Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

Pre-Start Memo

To: Members of PADM 5755

Re: Prep for the First Day of Class (January 22)  

Date: January 8, 2024 

          “I'll gladly pay you Tuesday for a hamburger today.”

                  J. Wellington Wimpy (usually referred to as Wimpy), one of the characters in the comic strip Popeye, 1932

              https://www.youtube.com/watch?v=AcDx1KoX6S0        

Infrastructure—transportation, water and sewer, telecom and “social” infrastructure (e.g., schools, courthouses, etc.)—is a hot and ubiquitous topic. (If a topic catches the attention of John Oliver of Last Week Tonight fame—see  https://www.youtube.com/watch?v=Wpzvaqypav8 –you know you’re onto something.)

This semester we are going to tackle a particular aspect of infrastructure—the financing of infrastructure.  This course is going to begin with the fundamentals of finance and then move through the process of evaluating and financing a project. We will look at the investment decision associated with a public asset and then at various techniques and options to finance the asset.

Infrastructure finance, however, is not just financial engineering. There are important public policy aspects of the design and implementation of a financing strategy. This course will use case studies that not only illustrate and provide practice in finance techniques and tools, but also require analysis of public policy questions that are central to the provision of public goods and services.

The flow of the course is reflected in the schedule below.

Meeting Dates
1. Jan 22	The math of infrastructure finance
2. Jan 29	The parameters of the public investment decision
3. Feb 5	Cost-benefit analysis
4. Feb 12	Nature and dimensions of infrastructure capital markets
5. Feb 19	General obligation bonds
6. Mar 4	Revenue bonds
7. Mar 11	Credit analysis and ratings
8. Mar 18	Structured finance
9. Mar 25	Project finance
10. April 8	Life cycle costing and procurement
11. April 15	Public-private partnerships I
12. April 22	Value for money
13. May 29	Public-private partnerships II
14. May 6	Wrap-up

My hope and expectation are, by the end of the semester, you will be able to structure a financing of an infrastructure asset. Further you will be able to critically assess the pros and cons of various financing alternatives.

Several notes about the class:

1. Attachment 1 describes the “nuts and bolts” of the course (including requirements).

2. Many of the examples and case studies used in the course are U.S.-based. Readings, however, will include international examples and most of the concepts covered will have global applicability.

3. To give you a sense of the approach we are going to use and the questions we are going to tackle, I have included as Attachment 3 a particular infrastructure “challenge”—a financing of a new urban park in Philadelphia. Please read Attachment 3 prior to our first class on January 22, 2024 and think about the questions posed.  

In advance of our first meeting, please email me ([email protected]) your resume and two paragraphs about why you want to take this course, your expectations for the course, and a self-appraisal of your Excel skills. Note: We will be working with Excel almost every week. There are numerous “how to do” Web resources that explain and illustrate the use of Excel’s financial functions, including PMT (calculates the payment for a loan based on constant payments and a constant interest rate), NPV (calculates the net present value of series of future cashflows), IRR (calculates the internal rate of return for a series of cash flows), etc.  Check out:  

§ http://www.youtube.com/watch?v=qAhV3xG0i8s

§ http://www.excel-easy.com/functions/financial-functions.html

Attachment 1

PADM 5755 Course Details

Time: 11:20am - 2:20pm (see calendar on the first page)

Place: TBA

Format of Class: Classes are lecture format with opportunity for questions and discussion. Each week I will distribute via email a prep memo introducing and framing the next week’s topic. This memo also will include the readings for the upcoming week.

Each class will be broken into two parts with a 15 minute halfway break. The first half of the class will be a review of the material covered in and out of class during the prior week, including the homework assignment. The second half will be a lecture covering the topic of the week.

Texts: Readings will be assigned weekly and posted on Canvas. The primary desk reference is Fundamentals of Municipal Bonds (Sixth Edition, John Wiley & Sons, Inc.) available on Amazon.

Course Requirements

· Participation (15% of the final grade)

Each student is expected to attend every class and participate in class discussion. Students who attend at least 11 classes (not including Week 1) and participate regularly in class will receive and “A” (95) for participation credit. For each class missed, after the one allowed absence, the participation portion of the overall grade will be reduced one full grade. 

· Weekly Homework (20% of final grade)

Homework problems will be assigned in the prep memos. These problem sets will be due on or before 9:00pm on Sunday and submitted via the assignments tab on course Canvas.

These homework submissions are self-evaluated; I will provide the answer sheet the day after you submit the homework. Twelve (12) problem sets (submitted in a timely fashion) will receive an “A” (95) for the homework portion. For each homework not submitted, the homework portion of the overall grade will be reduced one full grade.

Feel free to work with each other on the homework. I do, however, want you to submit your own completed homework (unless instructed otherwise).  

· Memos (30% of final grade)

Each student will prepare two 2 page policy memos (each approx. 1,000 words) and one 6 slide Power Point presentation on an issue/question provided by me. Assignments will be made at the beginning of the semester. Memos and PPT’s will be submitted via email to me on or before 5:00pm on Saturday.  Memos and the PPT deck will be evaluated on the basis of insight (60%) and clarity (40%). (Memos and PPT’s may be posted on the class Canvas at my discretion.) See Attachment 2 for a set of guidelines for the 2 page memos and PPT’s.

· Final Project (35% of final grade) The

Each student will submit on or before last day of class, via a Word document (approx. 10 pages) emailed to me, a detailed financing plan of an actual or hypothetical infrastructure project of your choosing. This financing plan will include: 

§ a brief description of the project;  

§ financing assumptions;  

§ sources and uses of funds;

§ term sheet for the proposed financing mechanisms;  

§ a return on investment model; and

§ a risk matrix. 

I will provide to you in March a sample financing plan for your reference. Also, you will provide to me before Spring Break a two paragraph description of an infrastructure project you have chosen for your final project.

Academic Integrity:  Each student in this course is expected to abide by the Cornell University Code of Academic Integrity (http://cuinfo.cornell.edu/aic.cfm).

Attachment 2

Guidelines for Writing Two Page Policy Memos

Based on guidelines prepared by the Harvard Kennedy School Communications Program,1998.

Two page memos are a common and indispensable form of communication in the “real world”. Below are suggestions and guidelines for writing an effective two page memo.

Memos have a beginning, a middle, and an end.

· The beginning frames the issue:

o Statement of purpose

o Brief background on the problem; be careful to keep your focus on the problem itself.

· The middle explains the issue and makes a recommendation(s), as appropriate.

· The end summarizes the point you want to make.

Checklist for writing policy memos:

1. Structure

a. Directly address in the opening lines the purpose of the memo.

b. Cover the background in just a few words and then go into the discussion.

c. State the main idea of each paragraph within the first two sentences. The rest of the paragraph supports or qualifies the main idea with concrete data.

d. Clearly state your conclusion/recommendation.

2. Content

a. State your assumptions and justify them as necessary.

b. Briefly discuss alternatives or counter arguments.

c. Make sure issues of equal importance take up equivalent space; the more important, the more space, and vice versa.

d. Consider closing with a discussion of "next steps".

3. Audience

a. Give your reader a clear answer to his/her paramount concern, i.e. “Why am I reading this?

b. Recognize your intended reader's degree of prior knowledge; don’t over- or under-explain.

c. Anticipate your reader's probable questions, concerns, and objections.

d. Choose your words carefully.

4. Style

a. Use the active voice whenever possible.

b. Use plain English.

Finally, if you don’t already have one on your desk, get a copy of The Elements of Style, by William Strunk Jr. and E. B. White (Cornell 1921).  This is the best $5.00 you will ever spend. (Available Used on Amazon  http://www.amazon.com/gp/offer-listing/020530902X/ref=sr_1_1_twi_pap_1_olp?s=books&ie=UTF8&qid=1450217203&sr=1-1&keywords=elements+of+style.)

Guidelines for PowerPoint Presentations (Source: https://www.bc.vt.edu/general-guidelines-powerpoint-presentations )

To maximize effectiveness, consider the following suggestions when designing your slides.

Suggestion 1: Keep it simple

A popular rule of thumb is no more than 3 (+/-2) points on a slide. A more useful rule of thumb may be no more than 1 idea per slide. A good slide guides the viewer towards the essence of an idea, rather than listing of the idea's attributes.

Suggestion 2: Less is more

Try not to clutter a slide with too much text, graphics, or color. Research from Wharton School of Business suggests no more than 4 colors per slide and a minimum spacing of 1/2 inch between items. Rules like this (of course) are made to be broken, but it is a good general principle. Don't put anything you are going to say on a slide - the audience is likely to be bored. Be extremely cautious about incorporating animations or sound effects.

Suggestion 3: Make it BIG

Use a minimum 18 point font size. This allows people to see from the back of the room and limits you to approximately 7 line of text (which helps you to meet the guideline in suggestion 1).

Suggestion 4: Pictures can be worth a thousand words

It is a good idea to sometimes emphasize your points with the use of a graphic object. Pictures can provide the appropriate context for an idea; they are more visually stimulating and more easily remembered. Don't, however, use art for its own sake; make sure the picture relates to the idea you are presenting. Pictures should add to the idea being presented rather than distracting.  

Suggestion 5: Watch your color combinations

Some background and foreground color combinations are difficult to read (and copy). For example, green writing on a yellow background or blue writing on a red background are difficult to make out. Stick to a white background.

Suggestion 6: Test your slides

Run through the whole slide show to check for consistency of formats/colors/effects.

Attachment 3

Week 1 Case Study—Financing Philadelphia’s Rail Park

Note: While this is an actual, albeit prospective, project, I have taken some liberties with the facts for case study purposes.

Background 

Beginning in the late 1880’s through the 1980’s the City of Philadelphia was served by passenger and freight railroads that utilized elevated tracks (or viaducts) in the central core of the City. In 1984 a new tunnel and station were built and the Reading [Railroad] Viaduct was abandoned. Over the last 40 years this viaduct, which is owned by the successor company to the Reading Railroad Company, has been left to deteriorate and has become a blighting influence on the neighborhoods adjacent to it.   

The viaduct begins on Vine Street between 11th and 12th Streets and continues northeast to Fairmount Ave between 8th and 9th Streets. It traverses the neighborhoods of Chinatown North, Callowhill and West Poplar and spans surface streets with ten bridges made of steel, concrete, or stone. An engineering assessment in 2022 determined these bridges to be structurally sound and in need of only minor repair.

 

Map of Center City Philadelphia, by Eyes Habit

Several years ago the City, together with several civic organizations, began to make plans to convert the abandoned viaduct into a new public green and active transportation space—think the High Line in New York City. (Note: The existing spur and proposed extension of this “Rail Park” are shown as the green “V” near the top center of the map above.) The parcel is 6/10th of a mile long, 60’ wide, and covers 6.8 acres. An initial short two block phase of the Rail Park was opened in 2018.

Reclaiming and renovating this derelict structure will:

a. Create a new public park in an area of the City with few recreational amenities;

b. Connect people to open space, school and recreational spaces north of Fairmount Ave;

c. Offer a new, free active transportation option for pedestrians and cyclists; and

d. Spur much-needed economic development in an older section of the City that formerly was a center of manufacturing.

There are three levels of development that are being considered for a greenway that runs the entire length of the viaduct; a half-width trail with minimal amenities; half-width trail with enhanced amenities; or a full-width trail with enhanced amenities. The cost of the three options (not including engineering and design costs) ranges from $62 million to $111 million.

In December 2023 the Philadelphia City Council passed an ordinance that authorized the City to:

a. Acquire title to the parcel by “purchase, dedication, donation, condemnation, agreement in lieu of condemnation or otherwise, for the purpose of making, enlarging, connecting, extending, operating, and maintaining public parks for recreational use, certain parcels of land, generally bounded and located between Vine Street, Fairmount Avenue, 8th Street and 12th Street”; and

b. Lease the acquired property to the Center City District (CCD) to improve, operate and maintain the facility. (The CCD which was established in 1990 as a municipal authority for the purpose of making business improvements, e.g., sidewalks, street paving and lighting, parking lots and garages, landscaping, pedestrian walks, etc. in certain districts determined by the City.  In planning parlance, CCD is a “business improvement district”.)

The Challenge

The challenge facing the City is how to pay for this piece of infrastructure. Philadelphia’s existing park system has so many other funding needs that the City is not able to write a check for this investment (even for the least ambitious design). Given this the City, needs to look at a financing package consisting of:

1. Private philanthropy

2. State and federal grants

3. Loans that are secured, i.e. paid back from, by specified revenues to be collected over time. Possible revenue streams are:

a. General tax revenues collected by the City (principally wage tax, real estate tax and certain business taxes)

b. User fees

c. Hotel taxes—currently 8.5% of the total amount paid by the guest Note: The viaduct is adjacent to the Philadelphia Convention Center complex and is likely to be frequented by visitors to the City.)  The City's hotel tax rate generated $76 million FY 23.

d. Real estate tax surcharges—CCD currently bills an “assessed charge” of approximately .17% against the assessed value of property that is located within defined boundaries of Center City Philadelphia. This charge is used to fund various capital improvements to the physical environment. (The total assessed value in this defined district is approximately $18 billion and generates $30 million annually for the CCD.) Sources: https://centercityphila.org/ccd-services/ccd-assessments/assessment-calculations#:~:text=The%20total%20billable%20assessed%20value,CCD%20in%202023%20is%20%2418%2C438%2C083%2C131 and https://centercityphila.org/uploads/attachments/cl4r450ac023jx9qdknlif2xa-ccd-plan-budget-2023-final.pdf.

Nine existing vacant parcels adjacent to the viaduct are projected to more than triple in value if the project goes forward. Also, if the High Line is a good analog, the project should spur new development; according to Landscape Architecture Foundation, the “High Line catalyzed over $2 billion in new development, and generated over $1.4 billion in tax revenue for New York City between 2007 and 2027, roughly $65 million annually.”

For our first class on January 22^nd, I would like you to think about the following questions:

1. Who are the beneficiaries of the project? Are there any “harmed parties”?

2. Are there other costs besides the upfront project cost of $62 million that we should think about?

3. How would you determine whether this project is “worth” the investment of at least $62 million?

4. Should this project be a public (i.e., governmental) project or a private initiative, or perhaps a combination of the two?

5. Who could/should provide the capital (e.g., loans, grants, subsidies, etc.) to finance this project?

6. Is it appropriate to borrow money to build this project? If so, how should these loans be paid off?

7. What additional information should be gathered before a decision is made about how to proceed with the project?