RESPONSIBLE CITY AGENCY: Treasurer’s Division
KEYWORDS: Debt management, bonds, bonding.
1. General
1.1 The City’s debt management practices and strategies will reinforce the City’s prestigious triple A rating.
2. Debt Administration and Monitoring
2.1 The City will make all debt service payments when due on a timely basis, including all principal and interest payments, sinking fund payments, debt service reserve fund payments, and all other debt related obligations.
2.2 The City will follow a policy of full compliance with all arbitrage rebate requirements of the federal tax code and Internal Revenue Service regulations, and will perform (internally or by contract consultants) arbitrage rebate calculations for each issue subject to rebate on an annual basis. All necessary rebates will be filed and paid when due.
2.3 Targeted debt ratios and debt indicators should include the following:
a) Total debt service for general obligation tax-supported debt and other general fund debt obligations (e.g. Municipal Building Authority debt), not including contributions from other sources (e.g., enterprise fund payments, County building agreement payment, etc.), should not exceed 10% of general fund revenues on an annual basis.
b) Unrestricted general fund balance as a percent of general fund revenues should be maintained at 5% or greater.
c) Total outstanding debt as a percent of estimated fair market value of taxable property within the City should not exceed 1% for net direct general obligation debt, and should not exceed 2% for direct general obligation and all other general fund debt (e.g. Municipal Building Authority debt).
d) Total outstanding debt per capita for net direct general obligation debt should not exceed $500, and debt per capita for all general fund debt should not exceed $800.
e) The combined average life of all outstanding general fund debt (added together) should not go beyond 12 years, and the average life of new bond issues should not exceed 15 years.
2.4 The City will retire Tax and Revenue Anticipation Notes annually, within the same fiscal year they are issued, and will ensure through its cash management practices that sufficient cash is available on the day the Notes fall due. The City will retire any other short term borrowing (e.g. Special Improvement District interim warrants) within nine months after completion of the capital project(s) being financed.
3. Debt Planning
3.1 In the preparation of Financial Reports, Official Statements or any other bond prospectus, the City will follow a policy of full and complete disclosure of financial and legal conditions of the City, including secondary market disclosures, in conformance with guidelines issued by the Government Finance Officers Association (“Disclosure Guidelines”), Securities and Exchange Commission Rule 15c2-12, and as advised by disclosure counsel. The Management Services Department will participate in the issuance of all debt to provide appropriate coordination.
3.2 The City’s capital budgeting and financial management policies will attempt to maintain a balanced relationship between issuing debt and pay-as-you-go financing. Pay-as-you-go funding for near term projects will be reviewed as an alternative to or to be done in conjunction with debt financed capital improvements.
3.3 The City will not use proceeds from long-term debt to finance current year operating costs or revenue shortfalls. Long-term borrowing will be confined to capital improvements, or other major projects that cannot be financed from current year revenues. Further, when the City issues bonds to finance capital projects, the bonds will be amortized within a period not to exceed the expected useful life of the asset being financed.
3.4 The City will issue Tax and Revenue Anticipation Notes for the sole purpose of meeting short-term cash-flow liquidity needs, and will size the issue and time the sale to meet the “safe harbor” provisions of federal tax code which exempt the Notes from arbitrage rebate.
3.5 The City will analyze the fiscal impact of debt-financed capital projects on the City’s operating budget and coordinate this analysis with the budget development process.
3.6 The City will consider several factors in determining which type of bonds to issue (e.g., general obligation, revenue, lease revenue bonds, etc.), including the following:
a) Direct and indirect beneficiaries of the project(s). A significantly large portion of citizens should benefit from projects financed by general obligation bonds;
b) Time pattern of the stream of benefits generated by the project;
c) Alternative types of existing or potential user charges and the ability to generate revenue by controlling rates;
d) Effect of the proposed bond issue on the City’s ability to finance future projects of equal or higher priority;
e) The likely interest costs and costs of issuance of each alternative type of issue; and,
f) Impact of the issue on the City’s financial position and credit ratings.
3.7 The City will analyze the potential of preparing for refunding bond issues, particularly during periods of lower than normal interest rates or on an as needed basis. Refundings will be pursued under the following circumstances:
a) To eliminate unsuitable indentures or outdated and/or overly restrictive covenants;
b) To restructure debt payments to better meet budgetary constraints or opportunities, or to more closely coincide with anticipated revenue stream(s); and/or,
c) To take advantage of market opportunities of achieving significant present value savings, considered to be at least 2% or greater on outstanding principal or where the final maturity of the outstanding bonds is of a short duration.
4. Debt Issuance Activities
4.1 For each debt issue, the City will have in place a financing team including qualified and reputable financial advisors, underwriters, bond attorneys, and trustees necessary for the financing.
4.2 The City will attempt to stabilize the budget requirements of debt issues by structuring annual debt service payments in approximate equal (level) amounts over the life of the issue, unless anticipated available revenues dictate otherwise, or if the estimated useful life of the financed project(s) suggests a different maturity schedule.
CURRENT REFERENCES: Bond Indentures, Official Statements
UCA 10-6-101, et seq. Uniform Fiscal Procedures Act)
PRE-1995 REFERENCES:
EFFECTIVE DATE: October 1, 1995
DATE APPROVED BY CABINET: September 6, 1995