No preview available
HomeMy WebLinkAboutFin Debt PolicyAgenda Item No: 3. e Meeting Date: December t5,2014 SAN RAFAEL CITY COUNCIL AGENDA REPORT Department: FINANCE DEPARTMENT Prepared by: Mark Moses, & Finance Director ity Manager Approval: AA SUBJECT: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL ADOPTING A DEBT POLICY RECOMMENDATION: ADOPT RESOLuTiON BACKGROUND: 17he City of San Rafael is committed to adopting sound practices and policies in its management of fiscal issues. Historically, the City has used informally -established. guidelines to govern the use of debt, which has been limited to (1) funding of redevelopment projects, prior to the termination of the Redevelopment Agency in early 2012; (2) parking facility infrastructure; (,3) pension. obligation bonds, and (4) bonds issued to facilitate infrastructure on behalf of property owners under assessment districts and community facilities districts (Mello - Roos). The 41 City has no outstanding general fund debt relating to the financing of city -owned 1 facilities used to provide general government services. F,arlier this year, the City Council Finance Committee asked staff to review the Status of the City's fiscal policies, and to bring forward recommended policies for Committee review and eventual adoption by the City Council. This proposed Debt Policy was reviewed at the Finance Committee meetings of September 16 and November 6, 2014. At the November 6 meeting, the City's Financial Advisor noted the importance of having a formally adopted debt policy in place prior to holding discussions with rating agencies pursuant to the issuance of bonds. It is likely that such a funding, strategy will be used to finance improvements to public facilities with the portion of the proceeds from the Measure E Transactions and L?se Tax that the City Council has set aside for such purpose, ANALYSIS: The Government Finance Officers Association recommends that public agencies formally adopt a policy that specifies appropriate uses for debt and identifies the maximum amount of debt and debt service that should be outstanding at any time. This is one of three expenditure policies identified under its best practice recommendations. (The other two are a reserve policy and an operating/capital expenditure accountability policy.) FOR CITY CLERK ONLY File No.: 1�- / - 2_ _ 7_ -.a V Council Meeting:tlX Disposition: A SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 2 The proposed debt policy is designed to: 0 Specify the conditions in which debt financing is appropriate (e.g., to fund construction or capital improvements that can be financed for a period that does not exceed the useful I i fe of the constructed or improved facilities). a Identify the maximum general fund resources that can be obligated to the annual repayment of debt. • Maintain cost-effective access to the capital markets through prudent fiscal policies and management. including the achievement of the highest possible credit ratings within the context of the City's capital needs and financing capabilities. • Provide for appropriate post -issuance management and compliance. The proposed policy describes the types and purposes of various debt instruments, sets forth debt authorization and approval procedures, identifies acceptable debt structuring practices, debt administration, continuing disclosure, and post -issuance compliance. The policy will be reviewed annually, in connection with the annual budget development and approval process. Any recommendation to issue debt will be reviewed first by the City Council Finance Committee, after which time it will be brought to the full City Council. for approval. The recommendation will include detailed information regarding the purpose and rationale for the use of the debt, its cost and maximum payment terms, and source of repayment. RECOMMENDATION: Staff recommends that City Council adopt the proposed policy. ATTACHMENT Resolution W:"Council Nlaterial','Staff Reportst20141CityiDebtPolicy.doc RESOLUTION NO. 13850 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL ADOPTING A DEBT POLICY WHEREAS, the City of San Rafael has operated for several years with an informal debt policy, and now desires to establish a fon-nal policy; and WHEREAS, since the City Council now wishes to formalize its Debt Policy; and WHEREAS, City staff, in consultation with the City's financial advisor, has developed a written policy that identifies the types of and purposes of debt, criteria and standards that govern the issuance of debt, and other best practices and procedures relating to the issuance and management of debt; and WHEREAS, the proposed Debt Policy has been reviewed by the City Council Finance Committee which has requested that staff bring this policy to the full City Council for discussion, consideration and approval. NOW, THEREFORE, BE IT RESOLVED, that the City Council of the City of San Rafael does hereby approve and adopt the Debt Policy that is attached hereto as Exhibit A 1, EST[IER C. BEIRNE, Clerk of the City of San Rafael, hereby certify that the foregoing resolution was duly and regularly introduced and adopted at a regular meeting of the Council of said City on Monday, the 15th of December 2014, by the following vote, to wit: AYES: COUNCII-MEMBERS: Bushey, Colin, Gamblin, McCullough & Mayor Phillips NOES: COUNCII.MEMBERS: None ABSENT: COUNCIIMEMBERS: None ESTHER C. BEIRNE, City Clerk Final, Proposed Version — December 5, 2014 EXHIBIT CITY OF SAN RAFAEL POLICIES AND PROCEDURES Policy No. Subject: Debt Policy Resolution No. Issue Date: December 15, 2014 Revision Date: Prepared By: Mark Moses, Finance Director Approval Recommended By: Nancy Mackle', City Manager City Council Approval Date: I I This Debt Policy documents the City's approach to use of debt for the funding of major construction projects and pertains to financings under the jurisdiction of the City of San Rafael and the San Rafael Joint Powers Financing Authority (SRJPFA). This Policy is intended to guide the City in its debt issuance in the course of its customary practices. Should circumstances arise which could cause the City to deviate from any of the policies herein, City staff should consult with the City Council Finance Committee or, if there are significant policy implications or financial impacts, the City Council. RESPONSIBILITY The City Manager shall be responsible for enforcing this policy. The City Manager or his/her designee may issue supplemental procedures and memorandums that detail specific directions that clarify this policy. However, such procedures and directives must be consistent and not I conflict with the general provisions of this policy. 7091wrom From time to time, with City Council approval, the City's Finance Department issues and manages short and long-term financings (bonds, tax revenue anticipation notes, etc), both for capital improvement and operating needs, by balancing market and credit risk with satisfactory economic benefits and proper fiscal controls. Debt iWanagement Objectives • Maintain cost-effective access to the capital markets through prudent policies. • Maintain manageable debt and debt service payments with effective planning and coordination with City departments. Final, Proposed Version — December 5, 2014 o Achieve the highest possible credit ratings within the context of -the City's capital needs and financing capabilities. Trpes and Purposes of Debt The City may utilize one of several types of municipal debt obligations to finance long-term capital projects, depending upon the specific project(s) being financed. Long-term debt (i.e., debt obligations with repayment terms greater than one year) should only be issued to finance the acquisition and/or construction of capital improvements and infrastructure. Such debt should not be used to finance construction or improvements for which there are no identified funding sources with which to maintain such construction or improvements. Long-term debt should not be used to fund operating or maintenance costs. General Obligation Bonds General. Obligation (GO) Bonds are secured by the City's pledge to use legally available resources, including tax revenues, to repay bond holders. GO Bonds may only be issued with two-thirds approval of a popular vote. State law restricts the use of the proceeds from GO Bonds to "the acquisition or improvement of real property." Libraries, parks and public safety facilities are examples of facilities that could be financed with GO Bonds. Had it passed in November 2009, Measure G would have resulted in the issuance of GO Bonds for public safety facilities. Lease Revenue Bonds Lease Revenue Bonds are secured by a revenue stream that consists of lease payments made by the City as user of the facility to the San Rafael Joint Powers Financing Authority (SRJ PFA), the entity which finances the facility. If lease revenue bonds are used to construct a new facility, a different asset can be leased in order to generate revenues with which to fund bond payments (a practice known as "asset transfer" financing). Internally, costs of particular projects can be allocated to the budgets of one or more funds, but the City's General Fund is ultimately responsible for the lease payments. An example of use of such financing is the City's 200 3) Parking Lease Revenue Bonds, used to construct the parking facilities. A variation of lease revenue bonds is Certificates of Participation (COPS). Under this arrangement, investors are offered shares of a lease revenue agreement. Financing Leases The City may finance a capital asset by leasing it directly from the vendor or from a leasing company or bank, with the lessor receiving a portion of each rental payment as tax-exempt interest. Assessment Bonds The City may issue bonds on behalf of an Assessment District. These bonds must be approved by a majority of property owners in the District. Proceeds from Assessment Bonds may be used to finance local public improvements, provided that said improvements benefit the parcels of land to be N Final, Proposed Version — December 5, 2014 assessed. Local streets, streetlights, landscaping and sidewalks are examples of local improvements commonly financed by assessment bonds. This financing method was recently used for the Pt. San Pedro Median Landscaping Improvement District. M,ello-Roos Bonds The City may issue bonds on behalf of a Community Facilities District (CFD). These bonds must be approved by a two-thirds vote of the registered voters within the district (unless there are fewer than 12 registered voters, in which case the vote is by the landowners), and are secured by a special tax on the real property within the district. The bonds may be issued to finance facilities or provide services, although the facilities do not need to be physically located within the district. Neither of the recently -established CFDs (Loch Lomond 410 and Loch Lomond Marina) has elected to issue bonds. Refunding Obligations Pursuant to the California Government Code and various other financing statutes applicable in particular situations, the City Council is authorized to provide for the issuance of bonds for the purpose of refunding any long-term obligation of the City. Absent any significant non -economic factors, a refunding should produce minimum net debt service savings net of reserve fund earnings and other offsets) of at least 3% of the par value Of the refunded bonds on a net present value basis, using the refunding issues True Interest Cost as the discount rate, unless the Finance Director determines that a lower savings percentage is acceptable for issues or maturities with short maturity dates. In 2012, the City refunded the 2003 Parking Lease Revenue Bonds, in order to realize savings above the 3% threshold. Other Obligations There may be circumstances in which other forms of debt, including short-term debt, are appropriate. Such other forms include, but are not limited to pension obligation bonds, non -enterprise revenue bonds, bond anticipation notes, tax and revenue anticipation notes (TRANS). . grant anticipation notes and judgment or settlement obligation notes or bonds. Use of these instruments will be evaluated case by case, and a cost -benefit analysis performed in order to determine whether the cost of issuing and maintaining such debt is justifiable. Debt Approval Procedures A. Review by City Council Finance Comm ittqe_(C, C, FC I I If an active CCFC in in place, it should review all long-term (i.e., greater than one year) proposed financing transactions for capital improvements, prior to submittal to the City Council. B. Approval by the City Council All financing transactions shall be approved by the L_ City Council. The City Council shall comply with all public hearing requirements applicable to the specific type of bond or financing being approved. C. Debt Limitations There is no statutory restriction on the amount of Lease Revenue Bonds or COPS that can be outstanding at any given time. However, it is the policy Final, Proposed Version — December 5, 2014 of the City of San Rafael that aggregate debt service payments funded from General Fund sources shall be no greater than 10% of current General Fund revenues. Payments on bonds that are tied to a specified revenue stream other than General Fund sources (eg. enterprise revenue bonds, tax allocation bonds and assessment bonds) are not subject to this 10% limit. Each proposed financing will be individually assessed by the Finance Department and subject to the approval policies contained herein. Professional Assistance A. Financial Advisors The City shall utilize the services of independent financial advisor(s) on debt financing. The role of the financial advisor is to provide advice regarding financing strategies, review and give advice on the bond underwriter's proposals, review documents from underwriter, underwriter's counsel and bond counsel, and coordinate the bond issuance process. These services shall be documented by contract and compensation shall be capped. B. Underwriters In the case of a competitive sale. the City will award the bonds to the underwriting firm or syndicate whose bid results in the lowest True Interest Cost. In the case of a negotiated sale, the Finance Director will determine the best method of selection, taking into consideration all factors involved in each particular sale. C. Bond Counsel The Finance Department, in consultation with the City Attorney's Office, shall select bond counsel for each transaction. D. Broker -Dealers and Remarketing Agents For all variable rate bonds. the Finance Director shall select broker-dealers or remarketing agents for each transaction. The City shall monitor performance on a monthly basis. The City may replace a remarketing agent or broker-dealer with notice at any time. E. Trustees May be selected via a competitive process, unless use of current trustee is deemed practical by the Finance Director. The Trustee (or applicable holding Z:7 company) shall have a combined capital and surplus of at least $50,000.000 and be subject to supervision or examination by federal or state authority. -Heth ods of Sale The Finance Director shall review each transaction to determine the most appropriate method of sale, and will consult with the Financial Advisor regarding the decision to solicit an underlying bond rating from a national rating agency. A. Competitive Sale In a competitive sale, bids for the purchase of the bonds are opened at a specified place and time and are awarded to the underwriter (or syndicate) whose conforming bid represents the lowest true interest cost to the City. Competitive bonds sales should be advertised as broadly as possible, given the type of bonds and the target market. 4 Final, Proposed Version — Deeember 5, 2014 B. Negotiated Sale In a negotiated sale, the City chooses the initial buyer of the bonds in advance of the sale date. The initial buyer is usually an investment banking firm, or a syndicate of investment banking firms interested in reoffering the bonds to investors through an underwriting process. This type of sale allows the City to discuss different financing techniques with the underwriter in advance of the sale date, and is particularly appropriate for complex bond structures, difficult credit situations (such as non -rated assessment or Mello -Roos Bonds), and refundings. C. Private Placement Also referred to as a direct placement, private placement is a variation of a negotiated sale. Instead of retaining the services of an investment bank -Ing firm to underwrite the securities., bonds are sold directly by the City to a limited number of investors. The City may use a placement agent to assist it in identifying likely investors. D. Direct Loan Direct loans are negotiated in a manner similar to negotiated sales, but do not involve the sale of bonds or other securities. Some banks now allocate funds for the purpose of lending directly to public agencies. Debt Structuring Priaetiees The following terms, conditions and limitations shall be applied to the City's transactions as appropriate. Specific terms will be determined as dictated by the marketplace or the unique qualities of the transaction. A. All Bonds i. Term — may not exceed the useful life of the of asset being financed, and a shorter term may be appropriate depending on cash flow assumptions and construction timeline. ii. Maximum Yield - not to exceed 12% for tax-exempt financings. iii, Maximum Premium - case by case, as recommended by Financial Advisor. iv. Maximum Discount - case by case, as recommended by Financial Advisor. v. Payment Dates — Fixed - after considering cash flow needs, the Finance Director will determine the occurrence of all new debt Service payments. (August & February preferred). vi. Coupons - fixed rate or variable. vii. Call Provisions - shortest optional call consistent with optimal pricing. viii. Structure of Debt - prefer level debt service, but shall be determined on a case-by-case basis Director. ix. Debt Service Reserve - lesser of 10% principal amount, 125% average annual debt setA, ice, 100% maximum annual debt service or surety bond. x. Capitalized Interest - sized through substantial completion plus a minimum of 5 Final, Proposed Version — December 5, 2014 six months unless other assets are available to be ptedged, unless otherwise limited under Federal Tax Law. Liquidated damages of construction contract must include amount of daily debt service. xi. Net Funding - the project and capitalized interest funds may be net funded if investments are secured upon issuance of bonds. xii. Reimbursement Resolution - Must be adopted by the City Council if the project hard costs are advanced by the General Fund prior to the bond sale. xiii. Good Faith Deposit - determined on a case-by-case basis. xiv. Budgeting Debt Service budget shall be for gross debt service. 9 1-- B. Variable Rate Bonds The City may elect to issue any bonds as variable rate bonds, which are broadly defined to mean bonds whose interest rates reset on a daily, weekly, monthly, or semi-annual basis. i. Purpose - reduction of net borrowing cost; match of assets and liabilities - ii . Maximum Portfolio Allocation - no more than 20% of the City's outstanding debt portfolio shall be in unhedged, variable rate mode consistent with policies for underlying debt types. iii. Term - consistent with policies for underlying debt types. iv. Maximum Yield - not to exceed 12% v. Monitoring - the Finance Department shall monitor all variable rate bonds on a monthly basis and shall determine, from time to time, whether to change modes and/or replace a broker; dealer or remarketing agent. Z__ vi. Budgeting - annual debt service on any variable rate shall be budgeted at a minimum of 1.5 times the rolling 3 -year average of the Bond Market Association index, or another relevant index. viii. Liquidity - a liquidity facility shalt be obtained for all short-term indebtedness containing a put feature. ix. Mode — all variable rate bonds shall be issued as "multi -modal" bonds. Permitted Investments The investment of bond proceeds shall adhere to the City's Investment Policy, approved annually by the City Council. On,aoing Debt Administration A. Continuing Disclosure It is the goal of the City to be as transparent as possible and to comply with all covenants and commitments pertaining to continuing disclosure. M Final, Proposed Version — December 5, 2014 Annual Report: The City will covenant to provide its annual disclosure report no later than 270 days following the end of the fiscal year. However, the City will use its best efforts to issue the Annual Report as soon as practical following the issuance of the City's annual Comprehensive Annual Financial Report (CAFR). The City posts its CAFR on its web site upon presentation to and acceptance by the City Council. The CAFR will also be on file with the City Clerk. B. Material Event: The City will issue a material event notice in accordance with the provisions of SEC Rule 15c)- 12. If there is a question regarding the materiality of a potentially reportable event, the Finance Director will review the event with the City Manager, City Attorney and outside professionals as appropriate, to discuss the materiality of the event and the process for equal, timely and appropriate disclosure to the marketplace. C. A continuing disclosure review comprising group comprthe City Manager, City Z-� t:) Attorney and Finance Director shall. be maintained at all times. This group shall approve initial disclosure commitments and be responsible for monitoring the City's adherence to its continuing disclosure undertakings, taking actions as necessary to ensure compliance. The City may retain a firm to assist it in maintaining compliance with continuing w disclosure requirements. B. Arbitrage Rebate Compliance The City shall calculate arbitrage annually in each year that the related construction fund (or equivalent) has had an outstanding balance. Thereafter. the City shall calculate arbitrage on the fifth anniversary of the bond issuance in accordance with IRS requirements and recommended practices, C. Rating Agency Communications 1. Periodic Meetings The Finance Department shall meet with each rating agency that rates City debt issues annually unless other communications (i.e.. i.e.. telephone, emails, surveys and reports) prove to be a sufficient means of keeping the rating agencies informed of the City's financial position and activities. 2. Reporting The Finance Department shall ensure prompt delivery to each of the rating agencies of the following public documents: i. Annual CAFRs ii. Annual adopted budgets 3. Other Reporting Certificates of Substantial Completion on projects financed with long term obligations shall be delivered to the rating agencies and Bond Insurer, as relevant. N Final, Proposed Version —December 5, 2014 4. Citywide Ratings Notification Any changes in ratings will be promptly noticed to the Finance Committee, and the City Council. Post -issuance Tax Compliance The Finance Director is responsible for ng complyiwith all applicable post -issuance requirements complying of federal income tax lavv needed to preserve the tax-exempt status of the Bonds. The Finance Director and other appropriate City persorniel shall consult with bond counsel and other legal counsel and advisors, as needed, throughout the Bond issuance process to identify requirements and to establish procedures necessary to ensure that the Bonds will continue to qualify for the appropriate tax status. Those requirements and procedures shall be documented in a City resolution(s), Tax Certificate(s) and/ or other documents finalized at or before issuance of the Bonds. Those requirements and procedures shall include compliance with applicable arbitrage rebate requirements and all other applicable post -issuance requirements of federal tax law throughout (and in some cases beyond) the terrn of the Bonds. The Finance Director and other appropriate City personnel also shall consult with bond counsel and other legal counsel and advisors, as needed, following issuance of the Bonds to ensure that Z:� all applicable post -issuance requirements in fact are met. This shall include, without limitation, consultation in connection with future contracts with respect to the use of Bond -financed assets and future contracts with respect to the use of output or throughput of Bond -financed assets. Use of Bond Proceeds The Finance Director and other appropriate City personnel shall: A. monitor the use of Bond proceeds, the use of Bond -financed assets (e.g., facilities, furnishings or equipment) and the use of output or throughput of Bond -financed assets throughout the term of the Bonds (and in some cases beyond the term of the Bonds) to ensure compliance with covenants and restrictions set forth in applicable City resolutions and Tax Certificates-, B. maintain records identifying the assets or portion of assets that are financed or refinanced with proceeds of each issue of Bonds, C. consult with Bond Counsel and other professional expert advisers in the review of any contracts or arrangements involving use of Bond -financed facilities to ensure compliance with all covenants and restrictions set forth in applicable City resolutions and Tax Certificates; D. maintain records for any contracts or arrangements involving the use of Bond -financed facilities as might be necessary or appropriate to document compliance with all covenants Z=' and restrictions set forth in applicable City resolutions and Tax Certificates. M CITY OF SAN RAFAEL INSTRUCTIONS: USE THIS FORM WITH EACH SUBMITTAL OF A CONTRACT, AGREEMENT, ORDINANCE OR RESOLUTION BEFORE APPROVAL BY COUNCIL / AGENCY. SRRA / SRCC AGENDA ITEM NO. 3,6 DATE OF MEETING: December 15, 2014 FROM: Mark Moses DEPARTMENT: Finance DATE: December 5, 2014 TITLE OF DOCUMENT: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL ADOPTING A DEBT POLICY Department Head (signature) (LOWER HALF OF FORM FOR APPROVALS ONLY) APPROVED AS COUNCIL 1 AGENCY APPROVED AS TO FORM: AG?-A ITEM: Cer (sign6ture) 4y -M a' -g-' City Attorney (signature) 11, �4�- 0 % = 85