May 17, 2011 08:00 AM
By Citi, Institutional Clients Group
The City of Buffalo has the second largest public school district in New York State with a student population of more than 33,000 children across 58 schools. Until recently, many of its aging buildings were in need of significant modernization, but Buffalo's school district faced limited options, with no independent ability to tax or issue bonds for renovations. While the City of Buffalo has such authority, it faced challenges, such as a shrinking tax base and the fact that it was nearing its constitutional debt limit.
Yet an ambitious $1.4 billion district-wide, 10-year capital improvement plan became a reality when interested parties, including Citi's Municipal Securities Division, came together to structure an innovative financing deal. In an entirely new way of financing school construction in New York, Citi helped develop a credit structure that tapped annual appropriations of State education aid to the Buffalo school district, providing a secure revenue source to repay investors independent of the City of Buffalo's own credit, and Citi successfully sold bonds supported by the State education aid revenues to investors.
Citi also devised, and the State Legislature enacted, a novel pre-default intercept to capture State education aid receipts to cover future debt service on the bonds, if necessary. This structure was an additional credit enhancement and raised the credit quality of the bonds. Under the structure of the deal, the Buffalo school district was also able to pay its local share of the cost of the reconstruction project from interest earnings on the bond proceeds, savings generated from energy conservation measures and other sources, without tapping local taxpayers for funds.
The effort has been a big success. Buffalo has completed remarkable structural and technological upgrades to nearly every school in the Buffalo school district, and by 2014 nearly every child in the district will be learning in a beautifully renovated school. This creative and cost-effective approach also has been looked at as a model for other urban school districts in New York with reconstruction plans.
These inspiring buildings are more than just schools; they are a new focal point for the Buffalo community. Construction has focused on involving a diverse array of local firms, provided mentoring opportunities for minority and women-owned businesses and engaged high school students interested in the building profession. Citi is pleased to help provide new opportunities for these businesses and to be a part of the long-term investment in the next generation of students.
Citi's role in raising capital for the Buffalo schools and other essential infrastructure projects around the country, including hospitals and affordable housing, is not always obvious, but it is crucial. Citi's Municipal Securities Division is proud to have underwritten more of America's public projects in the past decade than any other U.S. bank.
Pictured above: City Honors School, Buffalo, NY. Photo by Timpix.com.