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Closing Budget Gaps With Asset Sales

OnDemand Webinar (87 minutes)

The lingering Great Recession and slow recovery have diminished the growth of state and local government revenues while expenses continue their increase causing structural budget gaps. A new source of revenue is the sale or conversion of government assets into revenues. These revenues may be one-time proceeds of asset sales, leases and franchise fees, redevelopment of existing buildings, imposing new fees, rents, assessments on underutilized assets and various offsets to operating costs. Squire Sanders partner Kenneth W. Bond will cover the budget benefits and the legal and tax challenges in conducting asset sales and conversions. This OnDemand Webinar will also cover how state laws need reform to develop a comprehensive legal basis for accessing the equity in government assets. Squire Sanders partner Harriet M. Welch will discuss various techniques and financial structures available to effect asset sales. Squire Sanders partner Christopher Brigstocke will provide insight on the European-UK model of private-public sector partnerships where assets are sold to a special purpose entity and the financial risk of design, construction, operation and management of government assets and services is shifted to investors.

Authors

Kenneth W. Bond, Squire, Sanders & Dempsey (U.S.) LLP
Christopher Brigstocke, Squire, Sanders & Dempsey (U.S.) LLP
Harriet M. Welch, Squire, Sanders & Dempsey (U.S.) LLP

Agenda

The Issue to Be Addressed - State and Local Government Fiscal Stress

  • Recurring Revenue Shortfalls Due to Great Recession
  • Recurring Expenditure Increases Due to Fixed Labor/Benefits Agreements
  • Attempts to Achieve Balance Causing Reduction in Core Public Services

The Budgetary Benefits From Asset Sales

  • Monetizing Assets Unlocks Asset Value to Close Budget Gaps
  • Urban Renewal/Economic Development Assets Sold May Enhance Revenues
  • Proceeds of Asset Sale Not Restricted but Must Be Applied to Alleviate Deficit

The Techniques to Effect Asset Sales

  • Sale and Leaseback; May Require Creation of Conduit on Behalf on Public Entity
  • True Sale Transaction (California Model)
  • Use of Senior and Subordinated Debt Paid From Revenue Flow
  • Lease Facilities With Up-Front Investor Payment (i.e., Parking Facilities); P3
  • Ground Lease to Retain Public Asset Ownership and Regulation
  • Sale of Easements, Franchises, Licenses, etc. for Land Use Control

Legal Issues Involved in Asset Sales

  • Need for Basic State Law Authority to Sell Assets If Not Surplus
  • Referenda Requirements and Fair Valuation of Assets
  • Effect on Labor Agreements and Benefits If Assets and Facilities Sold
  • Tax-Exempt Status of Interest on Bonds Which Financed Sold Assets
  • Continued Public Management or Privatization of Sold Assets

The Need for Revision of State Laws to Effect Asset Sales

  • Statutes Which Authorize Asset Sales to Generate Budget Revenues; Authorize Public Assets to Be Rented or Leased Rather Than Owned; Empower Conduits
  • Statutes Which Authorize True Sales; Address Asset 'Ownership' Issue
  • Statutes Which Set Parameters for Valuation of Assets and Regulation of Public Assets Under Private Sector Ownership
  • Statutes Which Address Labor Agreements/Employee Benefits When Assets Held on Trust for Investors

UK-Type Public Private Partnership Infrastructure Financing

  • Establish Legal Alternatives With Equity Participation to Finance Infrastructure
  • Shift Risk of Loss to Investors With Senior/Subordinate
  • Include Asset Sales in P3 Transaction to Generate Budget Revenues

Federal Funding and Tax Incentives

  • Amend IRC to Provide New Category for Asset Sale Tax-Credit Bonds
  • Provide Matching Federal Dollars for Asset Sale (ABA Resolution 105, 2009)