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HomeMy WebLinkAboutCC Resolution 13850 (Debt Policy)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 formal 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, ES'1-111-.R C. BFIRNE. 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: COUNCILMEMBERS: Bushey, Colin. Gamblin, McCullough & Mayor Phillips NOES: COUNCII-MFMBERS: None ABSENT: COUNCILMEMBERS: None , -f - 2 ESTIJI--,R C. BEMN11". City Clerk Final, Proposed 1ersion — December S. 2014 CITY OF SAN RAFAEL POLICIES AND PROCEDURES Policy No. Subject: Resolution No. Issue Date: Revision Date: Prepared By: .Approval Recommended Be: Cite Council Approval Date: Debt Policy December 15, 2014 Mark tMoses, Finance Director Nance Mackle.. City %Manager 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 CLIstornar*v practices. Should circumstances arise which could cause the Citv to dee iate from ant of the policies herein, City staff Should consult 'With the Cite Council Finance Committee or. if there arc significant polic% implications or financial impacts. the CitN Council. 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. llov ever. such procedures and directi%es must be consistent and not conflict %vitli the general provisions or this policy. Fal-ONWA From time to time. "ith Cit', 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 Keith satisfactory economic benefits and proper fiscal controls_ Debt Atana--ement Objectives • Maintain cost-effective access to the capital markets throU�1111 Prudent policies. • Maintain mana2eable debt and debt service payments Keith effective planning and coordination with City departments. Final, Proposed Version — December 5, 2014 Achieve the highest possible credit ratings within the context of the City's capital needs and financing capabilities. Trees and Purposes of Debt The Citv may utilize one of several types Of Municipal debt obligations to finance lon—term capital projects. depending upon the specific project(s) being financed. Long-term debt (i.e,. debt obligations with repayment terms greater than one -,ear) 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 improx ements 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." 1.1braries. parks and public safety facilities are examples Of facilities that could be financed with GO Bonds. I -lad it passed in November 2009, Measure G would have resulted in the issuance of Ci() Bonds for public safety facilities. Lease Revenue Bonds [.ease Revenue Bonds are secured bv a revenue stream that consists of lease par meats made by the City as user of the facility to the San Rafael Joint Po,.,.-ers Financing ALIthority (SRJPFA). the entity which finances the facilily. If lease re-, enue bonds are used to construct a next' facility, a different asset can be leased in order to generate re\ enues xx. ith -,N hich 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 CitN *s General Fund is ultimately responsible for the lease payments. An example of use Of Such linancinyg is the City's 2003 Parking I.ease Revenue Bonds, used to construct the parking facilities. A variation of lease revenue bonds is Certificates of Participation (CODs). U'rider this arrangement. investors are offered shares of a lease revenue agreement. Financing Leases The (,Ity may finance a ng capital asset by leasing it directly from p C7 the vendor or from a leasing company or bank, with the lessor recci� ing 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 bora majority of property ov�ncrs 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 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 recentIv used for the Pt. San Pcdro Median Landscaping Improvement District. Mello -Roos Bonds The City rnaN issue bonds on behalf of a Conimumtx- Facilities District (CFD). These bonds must be approved by a t" o-thi rds % ote of the registered voters within the district (unless there are fewer than 12 registered voters, in which case the vote is bx- the landowners.). and are secured by a special tax on the real property �.N ithin the district. The bonds max be issued to finance facilities or prof ide services. although the facilities do not need to be physically located within the district. Neither of the recently -established CFDs (Loch Lomond Yl 0 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 Cite Council is authorized to provide for the issuance ot'bonds for the purpose of'reftindin', an} ]on --term obtl,-,at*on of the City. Absent any significant non -economic I'actors, a refunding Should produce minimum not debt service savings (net ofreserke fund earnings and other offsets) of at least of the par value of the refunded bonds on a net present value basis, using the refunding, issue's 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 200' ) Parking Lease Revenue Bonds, in order to realize savings above the 3`0 threshold. Other Obligations There may be circumstances inwhichother lormsofdebt, 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. I. Tse ofthese instruments %kill 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 Appro iwl Procedures A. Review by City Council Finance Committee (CCFC) Ifan active CCFC in in place, it should review all Ion,, -term (i.e.. preater than one ear) proposed financing transactions for capital Improvements, prior to submittal to the City Council. B. Apvroval by the City Council All financing transactions shall be approved by the City Council. The City Council shall compl-, with all public hearing requirements applicable to the specific type of bond or financing being approved. t� 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. I lowe\�er, it is the policy Z__ given - T'inal, Prol)osed f -ersion - December 5, 2014 of the Cite of San Rafael that aggregate debt service payments funded from General Fund sources shall be no oreater than 10'.-0 Of Current General Fund revenues. Payments on bonds that are tied to a specified revenue stream other than General Fund sources (e.g. enterprise revenue bonds. tax allocation bonds and assessment bonds) are not subject to this 10°Q limit. Each proposed financing kvill be individually assessed by the Finance Department and subject to the approval policies contained herein. Professional Assistaitce A. Financial Advisors The Citv shall UtiIiZC the services of independent financial ad\-isor(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 t� I-- -_ I I proposals. review documents from LindetA.\riter, underwriter's Counsel and bond Counsel. and coordinate the bond issuance process. -These services shall be documented bti contract and compensation shall be capped. B. Undervvriters 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 ol'a negotiated sale. the Finance Director will determine the best method of selection, taking into consideration all Cactors intiolv ed 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 Avents For all variable rate bonds. the Finance Director shall select broker-dealers or remarketing agents for each transaction. The Citv shall monitor performance on a monthly basis. The Cite maN replace a remarketing g agent or broker-dealer with notice at an-, time, _ - F. Trustees %Jay be selected N is a competitive. process. unless use of current trustee is deemed practical by the Finance Director. "Che Trustee (or applicable holding company) shall have a combined capital and surplus of at least 550.000,000 and be subject to supervision or examination by federal or state authority. Al lethoels of Sale J he Finance Director shall review each transaction to determine the most appropriate method of sale. and will consult with the Financial Advisor re I Z= ying garding the decision to solicit an Linderl bond rating from a national rating aaencN. N. ComiLietitive 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 hid represents the lowest true interest cost to the City. Competitive bonds sales should he advertised as broadly as possible. given the type of bonds and the target market, 4 Final, Proposed Version - December 5, 2014 B. Ne,_,otiated 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 tirms interested in reoffierino the bonds to investors through an underwriting process. This type of sale allows the Cliv- 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 dello-Roos Bonds), and refundim-'s. C. Private Placement Also referred to as a direct placement, private placement is a variation of a neaotiated sale. Instead of retaining the services of an investment banking 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 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 no -,.N allocate funds for the purpose of lending directly to public agencies. Debt Structurinz Practices The following terms, conditions and limitations shall be applied to the Clv,'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. N I "o /tax'mLim Yield - not to exceed 112'�' for tax-exempt I mancin-s. iii. Maximum Premium - case by case. as recommended by Financial Advisor. iv. Maximum Discount - case by case, as recommended b� Financial advisor. v. Payment Dates - Fixed - after considering cash flow needs. the Finance Director will determine the occurrence of all new debt Service payments. (Au,-,ust & February preferred). 1. COUP011S - 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 I 011,o principal amount, 1251).,o average annual debt service. 100% maximum annual debt service or surety bond. x. Capitalized Interest - sized through Substantial completion Plus a minimum of Final, Proposed Version — December 5, 2014 six months unless other assets are available to be pledged. unless otherwise limited Linder Federal Tax La�N. Liquidated damages of construction contract must include amount of daily debt service. xi. Net Funding - the project and capitalized interest funds nia---,- be net funded if investments are secured upon issuance of bonds. x1i. Reimbursement Resolution - %lust 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 - deter -mined on a case-by-case basis. \i%,. Bud-etim, Debt Service budget shall be for gross debt service. Z__ - Z� B. Variable Rate Bonds The Cite may elect to issue any bonds as variable rate bonds. which are broadly defined to mean bonds %.Nhose interest rates reset on a dailv, x\eeklx-, monthly- or semi-annual basis. Purpose - reduction of net borrwvNing cost; match of assets and liabilities. it. Maximum Portfolio Allocation - no more than 20°,� of the City's Outstanding debt portfolio shall be in unhedged, variable rate mode consistent �viffi policies for underlying, debt types. iii. Term - consistent %\ ith policies for underlying debt tv PCs. ik, Maximum Yield - riot to exceed 121'O 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 brokcr;dealer or remarketing agent. i. Bucloctino annual debt sereice on any % ariable rate shall be budgeted at a minimurri. of 1.5 times the rollino 3 -rear ax erase of the Bond Market Association index, or another relevant index. N iii. Liquidity a liquidity facility shall he obtained for all short-term indebtedness containing a put feature. ix. N11ode -- all variable rate bonds shall be Issued as '-multi-modal" bonds. Permitted Itt vestitzeitts The inx estment ol'bond proceeds shall adhere to the City's Investment Polio.-- approved annually b, the CitN Council. On-owitte Debt Ai 1mittistratiott A. ContirulinL, 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. 6 Final, Proposed i'ersion — December S, 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 Cite Council. The CAFR vyill also be on file with the Cite Clerk. B. Material Event: The City vyill issue a material event notice in accordance with the provisions of SFC Rule 15c2-12. If there is a question regarding the materiality of a potentially reportable event. the Finance Director will revievy the event vv ith 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 group comprising the City Manager. City 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 continuin,,disclosure undertakings, taking actions as necessary to ensure compliance. The City may retain a firm to assist it in maintaining compliance with continuing 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. ^'hereafter, the Citd shall calculate arbitrage on the fifth anniversary of the bond issuance in accordance "ith IRS requirements and recommended practices. C. Rating Agency Communications Periodic Meetings The Finance Department shall meet with each rating agency that rates City debt issues annually unless other communications (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. 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 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. 7 Final, Proposer! 1'ersion — December S, 2014 -l. Citywide Ratings Notification Any changes in ratings ,will be promptly noticed to the Finance Committee. and the Cit`- Council. Post -issuance TtLr Compliance The Finance Director is responsible for complying ,with all applicable post -issuance requirements of federal income tax law needed to preserve the tar -exempt status of the Bonds. The Finance Director and other appropriate Cite- personnel 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 tar status. Those requirements and procedures shall be documented in a City resolution(s). Tar 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 tar laek throughout (and in some cases beyond) the tern 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. folloeving issuance of the Bonds to ensure that 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.`., 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 ,kith covenants and restrictions set forth in applicable City resolutions and Tar 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 ,e ith all covenants and restrictions set forth in applicable City resolutions and Tar Certificates; D. maintain records for an` contracts or arrangements involving the use of Bond -financed facilities as might be necessary or appropriate to document compliance with all covenants and restrictions set forth in applicable City resolutions and Tar Certificates.