HomeMy WebLinkAboutR-2348 - Adopting a policy for the Management of the City's DebtCITY OF MARYSVILLE
Marysville, Washington
RESOLUTION NO.;) 34-g'
A RESOLUTION OF THE CITY OF MARYSVILLE ADOPTING A POLICY
FOR THE MANAGEMENT OF THE CITY'S DEBT
WHEREAS, the City Council of the City of Marysville deems to ensure that all City debt
is issued and managed both prudently and cost effectively, and
WHEREAS, the City Council of the City of Marysville desires to set forth guidelines for
the issuance and management of all financings of the City, and
WHEREAS, the Marysville City Treasurer (Director of Finance) has recommended the
attached debt management policy, and
WHEREAS, the City of Marysville's debt management policy has been written in
accordance with the Association of Public Treasurers of the United State & Canada (APT
US&C) guidelines.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF MARYSVILLE, WASHINGTON AS FOLLOWS:
Section I. The policy for the management of the City's debt set forth in the
document entitled "City of Marysville Debt Management Policy", which is attached hereto and
incorporated herin by this reference as ifset forth in full is hereby adopted as official policy for
the management of the City's debt.
Section 2. That the adoption of the document entitled City of Marysville Debt
Management Policy, replaces all previolls City of Marysville Debt Management Policies.
PASSED by the City Council and APPROVED by the Mayor thi~ day Of:rlJ-~, 2013.
CITY OF MARYSVILLE
City of Marysville Debt Policy July 2013
ATTEST:
tCity Clerk
"1t..p"':J
APPROVED AS TO FORM:
Q~(';I0~
City Attorney
City of Marysville Debt Policy July 2013
City of Marysville
Debt Management Policy
The Debt Policy for the City of Marysville (City) is established to help ensure that all debt is issued both
prudently and cost effectively. The Debt Policy sets forth guidelines for the issuance and management of
all financings of the City. Adherence to the policy is essential to ensure that the City maintains a sound
debt position and protects the credit quality of its obligations while providing flexibility and preserving
financial stability.
1.0 Uses of Debt
1.1 City of Marysville uses debt as a mechanism to equalize the costs of needed capital improvements for
the benefit of both present and future citizens;
1.2 City of Marysville uses debt as a mechanism to reduce the immediate costs of substantial public
improvements.
1.3 The City of Marysville will not use long-term debt to support current operations.
1.4 Non-capital furnishings, supplies, and personnel will not be financed from bond proceeds.
1.5 Interest, operating, and/or maintenance expenses may be capitalized for enterprise activities; and will
be strictly limited to those expenses incurred prior to actual operation of the facilities.
1.6 Interest may be capitalized for general activities when necessary to align timing of new revenues with
debt service, or to avoid duplicative expenditures (i.e., rent and bond payments) when providing for
replacement facilities.
2.0 Debt Limits
2.1 Legal Limits:
2.1.1 The general obligation debt of Marysville will not exceed an aggregated total of 7.5% of the
assessed valuation of the taxable property within the City. RCW 39.36.020 2.1.2
The following individual percentages shall not be exceeded in any specific debt category:
• General Debt -2.5% of assessed valuation
• Non-Voted 1.5% Limited Tax General Obligation (LTGO) Bonds
• Voted 2.0% Unlimited Tax General Obligation (UTGO) Bonds
• Utility Debt -2.5% of assessed valuation
• Open Space and Park Facilities -2.5% of assessed valuation
2.2 Public Policy Limits:
2.2.1 The City will establish and implement a comprehensive multi-year capital Improvement Program
(CIP).
2.2.2 Financial analysis of funding sources will be conducted for all proposed capital improvement
projects.
2.2.3 Debt will be issued in accordance with the CIP as necessary.
2.2.4 Where borrowing is recommended, the source of funds to cover debt service requirements must be
identified.
2.3 Financial Limits:
2.3.1 The City's policy is to plan and direct the use of debt so that debt service payments will be a
predictable and manageable part of the Operating Budget.
2.3.2 The City will conduct a debt affordability analysis to evaluate the City's ability to support debt. The
analysis will review available resources for the amount of debt the City can initiate each year, and project
the effects of that financing through six years of the CIP.
City of Marysville Debt Policy July 2013
3.0 Allowable Types of Debt
3.1 Short Term Obligations: Short-term borrowing will only be used to meet the cash flow needs of a
project for which long-term financing has been approved but not yet secured. The City may issue
interfund loans rather than outside debt instruments to meet short-term cash flow needs. Interfund loans
will be permitted only if an analysis of the affected fund indicates excess funds are available and the use
of the funds will not impact the fund's current operations. All interfund loans will be subject to Council
approval, will bear interest based upon prevailing rates and have terms consistent with state gUidelines
for interfund loans.
3.2 Assessment/ LID Bonds: Assessment bonds will be considered in place of general obligation bonds,
where possible, to assure the greatest degree of public equity. Local Improvement District (LID) Bonds
represent debt that is repaid by the property owners who benefited from the capital improvement
through annual assessments paid to the City. LID's are formed by the City Council after a majority of
property owners agree to the assessment.
3.3 General Obligation Bonds Limited Tax: General Obligation debt is backed by the full faith and credit of
the City and is payable from General Fund revenues and taxes collected by the City. Limited Tax General
Obligation (LTGO) Bonds can be issued with the approval of the City Council and will only be issued if:
A project requires funding not available from alternative sources; Matching fund monies are available
which may be lost if not applied for in a timely manner; or Emergency conditions exist.
3.4 General Obligation Bonds Unlimited Tax: Unlimited Tax General Obligation (UTGO) Bonds are payable
from excess tax levies and is subject to voter approval by 60% of the voters. UTGO Bonds will be used
for projects with broad community impact and appeal, and when the excess tax levy is necessary and
appropriate for payment of the debt service, subject to voter approval.
3.5 Revenue Bonds: Revenue bonds are used to finance construction or improvements to facilities of
enterprise systems operated by the City in accordance with the Capital Improvement Program and are
generally payable from the enterprise. No taxing power or general fund pledge is prOVided as security.
Unlike general obligation bonds, revenue bonds are not subject to the City's statutory debt limitation nor
is voter approval reqUired.
3.6 Leases: Lease purchase or financing contracts are payment obligations that represent principal and
interest components which are general obligations of the City. Leases will be considered only after
comparison of the overall borrowing cost with alternatives, such as interfund loans or general obligation
bonds.
3.7 Other Loan Programs:
3.7.1 Public Works Trust Fund Loans are loans from the Public Works Board, authorized by state statute,
RCW 43.155 to loan money to repair, replace, or create domestic water systems, sanitary sewer
systems, storm sewer systems, roads, streets, solid waste and recycling facilities, and bridges.
3.7.2 The Local Option Capital Asset Lending (LOCAL) Program is a financing contract with the Office of
the State Treasurer under RCW 39.94. It is an expanded version of the state agency lease/purchase
program that allows pooling funding needs into larger offerings of securities. This program allows local
government agencies the ability to finance equipment needs through the State Treasurer's office, subject
to existing debt limitations and financial consideration.
3.7.3 Other state funded programs.
3.8 Alternative types of debt: No variable-rate debt or derivative products shall be utilized.
City of MarySVille Debt Policy July 2013
4.0 Debt Structuring Practices
4.1 Maximum term, Payback Period and Average maturity:
4.1.1 The issuance of bonds shall be financed for a period not to exceed a conservative estimate of the
asset's useful life with the average life of the bonds less than or equal to the average life of the assets
being financed.
4.1.2 General Obligation bonds will be issued with maturities of 20 years or less unless otherwise
approved by Council. The maximum term for general obligation bonds shall be 30 years.
4.1.3 The maturity of all assessment bonds shall not exceed statutory limitations. RCW 36.83.050.
4.2 Debt Service Structure:
4.2.1 Unless otherwise justified and deemed necessary, debt service should be structured on a level or
declining repayment basis.
4.3 Criteria for issuance of advance refunding and current refunding bonds
4.3.1 The City will use refunding bonds, where appropriate, when restructuring its current outstanding
debt. A debt refunding is a refinance of debt typically done to take advantage of lower interest rates.
Unless otherwise justified, such as a desire to remove or change a bond covenant, a debt refunding will
not be pursued without a sufficient net present value benefit after expenses. Generally, the City may
undertake refinancing with net present value savings are 3.5 to 5.0% of the par amount of the bonds to
be refunded. For current refunding (i.e., refunding in which the outstanding bonds will be called within
90 days of the refunding), the savings threshold may be lower.
4.4 Other structuring practices:
4.4.1 Bond amortization schedules will be structured to minimize interest expense with the constraints of
revenues available for debt service. The bonds should include call features to maximize the City's ability
to advance refund or retire the debt early. However, call features should be balanced with market
conditions to ensure that the total cost of the financing is not adversely affected.
5.0 Debt Issuance Practices
5.1 Council Approval: City Council approval is required prior to the issuance of debt.
5.2 Analytical Review: An analytical review shall be conducted prior to the issuance of debt including but
not limited to, monitoring of market opportunities and structuring and pricing of the debt.
5.3 Use of credit ratings, minimum bond ratings, determination of the number of ratings and selection of
rating services: The City will continually strive to maintain its bond rating by improving financial policies,
budget, forecasts and the financial health of the City so its borrowing costs are minimized and its access
to credit is preserved. The City will maintain good communication with bond rating agencies about its
financial condition, coordinating meetings, and presentations in conjunction with a new issuance as
necessary.
5.4 Compliance with Statutes and Regulations: The Finance Director, City Attorney and bond counsel
shall coordinate their activities and review all debt issuance to ensure that all securities are issued in
compliance with legal and regulatory requirements by the State of Washington and the Federal
Government's laws, rules and regulations.
5.5 Selection and use of professional service prOViders:
City of Marysville Debt Policy July 2013
5.5.1 The City's Finance and Administration Department shall be responsible for the solicitation and
selection of professional services that are required to administer the City's debt program.
5.5.2 Bond Counsel: All debt issued by the City will include a written opinion by bond counsel affirming
that the City is authorized to issue the proposed debt. The opinion shall include confirmation that the City
has met all city and state constitutional and statutory requirements necessary for issuance, a
determination of the proposed debt's federal income tax status and any other components necessary for
the proposed debt.
5.5.3 Financial Advisor: A Financial Advisor(s) may be used to assist in the issuance of the City's debt.
The Financial Advisor will provide the City with the objective advice and analysis on debt issuance. This
includes, but is not limited to, monitoring of market opportunities, structuring and pricing of debt, and
preparing official statements of disclosure. The City's Financial Advisor may not participate in
underwriting of the City's bonds.
5.5.4 Underwriters: An Underwriter(s) will be used for all debt issued in a negotiated or private
placement sale method. The Underwriter is responsible for purchasing negotiated or private placement
debt and reselling the debt to investors. The Underwriter may not serve as Financial Advisor to the City.
5.5.5 Fiscal Agent: A Fiscal Agent will be used to provide accurate and timely securities processing and
timely payment to bondholders. In accordance with RCW 43.80, the City will use the Fiscal Agent that is
appointed by the State.
5.6 Criteria for determining sales method and investment of proceeds:
5.6.1 The Director of Finance shall determine the method of sale best suited for each issue of debt.
5.6.2 The City will generally issue its debt through a competitive process. For any competitive sale of
debt, the City will award the issue to the underwriter offering to buy the bonds at a price and interest
rates that provides the lowest True Interest Cost (TIC).
5.6.3 The City will proVide for the sale of debt through a negotiated process (Le., negotiating the terms
and conditions of sale) when necessary to minimize the cost and risks of borrowing under the following
conditions:
• The bond issue is, or contains, a refinancing that is dependent on market/interest rate timing.
• At the time of issuance, the interest rate environment or economic factors that affect the bond
issue are volatile.
• The nature of the debt is unique and requires particular skills from the underwriter(s) involved.
• The debt issued is bound by a compressed time line due to extenuating circumstances such that
time is of the essence and a competitive process cannot be accomplished.
5.6.4 The City may consider a direct placement with a bank when it is expected to provide a reduced
cost of capital, market conditions are such that the City will benefit from locking in an interest rate,
and/or the timing is of the essence and can best be met through a placement Without adding significant
costs
5.7 Bond Insurance: For each issue, the City may evaluate the costs and benefits of bond insurance or
other credit enhancements. Any credit enhancement purchases by the City shall be competitively
procured and evaluated by the City's financial advisor.
6.0 Debt Management Practices
6.1 Investment of Bond Proceeds
City of Marysville Debt Policy July 2013
The City shall comply with all applicable Federal, State and contractual restrictions regarding the
investment of bond proceeds, including City of Marysville Investment Policy.
6.2 Continuing Disclosure
The City shall provide annual disclosure information to established national information repositories and
maintain compliance with disclosure statements as required by state and national regulatory bodies.
Disclosure shall take the form of the Comprehensive Annual Financial Report (CAFR) unless information is
required by a particular bond issue that is not necessarily contained within the CAFR.
6.3 Arbitrage Rebate monitoring and filing
The City will, unless otherwise justified, use bond proceeds within the established time frame pursuant to
the bond ordinance, contract or other documents to avoid arbitrage. Arbitrage is the interest earned on
the investment of the bond proceeds above the interest paid on the debt. If arbitrage occurs, 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. All necessary rebates will be filed and paid when due
in order to preserve the tax-exempt status of the outstanding debt.
6.4 Federal and state law compliance practices
Discussed in Debt Issuance Practices sections 5.3 and 5.4 and Debt Management Practices sections 6.1
and 6.3.
6.5 Market and investor relations efforts The City shall endeavor to maintain a positive relationship with
the investment community. The City shall communicate through its published Budget, capital
Improvement Program and Comprehensive Annual Financial Statements the City's indebtedness as well
as its future financial plans.
6.6 Periodic review
The City's debt policy shall be adopted by City Council. The policy shall be reviewed every four years by
the Council Finance Committee and modifications shall be submitted to and approved by City Council.
City of Marysville Debt Policy July 2013