investor presentation on the los angeles
TRANSCRIPT
Investor Investor Presentation Presentation
on theon the
City of City of Los AngelesLos Angeles
June 2011
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DisclaimerThis electronic Investor Presentation you are about to view is provided as of June 17, 2011 for a proposed offering by the City of Los Angeles (the “City”) of its 2011 Tax and Revenue Anticipation Notes (the “2011 Notes”). If you are viewing this presentation after June 17, 2011, there may have been events that occurred subsequent to such date that would have a material adverse effect on the financial information that is presented herein, and neither the City nor J.P. Morgan Securities LLC, as Representative of the Underwriters, has undertaken any obligation to update this electronic presentation. The financial, accounting, statistical or economic or demographic data or forecasts, numbers, charts, tables, graphs, estimates, projections, assumptions or expressions of opinion, and other information provided herein are not warranted as to completeness or accuracy and are subject to change without notice.
This Investor Presentation is provided for your information and convenience only. Any investment decisions regarding the 2011 Notes should only be made after a careful review of the complete Preliminary Official Statement, dated June 17, 2011. By accessing this presentation, you agree not to duplicate, copy, download, screen capture, electronically store or record this Investor Presentation, nor to produce, publish or distribute this Investor Presentation in any form whatsoever.
This Investor Presentation does not constitute a recommendation or an offer or solicitation for the purchase or sale of any security or other financial instrument, including the 2011 Notes, or to adopt any investment strategy. Any offer or solicitation with respect to the 2011 Notes will be made solely by means of the Preliminary Official Statement and Official Statement, which describe the actual terms of such 2011 Notes. In no event shall the Underwriters or the City be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction mentioned herein. The Underwriters make no representations as to the legal, tax, credit or accounting treatment of any transactions mentioned herein, or any other effects such transactions may have on you and your affiliates or any other parties to such transactions and their respective affiliates. You should consult with your own advisors as to such matters and the consequences of the purchase and ownership of the 2011 Notes. Nothing in these materials constitutes a commitment by the Underwriters or any of their affiliates to enter into any transaction. No assurance can be given that any transaction mentioned herein could in fact be executed. Past performance is not indicative of future returns, which will vary. Transactions involving the 2011 Notes may not be suitable for all investors. You should consult with your own advisors as to the suitability of the 2011 Notes for your particular circumstances. Clients should contact their salesperson at, and execute transactions through, an entity of the Underwriters or other syndicate member entity qualified in their home jurisdiction unless governing law permits otherwise.
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Participants
Miguel A. Santana
City of Los Angeles, City Administrative Officer
Raymond P. Ciranna
City of Los Angeles, Assistant City Administrative Officer
Natalie R. Brill
City of Los Angeles, Chief of Debt Management
Noreen White
Financial Advisor, Acacia Financial Group
Gary Hall
J.P. Morgan, Senior Manager on TRANs
Marshall Kitain
J.P. Morgan
3
Note Structure
Estimated Size: $1.3 billion
Purpose: Provide cash flow management for City’s General Fund and prepay the City’s annual contributions to its two pension systems in July 2011.
Structure:
Expected Par Amount: $1,300,000,000*
Coupon Type: Fixed Rate
Expected Pricing Date: June 28, 2011*
Expected Closing Date: July 12, 2011*
Maturity Dates: March 30, 2012April 30, 2012May 31, 2012June 29, 2012
Early set-asides for repayment of principal and interest with strong coverage ratios
* Preliminary, subject to change.
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Presentation Overview
Los Angeles is a large city with a diverse economyThird largest metropolitan economy in the worldBroad and resilient economic base
Stabilized revenuesSigns of growth in economically sensitive Sales Tax and TOT Revenues
Prudent fiscal management Since Fiscal Year 2008-09, addressed a $1.9 billion budget deficit through ongoing and one-time solutions
Addressing major drivers of future deficitsPension and retiree healthcare costsLabor concessionsThree-Year Strategic Plan
Stable Reserve Fund
The City has managed through difficult economic times in the past and will continue to do so in the future
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Los Angeles: A Global Hub of Creativity and Innovation
Source: City of Los Angeles, Mayor’s Office of Economic and Business Policy
Third largest metropolitan economy in the world, with a GDP of over $500 billion
Diverse economy
International trade is the largest industry in the City by employment
Nearly 300,000 jobs are directly sustained by the movement of goods in and out of POLA and POLB
With 200 internationally-acclaimed colleges and universities, higher and specialized education is a hallmark of Los Angeles County
California Institute of Technology, Claremont Colleges, Loyola Marymount, UCLA and USC
Creative industries are a major player in the regional economy, generating nearly 1 million jobs and over $100 billion in sales revenue
State and local governments received an estimated $5.1 billion in taxes tied to these activities
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Housing Trends & Assessed and Estimated Value of Property
Source: Standard & Poor’s Case-Schiller Home Prices Index
Home Pricing Index for the Greater Los Angeles Area (Los Angeles/Long Beach/Santa Ana MSA)
Assessed and Estimated Value of Property (Last 5 FYs)
The Los Angeles Home Pricing Index for March 2011 had a (0.3%) change over the prior month, slightly up from a (1.0%) change over January and February 2011
The 12-month change from March 2011 was (1.7%)
Significant “Stored Value’ in secured property as a result of Proposition 13 which cushions the fiscal impact of home value declines
Year of Levy
Total($000s)
Average Annual Growth
Assessed Value Per
Capita2006 $312,668,295 9.91% $79
2007 $346,982,793 10.97% $87
2008 $381,153,231 9.85% $95
2009 $411,135,224 7.87% $101
2010 $410,756,330 (0.09%) $100
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Source: City of Los Angeles, Office of City Administrative Officer, Supplement to the 2011-12 Proposed Budget.
Monthly Sales Tax Revenue
Rolling 12-month sales tax data shows revenue for local economic activity is recovering
Since December 2010, rolling 12-month sales has been positive and steadily increasing, with forecasted revenue projected to remain stable over the upcoming months
The past several years have seen increasing business taxes, which after a small decrease with the recession of 2009, have shown a strong rebound
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Monthly Transient Occupancy Tax (TOT) Revenue and Hotel Performance
(1) Source: City of Los Angeles, Office of City Administrative Officer, Supplement to the 2011-12 Proposed Budget
(2) STR Hotel Report 2011
Monthly TOT has increased since November 2010
Downtown hotel development projects:
Wilshire Grand Hotel Project 560 room, four-star hotel with 100 residential units
Marriott Hotels 180 Courtyard by Marriott rooms197 Marriott Residence Inn rooms
Initial reductions in travel with Japan following the tsunami have begun to moderate, and there is evidence of a growth in California exports to Japan resulting from rebuilding efforts
(1)
(2)
y% change ADR % change change
Los Angeles (Downtown) 15.9% 18.6% 37.5%Hollywood - Beverly Hills 6.7% 11.2% 18.7%LAX 5.4% 3.8% 9.4%Long Beach/Torrance 7.5% 5.6% 13.5%Los Angeles Southeast 8.5% (1.2%) 7.2%Santa Monica/Marina Del Rey 3.6% 7.5% 11.4%Los Angeles East 6.3% 3.1% 9.6%Los Angeles North 5.0% (0.7%) 4.2%Pasadena/Glendale/Burbank 8.3% (0.6%) 7.6%TOTAL 7.5% 6.9% 14.9%
Los Angeles Market Hotel Performance Through March 2011 (2)
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Major General Fund Taxes
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“Four Pillars” Framework
• Stable Reserve Fund• Reduce or Eliminate General Fund Subsidies• Maximize Flexible Funding• Strengthen & Streamline Central
Administration Functions & Contracting Process
• Pursue New Revenue
I. Responsible Management & Fiscal Practices
• Re-evaluate Discretionary Programs• Consolidate Services• Evaluate and Redesign Core Services
II. Focus on Core Services
• Partner with Non-profits, Foundations and Private Sector
• Maximize City Assets• Strengthen Core Functions
III. Alternative Service Delivery Models
• Reduce the Size of the Workforce• Reduce Healthcare and Workers’
Compensation Costs• Control Pensions and Retiree Health Costs• Align Compensation• Eliminate Furloughs through Concessions
IV. Sustainable Workforce
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Adopted City Budgets and Staffing Levels
After 2 years of significant declines in the City budget, modest increases in 2011-12
Most of the increase is in Special Funds, while General Fund budget remains relatively flat
City has reduced staffing by 13.2% from peak
Lowest City workforce since the Riordan Administration
$7.11 $6.88 $6.75 $6.87$6.82
36,971 35,86432,965 32,271
37,173
City Budgets
Citywide Authorized Staffing
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Reflects the Four “Pillars” approach
Over 50% are ongoing solutions
2011-12 Adopted Budget
*Projected labor concessions will generate alternative savings that will significantly reduce furloughs
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2011-12 Adopted budget reflects the City’s diversified revenue base
2011-12 Adopted Budget - Revenue Outlook
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2011-12 Adopted Budget Reflects Conservative Revenue Projections
In $ Thousands
2010-11 Revised Estimate
2011-12 Adopted Budget
Variance from 2010-11
Revised Estimate
Variance as % of 2010-11
Revised Estimate
Property Tax $1,424,143 $1,436,363 $12,220 0.9%Utility Users' Tax 624,898 627,832 2,934 0.5%Licenses, Permits, Fees and Fines 710,068 725,092 15,024 2.1%Business Tax 424,036 439,219 15,183 3.6%Sales Tax 291,656 306,239 14,583 5.0%Documentary Transfer Tax 102,000 107,000 5,000 4.9%Residential Development Tax 1,500 1,905 405 27.0%Transient Occupancy Tax 127,193 136,200 9,007 7.1%Parking Users' Tax 84,000 88,200 4,200 5.0%State Motor Vehicle License Fees 13,792 14,700 908 6.6%All Other 495,253 494,003 (1,250) -0.3%Subtotal General Fund $4,298,539 $4,376,753 $78,214 1.8%
Transfer from Reserve Fund 3,617 8,939 5,322 Total General Fund $4,302,156 $4,385,692 $83,536 1.9%
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Comparison of 4-Year Outlook
$4,375 $4,386
$4,484
$4,627
$4,775
$4,951
$4,680
$4,868
$5,043
$5,156
$4,723
$4,937
$5,131
$5,307
$4,200
$4,400
$4,600
$4,800
$5,000
$5,200
$5,400
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
($M
illio
ns)
June 2011 Revenue June 2011 ExpendituresDec 2010 Revenue Dec 2010 Expenditures
$(350)
$(446)
$(513)
$(548)
$(196)
$(241)
$(268)
$(206)
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Reserve Fund Balances – Budgetary and GAAP Basis
Reserve Fund Balances – Budgetary Basis
GAAP Fund Balances
Adopte
d
City has met its policy goal of maintaining 2.75% emergency reserve
Progress in growing total Reserve Fund to policy goal of 5% of General Fund revenues
Unreserved fund balance comprised of reserve fund and other available resources
Drop in GAAP fund balance in FY 2007 and FY 2008 reflects use of that year’s budget savings to balance subsequent budgets
Unreserved balance includes the reserved fund as well as other uncommitted balances
$579 $571$435 $419 $317 $272
$231 $214$273
$179$167 $165
0%2%4%6%8%10%12%14%16%
$0
$200
$400
$600
$800
$1,000
2004‐05 2005‐06 2006‐07 2007‐08 2008‐09 2009‐10
($Millions)
Unreserved GF Balance
Reserved
% of GF Revenues
$785
$708
$598$484
$437
$810
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$395 $448 $488 $522 $559
$484$551
$633 $684 $731
$363 $411 $456 $496 $534
$472$537
$617$667 $713
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
($Millions)
LA City Employees' Retirement Fund Fire And Police Pension FundLACERS New Contribution Amount FPPS New Contribution Amount
$999$1,121 $1,206
$1,290
$879
Adopted
Pensions and Benefits – Estimated Contributions
Estimated Future City Contributions to Pensions
Total future City pension contributions are projected to increase but at a much lower rate
Pension Systems Funded Ratio
$835$948
$1,074$1,163
$1,246
0%
25%
50%
75%
100%
2005-06 2006-07 2007-08 2008-09 2009-10
Fire and Police Pension Plan LA City Employees' Retirement System
0%
25%
50%
75%
100%
2005-06 2006-07 2007-08 2008-09 2009-10
Fire and Police Pension Plan LA City Employees' Retirement System
Other Post-Employment Benefits Funded Ratio
Decline in funded ratio represents market losses and changes in actuarial assumptions, based primarily on experience studies
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Cash Flow Projections
Source: Office of the City Controller.
Set aside payment dates:January 25, 2012 (15%)February 23, 2012 (10%)March 23, 2012 (25%)April 25, 2012 (25%)May 24, 2012 (25%)
GENERAL FUND CASH FLOWFISCAL YEAR 2011-12
(In Thousands)
PAYROLL PERIOD ENDING July 27 August 24 September 21 October 19 November 30 December 28 January 25 February 22 March 21 April 18 May 30 June 30 Total
BEGINNING CASH BALANCE 274,230$ 484,960$ 374,908$ 247,657$ 158,146$ 65,525$ 376,128$ 347,135$ 317,176$ 285,234$ 185,822$ 108,048$
RECEIPTS
Property Taxes 28,644 49,848 -- -- 28,339 355,966 311,757 61,876 6,422 -- 587,700 5,811 1,436,363 Utility Users Tax 35,760 37,260 46,555 49,047 79,376 49,906 41,803 48,906 50,681 49,046 78,879 60,613 627,832 Licenses, Permits, Fees and Fines 9,699 35,683 39,604 42,862 65,954 55,685 40,077 61,311 45,648 59,156 74,352 195,061 725,092 Sales Tax 21,284 27,715 -- 49,488 27,347 31,144 21,896 -- 27,960 45,661 25,540 28,204 306,239 Business Tax 1,845 7,247 4,173 4,392 7,467 3,645 5,446 25,300 184,472 154,737 27,539 12,956 439,219 Expenditure Transfers and Reimbursements 14,868 87,409 63,965 61,024 91,333 95,599 42,644 74,748 74,749 63,475 91,659 158,959 920,432 Other Revenues 40,935 40,729 47,602 34,468 67,818 43,736 37,399 42,048 48,352 47,464 64,132 73,325 588,008 Transfer from Proprietary Funds -- -- -- -- -- -- -- -- -- 127,000 84,684 42,316 254,000 Transfer from Reserve Fund -- -- -- -- -- -- -- -- -- -- -- 8,939 8,939 2011 TRANs Proceeds 1,266,638 -- -- -- -- -- -- -- -- -- -- -- 1,266,638
Total Receipts 1,419,673 285,891 201,899 241,281 367,634 635,681 501,022 314,189 438,284 546,539 1,034,485 586,184 6,572,762
DISBURSEMENTS
Salaries 218,916 205,827 207,096 206,318 309,622 206,510 215,688 211,914 212,675 210,673 313,503 211,968 2,730,710 Allocations to Other Funds 29,232 22,847 16,665 15,388 16,082 13,775 23,721 16,418 16,150 18,771 17,943 63,802 270,794 Services, Equipment and Supplies 33,011 71,794 60,793 57,820 90,337 53,928 53,052 60,079 52,900 57,270 89,479 86,408 766,871 Other Disbursements (1) 927,784 95,475 44,596 51,266 44,214 50,865 46,147 55,737 60,897 40,226 53,312 48,523 1,519,042 2011 TRANs Debt Service Fund -- -- -- -- -- -- 191,407 -- 127,604 319,011 638,022 -- 1,276,044
Total Disbursements 1,208,943 395,943 329,150 330,792 460,255 325,078 530,015 344,148 470,226 645,951 1,112,259 410,701 6,563,460
SURPLUS/DEFICIT 210,730 (110,052) (127,251) (89,511) (92,621) 310,603 (28,993) (29,959) (31,942) (99,412) (77,774) 175,483
ENDING CASH BALANCE 484,960$ 374,908$ 247,657$ 158,146$ 65,525$ 376,128$ 347,135$ 317,176$ 285,234$ 185,822$ 108,048$ 283,531$
AVAILABLE/BORROWABLE RESOURCESReserve Fund 149,226 149,071 151,743 151,849 151,560 154,029 154,261 154,635 155,259 155,279 155,299 149,203 Other Borrowable Funds 424,856 442,208 454,672 436,932 453,048 476,648 470,007 479,444 490,256 494,431 -- -- Total Borrowable Funds 574,082 591,279 606,415 588,781 604,608 630,677 624,268 634,079 645,515 649,710 155,299 149,203
(1) July disbursement includes pre-payment of City's fiscal year 2011-12 contribution to the employee pension and retirement systems.
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Cash Management Program OverviewCity’s Cash Management Program Provides
Strong Security for the TRANGeneral Fund expenditures tend to remain level, while receipts follow an uneven pattern
TRAN provides cash flow deficit managementTRAN has a first claim on unrestricted revenues
Early set-aside payments for the TRAN provide strong coverage ratiosSet-aside payments are at least 30 days apart
Significant borrowable resources provide additional coverage
Payroll Period Ending
Set-Aside Payment Dates
Set Aside Payment
Total General Fund Receipts Coverage
January 25 January 25 $ 191,407,000 $ 501,022,000 2.62x
March 21 February 23 127,604,000 438,284,000 3.43x
April 18 March 23 319,011,000 546,539,000 1.71x
May 30 April 25 & May 24 638,022,000 1,034,485,000 1.62x
Total $1,276,044,000 $2,520,330,000 1.98x
Projected Set Asides and Coverages
Monthly Cash Balances and Borrowable Resources
$0
$200,000
$400,000
$600,000
$800,000
Jul
Aug
Sep Oct
Nov
Dec Ja
n
Feb
Mar
Apr
May Ju
n
2010-11 Ending Cash Balances2011-12 Projected Ending Cash Balances2011-12 Projected Borrowable Resources Available
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Summary
City is working diligently to address both near-term and long-term budget challenges
City’s budget process is ongoing
Combined impacts of revenue declines due to recession and increasing expenditure pressures means it will take several years to move toward structural balance
City is implementing elements of the “Four Pillars”
One of the only cities implementing pension and retiree healthcare reform and unprecedented labor concessions
Demonstrated our ability to make difficult decisions to balance the budget
Limited exposure to State of California budget process and funding
Strong cash flows and Note coverage with adequate reserves
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Financing Schedule
June 17: City Council Approval of TRANsFinancing Documents
June 17: Post POS
June 28: Retail Order Period
June 29: Pricing
July 12: ClosingJuly 2011
Su M Tu W Th F Sa1 2
3 4 5 6 7 8 910 11 12 13 14 15 1617 18 19 20 21 22 23
24 /31 25 26 27 28 29 30
June 2011Su M Tu W Th F Sa
1 2 3 45 6 7 8 9 10 1112 13 14 15 16 17 1819 20 21 22 23 24 2526 27 28 29 30
August 2011Su M Tu W Th F Sa
1 2 3 4 5 67 8 9 10 11 12 1314 15 16 17 18 19 2021 22 23 24 25 26 2728 29 30 31
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Contacts for Questions
City of Los Angeles
Financial Advisor Acacia Financial Group
Senior Managing Underwriter J.P. Morgan
Natalie Brill Chief of Debt Management P: (213) 473-7526 [email protected]
Noreen White Co-President P: (973) 509-3990 [email protected]
Gary Hall Executive Director P: (415) 315-5652 [email protected]
Marshall Kitain Vice President P: (212) 834-5673 [email protected]
For more information, please visit the City’s website at http://cao.lacity.org/
KNN Public Finance
David Brodsly Managing Director P: (510) 208-8205 [email protected]