2013 MID-YEAR REVIEWCDFA-BNY MELLON WEBCAST

Presented by Christine JohnsonJune 18, 2013


Backdrop to 2013

THEMES LEADING INTO 2013• A number of recurring themes continued into the start of 2013:

• Low interest rate environment encouraging refundings and restructurings • However, opportunities become harder to find as low interest rate environment endures

• Challenged issuance market for smaller credits• Headline concern over state of state/local government finances• Continued concern over long-term sources of federal support for transportation and other

basic infrastructure

2


First half 2013 Events Impacting Muni Market

Sequestration• Direct impact to issuers/holders of direct pay bonds• Indirect impact to state and local credits based on reductions of other federal transfer

programs • Impact likely to continue into 2014

Bankruptcies and defaults• Though relatively few in number, bankruptcies and defaults are important as indicators to

the broader market• Detroit, MI – default on unsecured debt (i.e GO)• Jefferson County – default on enterprise debt• Stockton and San Bernadino (CA) – municipal bankruptcy

Other events• Village Center Community Development District (FL) – IRS TAM

3


Looming Issues – 2nd Half of 2013 and beyond

Market themes to watch for in second half of the year• Overall interest rate movement• Change in credit market for small to mid-size credits • State and local government funding of larger capital projects – particularly those related to

transportation and basic infrastructure• Creative methods of incorporating private capital into public-benefit projects

Recently implemented regulatory changes and regulatory themes may begin to have more direct impact on muni market going forward

• FATCA impact on foreign investment in US (muni market as well as broader corporate market)

• US tax reform• Potential for increased continuing disclosure requirements

4


Need expert assistance?

Consider CDFA’s Research & Advisory Services – offering customized and tailored technical assistance for all of your development finance needs. Learn more at www.cdfa.net.


Tom KozlikDirector and Municipal Credit AnalystJanney Montgomery Scott LLCPhiladelphia, PA

Janney Fixed Income Strategy

Municipal Bond Market Mid-Year Update

J U N E 1 8 , 2 0 1 3

Symptoms of an Economic RecoveryImproving U.S. Auto Sales Reflect Improving Consumer Credit ($ in mill) The gradual economic recovery

24US Auto Sales, May 2013- 15.24 mill Average from 2000- 15.16 mill

continues… Transition in the most powerful force in

the financial world- Fed to BOJ-ECB Infinite bond buying cannot go on forever 18

20

22

24GM's- Keep America Rolling Incentives

GM's- Employee pricing for everyone

U.S.- Car Allowance Rebate System (Cash for Clunkers)y g g

Accommodative monetary policy Low until unemployment below 6.5% Will they taper? When?

10

12

14

16

What are indicators telling the market?

Janney Recent Economic Data Has Been MixedDate Period Data/Event Market Read Actual Survey Prior

8

10

Jan-00 Jan-03 Jan-06 Jan-09 Jan-12

y3/26/2013 Jan-12 S&P Case-Shiller Comp. 20 YoY Best since 2006 8.08% 7.85% 6.84%3/26/2013 Mar-12 Consumer Confidence Softer than expected 59.7 67.5 69.63/28/2013 4Q2012 U.S. GDP QoQ Small uptick 0.40% 0.50% 0.10%3/29/2013 Feb-13 Personal Income Higher than expected 1.10% 0.80% -3.60%3/29/2013 Feb-13 Personal Spending Higher than expected 0.70% 0.60% 0.20%p g g p4/5/2013 Mar-13 Change in Nonfarm Payrolls Lower than expected 200K 95K 246K

5/28/2013 Mar-13 S&P Case-Shiller Comp. 20 YoY Even stronger 10.20% 10.87% 9.32%5/28/2013 May-12 Consumer Confidence 5 year high 71.2 76.2 68.16/7/2013 May-13 Change in Nonfarm Payrolls Just strong enough 163K 175K 165K6/7/2013 May-13 Unemployment Rate Just a touch higher 7.50% 7.60% 7.50%

2Source: U.S. Dept of Commerce, Bureau of Labor Statistics, Bloomberg and Janney FIS.

6/7/2013 May 13 Unemployment Rate Just a touch higher 7.50% 7.60% 7.50%

Most Recent Economic Indicators Have Moderated Economic indicators at begin of summer Janney Interest Rate Forecasts (as of June 5, 2013)

not quite as positive May non-farm payrolls +175k Watching housing market- especially for

municipals

Central Bank Rates Current 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014 4Q 2014Fed Funds O/N 0.13% 0.13% 0.13% 0.13% 0.13% 0.13% 0.13% 0.13%

Treasury Curve Current 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014 4Q 20143m Bill 0.03% 0.11% 0.11% 0.15% 0.20% 0.26% 0.34% 0.43%p

Will rates rise faster than expected? “A premature tightening of monetary policy

could lead interest rates to rise temporarily but would also carry a substantial risk of

2yr Note 0.29% 0.31% 0.37% 0.45% 0.53% 0.61% 0.69% 0.78%5yr Note 0.99% 0.99% 1.09% 1.19% 1.29% 1.40% 1.50% 1.60%10yr Note 2.09% 2.10% 2.14% 2.21% 2.31% 2.41% 2.53% 2.70%30yr Bond 3.25% 3.27% 3.31% 3.37% 3.45% 3.57% 3.72% 3.89%

May Payroll Results Were Slightly Positive– Is There a Skills Mismatch?but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further,” Bernanke May 2013.

Clarification from Fed this week? 65

66

400

600Nonfarm Payrolls, # in 000s (Left)

Labor Force Participation Rate, % (Right)

May Payroll Results Were Slightly Positive Is There a Skills Mismatch?

64

65

200

400

62

63

-200

0

May Non-Farm payrolls were a 175k gain, versus 163k survey

3Source: U.S. Dept of Commerce, Bureau of Labor Statistics and Janney FIS.

62200Jan-10 Oct-10 Jul-11 Apr-12 Jan-13

S&P Raised U.S. Sovereign Rating OutlookS&P U.S. Sovereign Rating Actions S&P raised outlook of US to “Stable” from

410“Negative” on June 10th, 2013 Direct relationship- municipals Moody’s- Aaa (Negative)

Move by end of year

3

4

8

9

10 US Unemploy %- May 2013: 7.6% (Left) US Treas. % 10 Yr- Jun 10th: 2.26% (Right)

S&P raised US rating outlook to "Stable" from

"Negative"- June 10, 2013

Unemployment falls to 7.6% from 9.1%

Move by end of year S&P- AA+ (Stable) Fitch- AAA (Negative)

1

2

6

7

8

Mixed messages from Fed and

Debt stand-off in US Congress-

July 2011

S&P downgraded U.S. to AA+ from AAA

10 Yr US Treas has fallen 111 basis

Recent U.S. Sovereign Rating Actions- All Rating Agencies

05

6

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

from Fed and Bernanke- May 22,

2013

to AA+ from AAA Aug 5, 2011

fallen 111 basis points in yield

Date Rating Action Date Rating Action Date Rating Action

8/2/11 AAA (Negative)Lowered outlook to

"Negative" from "Stable"6/10/13 AA+ (Stable)

Raised outlook to "Stable" from "Negative"


"Negative" from "Stable"

7/13/2011AAA (Review for AAA placed on Review for a

8/5/11 AA+ (Negative)Downgraded rating to AA+

8/10/1994 AAA (Stable) Initial Rating

MOODY"S S&P FITCH

7/13/2011Downgrade) Downgrade

8/5/11 AA+ (Negative)from AAA

8/10/1994 AAA (Stable) Initial Rating

2/5/1949 Aaa Initial Rating 7/14/2011AAA (CreditWatch

Negative)Outlook to CreditWatch

Negative


"Negative" from "Stable"9/25/1991 AAA Initial Rating

4Source: Moody’s, S&P, Fitch and Bloomberg and Janney FIS.

Municipal Technical Market Update- Volume/Supply Supply-side municipal market indicators

Refundings as a Portion of Total Municipal Volume ($ in billions)

New Money Refunding Combined 10 Year AAA MMD % (Right)y

Uncertainty3%

4%

300

400

500

New Money Refunding Combined 10 Year AAA MMD % (Right)

Refundings were 25% - 23% of volume from 2004 to 2010

Refunding volume increased as rates fell1%

2%

100

200

300

Refunding volume increased as rates fell 2011- 31%, ’12 - 42%, ’13 – 42%

Volume could also be affected by federal 2013 Volume is Shaping Up to be 2nd Lowest Since 2004 ($ in billions)

0%004 05 06 07 08 09 10 11 12 13

50 2011 2012 2013budget negotiations – uncertainty

Tax reform discussions/rumors – more uncertainty

30

40

2011 2012 2013

y Issuers spooked by BABs Potential rush of volume depending

upon changes 0

10

20

5Source: Thomson Reuters and Janney FI Strategy.

Municipal Technical Market Update- Demand and Yields Demand side municipal indicators

AAA MMD Yields Increased Substantially Recently6 MMD AAA (10 Year) MMD AAA (30 Year)

Municipal yields backed up substantially since May 22nd

4

5

MMD AAA (10 Year) MMD AAA (30 Year)

10 year- 1.84% to 2.27% = 43 bps 2.23% as of 6/14/13

2

3

30 year- 3.02% to 3.52% = 50 bps 3.50% as of 6/14/13

E t t bili ti l

1Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

Municipal Fund Flows Turned Negative…Again ($ in millions)

80,000 3,000 Cumulative (Right) Weekly (Left) Expect stabilization soon as supply

increases, buyers materialize

Multi-week fund flows read:40 000

60,000

-

1,500

-$2,256 billion 6/5/13 -$216 million 5/29/13 $147 million 5/22/13

20,000

40,000

(3,000)

(1,500)

6

$602 million 5/15/13

Source: Thomson Reuters, ICI Institute and Janney FI Strategy.

-(4,500)Jan-12 May-12 Sep-12 Jan-13 May-13

Macro Factors To Drive Municipal Credit Our central Theme to start 2013 was…

US Real GDP Growth is Lagging Historical Trends10%10% US GDP QoQ % Change US GDP YoY % Chng

Macro factors to drive municipal credit across all sectors

SLOWER GROWTH - Janney Fixed Income Strategy forecasted a trend of 2%

4%

6%

8%

2%

4%

6%

8%

Income Strategy forecasted a trend of 1.8%-2.3% U.S. GDP growth in 2013, below historical levels

DC INTERFERENCE - DC US rating tax -6%

-4%

-2%

0%

-6%

-4%

-2%

0%

DC INTERFERENCE - DC, US rating, tax reform related volatility

UNCERTAINTYMuch of the D.C. Interference Stems from Clashes Over the U.S. Deficit

-10%

-8%

-10%

-8%

2000 2001 2002 2003 2005 2006 2007 2008 2010 2011

$500

DC, Efforts to tame US debt and/or US credit ratings will have downstream effect on municipal (mostly local) issuers -$300

$100

Surplus or Deficit: Nov @ -$1,146 Billion

“Clearly, the U.S. debt situation is the economic issue of our generation,” Bill McNabb, Vanguard Grp. Chrmn and CEO

-$1,100

-$700

The U.S. Federal government has incurred $1 trillion deficits every year since 2009.

This has been completely new territory for U S b d li

7

, g p

Source: Bureau of Economic Analysis; Fed Bank of St. Louis; & Janney FIS.

-$1,5001901 1916 1931 1946 1961 1976 1991 2006

U.S. budget policy.

The Sequester is Manageable, Mostly We expect a very limited fall-out on

Select Federal Spending in Procurement , Salaries, and Wages as a % of State GDP 20%20%

ymunicipals generally

Some states (like MD/VA) more exposed

20%

10%

7%10%

20%The area around DC will be

most significantly affected by federal spending reductions.

This flows down to local governments in certain areas and exposed to specific sectors, especially defense

7%6% 5%

4%4% 3%

3%2%

0%

4 8%5.7%

5.9%

Federal Spending on Salaries/Wages as % of State GDPPotential Impact of Sequester (2013 Only)

Judicial Total Seq. Cuts to Agencies and Contractors ($ in millions)

4.0%7.0%

5.8%

1.3%

5.3%

2.5% 3.1%

2.4%

6.3%

4.8%

4.9%2.4%

1.8%

7.6%

4.8%

2.8%3.0%

3.1%

2.7%

2.0%

4.4%

2.8%

2.1%

4.4%3.4%

4.4%

5.56%

19.7%

4.6%3.2%

Labor

Treasury

Interior

EPA

8.9%

13.3%

6.7%3.4%

19.7%

3.6%

6.9%

6.3%9.9%

4.7%

19.7%

5.4%

7.6%

12.8%

4.5%5.5% 7.4%

4.9%

5.4%

Higher ExposureDefense

Homeland Security

Education

Agriculture

Justice

8

15.8%

Source: Bloomberg, OMB, Commerce Department; Bureau of Economic Analysis, Pew and Janney FIS.

Higher ExposureMedium Exposure

Low ExposureVery Low Exposure

$0 $10,000 $20,000 $30,000 $40,000 $50,000

Defense

The Housing Market Recovery Looks Uneven There has been a very uneven recovery in The Housing Market Recovery Has Been Uneven at Besty y

the housing market, with regional variation

250

300 Case Schiller Composite 20 Home Price Index

Dallas Index

LA Index Even CA cities, like LA, are rising again

Local government property tax revenues have been and may continue to be stressed as they lag the financial and housing recoveries 150

200

g Higher property values is a favorable

trend

G d th h i f t i th t

1002000 2003 2006 2009 2012

Good news on the housing front is that forecasts are largely positive This depends upon interest rates

Select US Housing Market Forecasts

LocationLast Gain/Loss

(Last 12 Months)Three Year Forecast Location

Last Gain/Loss (Last 12 Months)

Three Year Forecast

Houston 4.1% 26.0% New York -2.5% 6.0%Phoenix 6 0% 22 0% Philadelphia 1 1% 6 0%

Significant increases forecast in: Houston up 26% and Phoenix up 22%

Phoenix 6.0% 22.0% Philadelphia -1.1% 6.0%Austin, TX 2.5% 17.0% Los Angeles -1.4% 6.0%Dallas 1.6% 14.0% Miami 0.0% 4.0%Cincinnati 0.2% 10.0% Las Vegas -2.1% 2.0%Pittsburgh 1.3% 10.0% Providence -2.1% 1.0%

( )

9

Source: S&P/Case-Shiller; Bloomberg; Local Market Monitor; Barron’s and Janney FIS.

Average (Top 50) -1.4% 7.0%

Municipal Bond Market in the Wake of the Great Recession Municipal related bankruptcies did not

Municipal Market Advisor Data (from 7-09) Shows Risky Sectors Experience Most Trouble

jump above historical levels 12 in 2012 and 2 in 2013, so far

It is the “risky sectors” in the municipal market which experience the highest market which experience the highest number of impairments

Although bankruptcies and defaults are not likely in the traditional areas, downgrades are likely to continue to g youtpace upgrades

Municipal Rating Actions Have Been Mostly NegativeOnly 12 Issuers Filed for Chp 9 Bankruptcy Protection in 2012 ($ in bill)

1,000 Upgrades (#) Downgrades (#)

13 12

$10

12

14 # Filings (Left) $ Par Amount of Filings (Right)

500

75010

6

$6

$8

6

8

10

12$4.1 billion from Jeff

County, AL.

250

54

2

$

$2

$4

2

4

6

10Source: Municipal Market Advisors as of June 5, 2013; Moody’s and Janney FIS.

01989 1992 1995 1998 2001 2004 2007 2010

$0 0

2007 2008 2009 2010 2011 2012 2013

Janney Credit Outlook Remains Mixed for All Municipal Sectors US State revenues trended higher Local Government Revs Lagged the Recovery as ExpectedUS State e e ues t e ded g e Local govt revs have lagged But, higher home values could help Housing sector- issuance picking up,

$500 bln

$600 bln

$700 bln

$600 bln

$700 bln

$800 blnState Tax Revs (Left)

Local Tax Revs (Right)

pass-through structure Higher education- Government support

and changes in delivery$300 bln

$400 bln

$500 bln

$400 bln

$500 bln

$600 bln

Local tax revenues are back on the upswing now...and could be rising further depending upon the region

State Tax Revenues have Been Higher for 13 Straight Quarters Higher Home Values are a Positive Sign for Municipals

Mar-02 Sep-03 Mar-05 Sep-06 Mar-08 Sep-09 Mar-11 Sep-12

14

148

152 Case Shiller Comp 20 YoY % Change, Mar 2013- 10.8% (Right)

Home Price Index, Mar 2013- 148.65 (Left)9.310

15 Nominal Change (%)

2

6

10

136

140

144

148

-5

0

5

-6

-2

124

128

132

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

Home values are up 10.8% YoY

-20

-15

-10

06Q1 07Q2 08Q3 09Q4 11Q1 12Q2

State tax revenues were 9.3% higher in 1Q13 and have been higher for 13 straight quarters.

11Source: Census Bureau; Case Shiller and Janney FIS.

Jan 11 Jul 11 Jan 12 Jul 12 Jan 1306Q1 07Q2 08Q3 09Q4 11Q1 12Q2

Janney’s Sector Outlooks Range from Cautious to Stable In 2012 we lowered our outlooks for

Janney Municipal Credit OutlooksJanney Last

the school district and toll facility sectors – future actions depend largely on macro factors

Sector

yCredit

OutlookMonth

Change Key Sector TrendsRecent Janney Sector Review

Municipal Bond Index - - Barclay's Muni Index, 46k issues -

State Government Stable Same Some fall-out from Sequester expected Apr 2013 Note

Local Government Cautious Same Higher prop values are a positive Feb 2013 MBMM

School Districts Cautious Same Credit deterioration could continue but remain limited Feb 2013 MBMM

Uncertainty is a key theme issuers will need to grapple with in near term – budget cycles

School Districts Cautious Same Credit deterioration could continue, but remain limited Feb 2013 MBMM

Airports Cautious Same Enplanements slightly higher, funding questions Feb 2013 MBMM

Health Care Cautious Same Reimbursement uncertainty, margins pressured Feb 2013 MBMM

Higher Education Cautious Same Public schools have pricing advantage Feb 2013 MBMM

Housing Stable Same Pass-through structure is a new innovation May 2013 Note

Public Power (Elec.) Stable Same Essential purpose nature enhances stability Feb 2013 MBMM

Post Supreme Court and election, the non-profit healthcare sector faces more certainty, but the larger Source: Janney FI Strategy

systems have advantages. Shifting demographics will impact smaller schools

Tobacco Cautious Same More downgrades, consumption dropping Apr 2013 MBMM

Toll Facilities Cautious Same Activity is leveling off, still near 2004 levels Feb 2013 MBMM

Water and Sewer Stable Same Essentiality factor, system upgrades looming Feb 2013 MBMM

State and more selective private universities will do better than smaller, less selective schools

Uncertainty from the non-participating manufacturers’ dispute overhangs bonds secured by tobacco settlement revenues going into 2013, but the pace of cigarette consumption declines has slowed

12

How Did Issuers React? States Managed Well, Some Locals at Risk The magnitude of the fiscal challenges

Spending Cuts and Federal Aid Helped Close Budget Gaps (FY08-12)g g

that faced municipal issuers just after the recession was considerable

States generally chose to use spending cuts to close budget gaps

Spending

Emergency Federal Aid,

24%

Tax increases were a lever of last resort, some lowered taxes NC temp sales tax expired in FY12 MI raised PI but lowered corp

Spending Cuts, 45% Taxes and

Fees, 16%

MI raised PI, but lowered corp CT hikes across the board

Strategies (Non-Tax) Used to Reduce or Eliminate State Budget GapsStates Adjusted Budgets to Battle Budget Shortfalls ($ in billions)

$0FY02 FY03 FY04 FY05 FY09 FY10 FY11 FY12 FY13

Rainy Day Funds, 9%Other, 7%

-$40

-$75 -$80

-$45-$54

$

-$50

$0

15

20

25

30

35 FY10 FY11 FY12 FY13

$80

-$110

-$130

-$107

-$150

-$100

Shortfalls during last recession

Significant projected decline

0

5

10

13Source: Center on Budget and Policy Priorities; National Governors Association/National State Budget Officers and Janney FIS.

-$191-$200

p j

250 bps

State Finances Have Stabilized Post-Recession US states are continuing their gradual but Most State Spreads to AAA Benchmarks Have Narrowed

145150 bps

200 bps

*Blue bar shows range of US states' spreads to AAA MMD from Jan. 2010-Nov. 2012; red squares show latest spread.

g gwidespread economic recovery

Improved state credit profiles (mostly) are reflected in tighter GO spreads

States posted a 13th consecutive quarter

6053

65

29 33

5150 bps

100 bps

States posted a 13th consecutive quarter of higher tax collections in 1Q13

US states have continued to restructure as revenues, now higher than pre-recession levels, have not kept pace with

2921

3320 22

0 bpsCA IL MI NV CT MA NJ NY PA RI

p pspending desires. More restructuring may be needed if the economy slows

Areas of concern$80 B12% AK Total Balance ($)

TX Total Balance ($)

Inadequate State Reserves Are Masked by Large Balances of Two States

Areas of concern State reserves or rainy day funds are not

as plentiful as they were pre-recession Texas and Alaska make up about 50% of

reserves

$60 B

8%

10%Remaining States Total Balance ($)CA, FL, IL, NJ, NY, PA Total Balance ($)Balance as a % of Expenditures (left axis)

States' total balances are much lower in FY13 than FY06

reserves No rainy day funds for IL, NJ, PA Pension funding remains an ongoing

challenge for many states$20 B

$40 B

2%

4%

6%

AK and TX make up

$27B in FY13

14Source: Janney FI Strategy; Thomson Reuters; Spring 2012 Fiscal Survey of States

$0 B0%1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012E

Local Government Credit Concerns- Watch Credit Closely 75% of local tax revenue from property Ratio of Rating Upgrades to Downgrades is Expected to Remain Negative in 2013

5

7

Moody's S&P Fitch

15:115:1

ytaxes

We believe local issuer stress will be reflected in a continued trend of rating downgrades exceeding upgrades

1

3 Big local govt credit stories- Harrisburg, Jeff County, Detroit, not reflective of local govt broadly, but important to watch

Watching local govt budgets-1

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

g g g

Local Government U.S. Median Ratings Will Remain High Despite Trends

30% Moody's Local Govt Median Rating

The Outliers- Notable Distressed Municipalities

IssuerUnderlying

RatingFiscal

EmergencyReceivership Mediation Bankruptcy Default

20%

y gCentral Falls, RI Caa1 X X X

Detroit, MI Caa2 X X XHarrisburg, PA Withdrawn X X

Jefferson Cty, AL Caa3 X X XMenasha, WI Ba2 XMoberly, MO Not Rated X

0%

10%

Pontiact SD, MI B3 XSan Bernadino, CA Not Rated X X

Scranton, PA Not Rated XStockton, CA Caa3 X X X XVallejo, CA Withdrawn X X X

Victor Valley, CA Ba1 X

15Source: Moody’s; S&P; Fitch; and Janney FI Strategy.

0%Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3

yWenatchee, WA Ba2 X

The Future of Tax Exemption is in Play Federal policy uncertainty: Washington Largest Individual Tax Expenditures FY2014

interference: future of the tax-exemption Threat will surface during debt negotiations Deficit reduction, potential for tax reform

and progressive arguments of fairness are

Rank Provision Category Tax Expenditures ($B)

1 Exclusion of Employer Health Insurance Consumption $164

2 Exclusion of Employer Pensions Saving $163

3 Mortgage Interest Deduction Housing $100and progressive arguments of fairness are among the forces pushing towards tax reform

Any significant change would be a major policy shift with the unintended

4 Exclusion of Medicare Government $76

5 Capital Gains Rates Saving $71

6 Earned Income Credit Labor Supply $58

7 Deduction of Income Taxes Government $54

8 G i E l i D h/Gif C S i $52p yconsequences of potentially impeding state and local government investment.

Eliminating tax exemption could lock smaller issuers out of the capital markets

8 Gains: Exclusion at Death/Gift Carryover Saving $52

9 Deduction of Charitable Contributions Consumption $52

10 Employer Benefits under Cafeteria Plans Consumption $44

11 Tax Exempt/Tax Credit Bonds Government $43

12 Exclusion of Social Security Benefits Government $43 Tax expenditures, including the municipal

tax exemption, total just over $1 trillion They support government policies by

providing a taxpayer benefit and

12 Exclusion of Social Security Benefits Government $43

13 Exclusion of Inside Buildup, Insurance Saving $28

14 Exclusion of Capital Gains on Housing Housing $27

15 Deduction of Property Taxes Housing $27

16 Deduction of Medical Expenditures Consumption $17p g p yhopefully achieve specific strategic goals

Top 20 tax expenditures make up about 90% of the total amount

16 Deduction of Medical Expenditures Consumption $17

17 Individual Retirement Accounts Saving $16

18 Child Credit Structural $15

19 Accelerated Depreciation Business $10

20 Exclusion of Foreign Earned Income Labor Supply $8

16Source: Congressional Research Service and Janney FIS.

g pp y

Total Top 20 $1,068

Introduction to Janney Municipal Research AnalystsTom Kozlik | Municipal Credit Analyst | [email protected] | 215.665.4422Tom Kozlik Director and Municipal Credit Analyst joined Janney Montgomery Scott in 2008 after time at UBS and Bear Stearns Mr Kozlik worked as Tom Kozlik, Director and Municipal Credit Analyst, joined Janney Montgomery Scott, in 2008 after time at UBS and Bear, Stearns. Mr. Kozlik worked as a public finance banker and specialized in single and multi-family housing yield and cash-flow analysis during the first part of his career. Now, in his role as a municipal credit analyst Mr. Kozlik advises Janney’s retail and institutional clients about the strengths and weaknesses of municipal market credit profiles. He has been named to Smith’s Municipal All-Star team and he is currently serving as the Vice-Chair of the Technical Advisory Committee for the MBFA. Mr. Kozlik graduated from the Schreyer’s Honors College at the Pennsylvania State University with a degree in Political Science with Honors and earned a Masters of Governmental Administration from the Fels Institute of Government at the University of yPennsylvania. He co-taught a graduate level class at the University of Pennsylvania titled the Business of Public Finance Investment Banking which is offered to students at the Fels Institute of Government and Wharton Business School.

17

Janney Municipal Research Publications Support Janney institutional and retail sales and trading and vast financial advisor network

1818

DisclaimerThis report is the intellectual property of Janney Montgomery Scott LLC (Janney) and may not be reproduced distributed or This report is the intellectual property of Janney Montgomery Scott LLC (Janney) and may not be reproduced, distributed, or published by any person for any purpose without Janney’s express prior written consent.

This presentation has been prepared by Janney Fixed Income Strategy (FIS) and is to be used for informational purposes only. In no event should it be construed as a solicitation or offer to purchase or sell a security. The information presented herein is taken from sources believed to be reliable, but is not guaranteed by Janney as to accuracy or completeness. Any issue named or rates mentioned are used for illustrative purposes only, and may not represent the specific features or securities available at a given time. Preliminary Official Statements, Final Official Statements, or Prospectuses for any new issues mentioned herein are available upon request. The value of and income from investments may vary because of changes in interest rates, foreign exchange rates securities prices market indexes as well as operational or financial conditions of issuers or other factors Past exchange rates, securities prices, market indexes, as well as operational or financial conditions of issuers or other factors. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. We have no obligation to tell you when opinions or information contained in Janney FIS presentations orpublications change.

19


Join CDFA Today

Members receive discounts to all CDFA events, including trainingcourses and the National Summit. Join at www.cdfa.net , and start saving today.


Michael DeckerManaging Director, Co‐Head of the Municipal Securities DivisionSecurities Industry and Financial Markets AssociationWashington, DC

Current Issues in the Municipal Bond Market

Michael Decker202-962-7430 or [email protected]

Long-term Municipal Bond Issuance

0

100

200

300

400

500

RefundingNew Money

2

Source: SIFMA *Projected as of December 2012

$ bi

llion

s

The tax-exemption is under threat.

1 The political agenda is dominated by deficit and debt reduction and tax reform.

2 House and Senate tax writers are drafting tax reform legislation.

3 The tax exemption is facing threats from both sides.

4 Mini “fiscal cliffs” could still be a threat.

3

Numerous proposals have been floated to curtail or eliminate the tax-exemption for municipal bonds.

1 The Obama administration’s FY2014 budget would impose a 28‐percent cap on the benefit to taxpayers of tax‐exempt interest, including all outstanding bonds.

2 The National Commission on Fiscal Responsibility and Reform (“Simpson‐Bowles”) proposed eliminating the tax‐exemption on all new issues of municipal bonds.

3 The Bipartisan Tax Fairness and Simplification Act of 2011 (S. 727, the “Wyden‐Coats bill”) would replace new tax‐exempt bonds with tax‐credit bonds and prohibit advance refundings.

4 The Bipartisan Policy Center’s Debt Reduction Task Force (“Domenici‐Rivlin”) proposed eliminating the tax‐exemption on all new issues of private‐activity bonds.

5 The Obama administration’s deficit reduction framework proposed a contingent cap on the benefit of tax‐exempt interest, including outstanding bonds, based on whether certain debt‐to‐GDP targets are met.

6 The Joint Committee on Taxation’s tax reform “experiment” document would repeal the tax‐exemption for new issues after 2012.

7 The Congressional Progressive Caucus’ “People’s Budget” would replace tax‐exempt bonds with direct‐pay bonds.

4

Fiscal Cliff Law Benefits the Muni Market

1 The American Taxpayer Relief Act (H.R. 8, P.L. 112‐240) does not tax municipal interest.

2 The law includes the following:• Permanent AMT patch indexed to inflation• Increase in marginal tax rates for couples earning $450,000 and singles

earning $400,000.• Reinstate the personal exemption phase‐out (PEP) and overall limit on

itemized deductions (Pease) for couples earning $300,000 and singles earning $250,000.

Fiscal Cliff Law

1 The following provisions are now permanent:• $15 million arbitrage rebate exclusion for school construction bonds• Tax‐exempt private activity bonds for qualified school construction

2 The following provisions are extended through 2013:• Personal deduction of state and local sales taxes• Qualified zone academy bonds authority• New York Liberty Zone bonds authority• Nine‐percent floor for the Low‐income Housing Tax Credit• Exclusion of military housing allowance from income determinations for multi‐

family bonds in select areas• New Markets Tax Credit

3 Patient Protection and Affordable Care Act surtax on investment income does not apply to municipal interest.

6

Sequestration

1 $1.2 trillion over ten years in automatic discretionary budget cuts split between defense and other programs

2 Sequestration haircuts subsidy payments on BABs and other direct‐pay bonds by approximately 8.5%.

3 Subsidy payment reductions began April 1.

Market Discount Proposal

1 On January 24, 2013 House Ways and Means Committee Chairman Dave Camp released a group of proposals related to taxation of financial products.

2 Among the proposals in the release is a proposed change to the tax treatment of “market discount” on debt instruments.

3 Market discount arises when a bond sells in the secondary market at a price below par.

4 Currently, market discount is taxed as ordinary income when a bond is sold or redeemed. De minimismarket discount is taxed as capital gain.

5 Under the Camp proposal, investors would pay tax on market discount accrual annually. The de minimis rule would be repealed.

6 This provision would affect the market after interest rates begin to rise.7 Competitive bond issuers are most at risk because they often cannot sell premium

coupons.

8

President Obama’s Budget

1 28‐percent cap is back, this time based on tax rates, not AGI.2 “Buffet Tax” would not affect tax‐exempt interest.3 America Fast Forward Bonds: Build America Bonds with 28‐percent subsidy rate.

501(c)(3)s would be eligible.4 Market discount changes would have implications for issuers.5 Repeal remaining elements of $150 million cap for non‐hospital 501(c)(3)

borrowers.6 Arbitrage simplification: Eliminate yield restriction and expand small issuer

exemption.7 Permit private use of bond‐financed research facilities.8 Permit up to 35 percent of private activity bonds to be used for land acquisition.9 Others.

9

Political landscape

1 Tax‐exemption being characterized more as a benefit for wealthy taxpayers and less as a benefit for state and local governments.

2 Sense that all must “bear some pain” to address fiscal issues.3 “Sacred cows” eroding.

• Mortgage interest deduction• Charitable contribution deduction

4 Tax reform may be coming in 2013.• Focus will be lower rates and fewer preferences.

Tax-exemption: Key Talking Points

1 The tax‐exemption has existed since the first federal income tax in 1913. It is not a loophole.

2 Eliminating tax‐exempt finance would raise borrowing costs 200‐300 basis points for state and local governments.

3 Investors already pay an implicit tax on municipal interest by receiving a lower pre‐tax rate of return.

4 The administration’s proposal to impose a 28‐percent cap on the tax‐exemption would raise state and local borrowing costs by 50‐100 basis points.

5 Tax‐exempt bonds have financed trillions of dollars of the nation’s public infrastructure. Infrastructure is underfunded, and raising the cost will result in less investment.

6 A tax on municipal bond investors would be borne not by those taxpayers but by state and local governments in the form of higher borrowing costs.

11


Audience Questions

Submit your questions to the panel now by using the GoToWebinar control panel.

We want to meet you in person! Join us for the CDFA National Summit in Washington, DC.


Upcoming Events at CDFA

Intro P3 Finance CourseAugust 6‐7Washington, DC

Intro EB‐5 Finance WebCourseSeptember 18‐19, 2013Daily: 12‐5pm EDT

Advanced Bond Finance WebCourseOctober 15‐16, 2013Daily: 12‐5pm EDT

Register Online at www.cdfa.net


Join Us for Future Webcasts

CDFA / / BNY MELLON DEVELOPMENT FINANCE WEBCAST SERIESTopic Announced SoonTuesday, July 16 @ 1:00pm EDT

Credit Enhancement: Letter of Credit & Bond Insurance OptionsFriday, August 9 @ 8:45am EDTLive from the CDFA National Summit in Washington, DC


Christine JohnsonSenior Product Manager415‐263‐[email protected]

The material contained herein is for informational purposes only. The content of this is not intended to provide authoritative financial, legal, regulatory or other professional advice. The Bank of New York Mellon Corporation and any of its subsidiaries makes no express or implied warranty regarding such material, and hereby expressly disclaims all legal liability and responsibility to persons or entities that use this report based on their reliance of the information in such report. The presentation of this material neither constitutes an offer to sell nor a solicitation of an offer to buy any securities described herein.

Contact Us

Erin TehanManager of Legislative & Federal Affairs614‐224‐[email protected]

Documents

CDFA //BNY MELLON DEVELOPMENT FINANCE ......Cumulative (Right) Weekly (Left) 80,000 Expect stabilization soon as supply increases, buyers materialize Multi-week fund flows read: 40