HomeMy WebLinkAbout7983RESOLUTION NO. 7983
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF REDLANDS
ESTABLISHING A DEBT MANAGEMENT POLICY
WHEREAS, as part of City staffs continuing effort to enhance the fiscal and operational
practices of the City, a Debt Management Policy has been developed and submitted to the City
Council for review; and
WHEREAS, the purpose for establishing a formal Debt Management Policy is to establish
guidelines for the use of various categories of debt; create procedures and policies that minimize the
City's debt service and issuance costs; retain the highest practical credit ratings; and provide for frill
and complete financial disclosure and reporting;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Redlands as
follows:
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Sectionl. The City Council hereby adopts the Donation Policy attached hereto as Exhibit
ADOPTED, SIGNED AND APPROVED this 18th day of June, 2019.
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Paul W. Foster, Mayor
ATTEST:
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Jc6ZDonaldson, City Clerk
1
IAResolutions\Res 7900-7999\7983 Debt Management Poficy.docx
I, Jeanne Donaldson, City Clerk of the City of Redlands, hereby certify that the foregoing resolution
was duly adopted by the City Council at a regular meeting thereof held on the I Sth day of June,
2019, by the following vote:
AYES: Counciimembers Barich, Tejeda, Momberger, Davis; Mayor Foster
NOES: None
ABSENT: None
ABSTAIN: None
Jean2oonaldson, City Clerk
2
1:1Resolutions\Res 7900-7999\7983 Debt Management Poiicy.docx
CITY OF REDLANDS
DEBT MANAGEMENT POLICY
EXHIBIT A
JUNE1812019
CITY OF REDLANDS
DEBT MANAGEMENT POLICY
TABLE OF CONTENTS
OVERVIEW.............................................................................................1
OBJECTIVES...................................................................................................................................1
BACKGROUND...............................................................................................................................1
PURPOSES AND CONDITIONS OF DEBT ISSUANCE................................................................2
1. Acceptable Conditions for the Use of Debt..........................................................................2
2. Allowable Uses of Debt.........................................................................................................2
3. Unallowable Uses of Debt....................................................................................................3
4. Standards for Financing Priorities........................................................................................3
AFFORDABILITY.............................................................................................................................4
DEBTLIMITS ......................... ..........................................................................................................5
CREDITRATINGS...........................................................................................................................6
STRUCTURE OF DEBT..................................................................................................................6
REFUNDINGGUIDELINES.............................................................................................................7
CALLOPTIONS........................................................................................................
USE OF ALTERNATIVE DEBT INSTRUMENTS............................................................................7
1. Variable Rate Debt.........................................................................................
2. Derivatives.....................................................................................................
MARKET COMMUNICATION, ADMINISTRATION, AND REPORTING ................
METHODS OF ISSUANCE AND SALE...................................................................
1. Methods of Sale............................................................................................
.....................8
...................10
.....................10
.....................14
...................14
2. Official Statement Disclosure Requirements......................................................................15
FINANCIAL CONSULTANTS AND OTHER SERVICE PROVIDERS..........................................15
CONFLICT OF INTEREST................................................................................................................................16
INTERNALCONTROLS.....................................................................................................................................16
OVERVIEW
The debt policy primarily addresses debt instruments/securities issued by the City in
public or private debt markets. This is consistent with examples of debt policies of other
comparable municipalities, Government Finance Officers Association (GFOA) guidelines,
and rating agency guidelines. The debt policies pertain to debt that is typically incurred
when capital is raised in the public or private markets, including borrowings from
sophisticated qualified institutional buyers, to meet the City's funding needs. Such debt
constitutes obligations whereby a third -party has provided funds, which is evidenced by
the formal execution of a bond or certificate (or a similar instrument), and is held by the
third -party until it is repaid.
OBJECTIVES
The primary objectives of this debt policy are to establish guidelines for the use of various
categories of debt; create procedures and policies that minimize the City's debt service
and issuance costs; retain the highest practical credit ratings; and provide for full and
complete financial disclosure and reporting. Through these guidelines, the Debt
Management Policy (Policy) establishes protocol for the effective governance,
management and administration of the City of Redlands (the "City") debt. Additionally,
this Policy provides the following: standardized procedures; goals and objectives; and
tools that support the use of the City's resources to meet its financial commitments and
maintain sound financial management practices.
BACKGROUND
The City is dedicated to ensure fiscal sustainability. Fiscal sustainability will be employed
by long-term financial planning, maintaining prudent reserve levels, and following
essential practices in governance, management, budget administration, and financial
reporting.
Debt levels and their related annual costs are significant obligations that are required to
be managed within the City's available resources. A well disciplined approach to debt
management includes establishing policies and procedures that provide guidelines for the
City on how to manage its debt with resources available. The objective of this Policy is
to establish written guidelines and restrictions relating to the issuance and management
of the City's debt.
This Policy was developed to improve the quality of decision making, provide justification
for how debt issuance is structured, identify goals, and to validate the City s commitment
to strategic long-term financial planning. Maintaining compliance with the Policy may
demonstrate to rating agencies and to capital markets that the City is well managed and
should be able to meet its financial obligations on a timely basis.
City of Redlands —Debt Management Policy Page 1
June 18, 2019
PURPOSES AND CONDITIONS OF DEBT ISSUANCE
1. Acceptable Conditions for the Use of Debt
The City believes that debt issuance can be used as a reasonable and cost-effective
means for financing the major infrastructure and capital project needs of the City. The
capital planning process will prioritize projects and identify the funding needs, as the
aggregate cost of desired capital projects generally exceeds available funds.
Whenever possible, the City shall pursue "pay-as-you-go", including special
assessments, impact fees, self-supporting revenue or grant funding, instead of
general fund obligated debt. The debt management process will determine the
following: availability of funds which can be raised legally and effectively through debt
issuance; the totality of projects that can be accomplished; and when the projects will
begin. Close coordination of the prioritized projects and debt management will ensure
that the Citys citizens receive maximum benefit from the available capital funds.
Additionally, the potential for inappropriate or avoidable spending will be abated. Debt
will only be considered to finance such projects if the following requirements are met:
a) It meets the City's goals and objectives for distributing the payments on the
asset over its useful life in order for benefits to closely match the costs for
both current and future City residents.
b) It is the most cost-effective funding source available to the City.
c) It is financially beneficial and meets the guidelines set forth in this Policy.
Priorto any consideration of debtfinancing, the City shall first consider other
funding alternatives, including pay-as-you-go funding, proceeds obtained
from the development or redevelopment of existing land or capital assets
owned by the City, use of current or future cash reserves, [nterfund loans
pursuant to the City's Interfund Loan Policy (Resolution No. 7354) or a
combination thereof.
2. Allowable Uses of Debt
The City may use financing for the acquisition, significant refurbishment, replacement
or expansion of physical assets and land improvements. The primary purpose of
using debt is to provide funding for the following:
a) Acquisition and/or improvement of land, right-of-way or long-term
easements.
b) Construction or reconstruction of a City facility.
c) Acquisition of a capital asset with a useful life of 3 or more years.
d) Refunding, refinancing, or restructuring debt, that are subject to refunding
objectives and parameters as identified in Refunding Guidelines (Page 7).
e) Interim or cash flow financing, such as anticipation notes.
f) Project reimbursables that include:
City of Redlands — Debt Management Policy Page 2
June IS, 2019
o Project planning design, engineering and other preconstruction
efforts.
o Project -associated furniture fixtures and equipment.
g) Refinancing or advance funding of City pension obligations, but only to the
extent significant financial benefit is achieved and limited by the Refunding
Guidelines (Page 7).
3. Unallowable Uses of Debt
The following are unallowable uses of debt:
a) Debt issuance used to address budgetary deficits except as in accordance
with the City's Interfund Loan Policy (Resolution No. 7354).
b) Debt issued for periods exceeding the useful life of the asset or projects to
be financed.
c) Financing of operating costs except for anticipation notes with a term of less
than 13 months, or in compliance with the federal tax code.
4. Standards for Financing Priorities
For each debt financing proposal related to major infrastructure and capital project
needs, the feasibility and impact of debt to fund the project will be assessed based
on the following analyses.
a) Nature of Project and Use of Funds: The proposed project will be evaluated
on the basis of the benefits derived and how it furthers the City's policy
objectives as laid out in the City's Annual Budget and Multi -Year Strategic
Plan.
b) Cost -Benefit Analysis of P_ roject: A cost -benefit analysis will be required for
any project proposed for long-term debt financing. That analysis should
document whether the project will increase or reduce ongoing operation and
maintenance expenses. The analysis should also document increases in
efficiency, service reliability, system redundancy, improvements in capacity
and other project specific benefits when weighing the costs of the project.
c) Expenditure Plan: A detailed plan for the expenditure of funds will be
developed for each project. The underlying assumptions of the project cost
and expenditure plan will be documented and the risk associated with these
projections will be analyzed.
d) Revenue for Debt Service Payment: A detailed plan for the debt repayment
will be developed for each project. The underlying assumptions of revenue
cash flow estimates will be documented and the risk associated with these
City of Redlands —Debt Management Policy Page 3
June 18, 2019
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revenue streams will be analyzed. Where general fund revenues are
proposed to service debt, the impact upon budgets will be assessed.
e) Impact on City Taxpayer of All Taxes: for general fund obligated debt, in
addition to the above analyses, an assessment will be prepared to review the
impact of the project's debt issuance on City taxpayers.
5. Investment and Expenditure of Bond Proceeds
The City s system of internal controls, as further described under the "Internal
Controls" section, and accounting will be capable of tracking the investment and
expenditure of proceeds of debt and other amounts subject to special requirements,
and the allocation of such proceeds and other amounts to City facilities. Appropriate
coding will be developed to identify City facilities (or portions thereof) financed or
refinanced by debt. Such procedures will ensure that such proceeds are expended
only for the purposes authorized by the ordinance and, as applicable, governing
documents, pursuant to which such bonds were issued and in compliance with the
Tax Certificate to the debt or other instructions of Bond Counsel.
General — The City shall comply with all applicable Federal, State, and
contractual restrictions regarding the use and investment of debt proceeds.
This includes compliance with restrictions on the types of investment
securities allowed, restrictions on the allowable yield of some invested funds, as
well as restrictions on the period over which some bond proceeds may be
invested. To the extent that a bond issue is credit enhanced, the City shall
adhere to the investment guidelines of the credit enhancement provider. Funds
generated from the sale of land shall be used in accordance with the
applicable bond covenants and documents. Bond counsel will be consulted to
provide legal advice regarding the use of proceeds from the sale of City lands
purchased with bond debt.
Requirements of Debt Governing Documents — The City will comply with all
terms and conditions of the appropriate legal documents related to each series
of debt; including, but not limited to Permitted Investments in the governing
legal document.
AFFORDABILITY
Prior to the issuance of debt to finance a project, the City will carefully consider the overall
long-term affordability of the proposed debt issuance. The City shall not assume more
debt without conducting an objective analysis of the City's ability to assume and support
City of Redlands —Debt Management Policy Page 4
June 18, 2019
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additional debt service payments. The City will consider its long-term revenue and
expenditure trends, the impact on operational flexibility and the overall debt burden on
the rate payers or tax payers. The evaluation process shall be guided by rating agency
criteria and include a review of generally accepted measures of affordability and will strive
to achieve and or maintain debt levels consistent with its current operating and capital
needs.
1. General Fund -Supported Debt — General Fund Supported Debt generally
includes Certificates of Participation (COPs) and Lease Revenue Bonds (LRBs)
which are lease obligations that are secured by an installment sale or by a lease-
back arrangement between the City and another public entity. The general
operating revenues of the City are pledged to pay the lease payments and are
used to pay debt service on the LRBs or COPs. These obligations do not
constitute indebtedness under the state constitutional debt limitation and
are not subject to voter approval.
Payments to be made under valid leases are payable only in the year in which use
and occupancy of the leased property is available. Additionally, these lease
payments may not be accelerated. Lease financing requires the fair market rental
value of the leased property to be equal to or greater than the required debt service
or lease payment schedule. The lessee (City) is obligated to place in its Annual
Budget the rental payments that are due and payable during each fiscal year the
lessee has use of the leased property.
The City should strive to maintain its net General Fund -backed debt service at or
less than 8% of available annual budgeted revenue. This ratio is defined as the
City's annual debt service requirements on COPS and LRBs compared to total
General Fund revenues net of interfund transfers. Additionally, this ratio only
applies to General Fund -backed debt.
2. Revenue Bonds -- Long-term obligations payable solely from specific pledged
sources, in general, are not subject to a debt limitation. Examples of such long-
term obligations include those which achieve the financing or refinancing of
projects provided by the issuance of debt instruments that are payable from
restricted revenues or user fees (Enterprise Revenues) and revenues generated
from a project.
In determining the affordability of proposed revenue bonds, the City will perform
an analysis comparing projected annual net revenues (exclusive of depreciation
which is a non -cash related expense) to estimated annual debt service. The City
shall strive to maintain a minimum coverage ratio of 160% using historical and/or
projected net revenues to cover annual debt service for bonds. The City will set
enterprise rates at levels needed to fully cover debt service requirements as well
as maintenance, operations, administration and capital improvement costs. The
City of Redlands —Debt Management Policy Page 5
June 18, 2019
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ability to afford new debt for enterprise operations will be evaluated as an integral
part of the City's rate review and setting process. The City may consider creating
a rate stabilization fund to aid in maintaining the required coverage ratios.
3. Special Districts Financing — The City's Special Districts primarily consist of
Community Facilities Districts (CFDs) and 1913/1915 Act Assessment Districts
(Assessment Districts). The City will consider requests on a case by case basis for
Special District formation and debt issuance when such requests address a public
need or provide a public benefit. The Finance Department may not recommend a
financing if it is determined that the financing could be detrimental to the City's debt
position and/or not meet the best interests of the City.
4. Conduit Debt — Conduit financing provides for the issuance of securities by a
government agency to finance a project of a third party, such as a non-profit
organization or other private entity. The City may sponsor conduit financings for
those activities that have a general public purpose and are consistent with the
City's overall service and public policy objectives. Unless a compelling public policy
rationale exists, such conduit financings will not include a pledge to the City s faith
and credit.
5. Other Obligations - There may be special circumstances when other forms of
financing are appropriately utilized by the City. The City will evaluate such
proposed transactions on a case -by -case basis. Such other forms include, but are
not limited to, grant anticipation notes and judgment or settlement obligation
bonds.
DEBT LIMITS
Legal
The Government Code of the State of California provides for a legal debt limit of 15% of
gross assessed valuation. While this limit defines the absolute maximum legal debt limit
for the City, it is not an effective indicator of the Citys affordable debt capacity.
Planning and Financial Considerations
Consideration of widely accepted credit rating "benchmarks" such as net direct debt per
capita, ratio of net direct debt to assessed valuation, and ratio of genera[ government debt
service to general fund revenues are integral in assessing general fund debt capacity.
Such benchmarks provide a context for making decisions on debt limitation and shall be
taken into consideration when debt issuances are proposed.
City of Redlands — Debt Management Policy Page 6
June 18, 2019
CREDIT RATINGS
The City will consider published rating agency guidelines regarding best financial
practices and guidelines for structuring its capital funding and debt strategies to achieve
and maintain the highest possible credit ratings consistent with its current operating and
capital needs.
STRUCTURE OF DEBT
1. Term of Debt — Debt will be structured with the goal of structuring the debt service
payments for the asset over its useful life so that benefits more closely match costs
for both current and future residents. Borrowings by the City should be of a duration
that does not exceed the useful life of the improvement being financed. The standard
term of long-term borrowing is typically between 15 to 30 years.
2. Rapidity of Debt Payment — Accelerated repayment schedules reduce debt burden
faster and reduce total borrowing costs. The Finance Department will amortize debt
through the most financially advantageous debt structure and to the extent possible,
to match the City's projected cash flow to the anticipated debt service payments. This
includes, whenever financially feasible and practicable, structuring debt issuances to
provide additional debt capacity through relatively rapid retirement of outstanding debt
in compliance with rating agency criteria.
"Back loading" of debt service will be considered only when one or more of the
following occurs:
a) Natural disasters or extraordinary or unanticipated external factors make
payments on the debt in early years prohibitive.
b) The benefits derived from the debt issuance can clearly be demonstrated
to be greater in the future than in the present.
c) Such structuring is beneficial to the Citys aggregate overall debt payment
schedule or achieves measurable interest savings.
d) Such structuring will allow debt service to more closely match project
revenues during the early years of the project's operation.
3. Level Payment —To the extent practical, debt will be amortized on a level repayment
basis, and revenue bonds will be amortized on a level repayment basis considering
the forecasted available pledge revenues to achieve the lowest rates possible.
4. Serial Bonds and Term Bonds — For each issuance, the City will select serial bonds
or term bonds, or both.
City of Redlands — Debt Management Policy Page 7
June 18, 2019
5. Capital Appreciation Bonds (CABs) — Known as Zero Coupon Bonds, CABS do not
pay periodic interest payments but are issued as deep discounted bonds that pay
investors the principal amount invested plus are compounded semi-annually to reach
the original yield of the bond at maturity. CABs can be utilized in certain cases to better
match a project's cash flow to the bond's debt service but typically carry significantly
higher interest rates than bonds that pay semi-annual or periodic interest payments.
On the occasions where circumstances warrant, CABs may be used if expressly
authorized by the Council upon the recommendation of the City Manager and Finance
Director after consultation with the Municipal Advisor.
6. Reserve Funds —The City shall strive to maintain fund balance reserves at levels in
accordance with industry standards at the time of debt issuance or federal tax code
requirements
REFUNDING GUIDELINES
The Finance Director, in coordination with a Municipal Advisor, shall monitor the Citys
debt obligations for potential refinancing opportunities. The City will consider refinancing
the outstanding debt to achieve annual savings. Unless a compelling economic reason
or financial benefit to the City is foreseeable, any refinancing shall not result in any
increase to the weighted average principal maturity of the refinanced debt.
The City will typically pursue debt service savings which, on a net present value basis,
are at least 3% of the principal amount being refinanced. The City shall factor in all costs,
including issuance, escrow, and foregone interest earnings of any contributed funds on
hand when assessing the net present value. All potential refinancing options shall be
taken into consideration when determining whether an alternative refinancing opportunity
with higher savings is reasonably expected in the future.
When executed in accordance with current federal tax reform regulations, potential
refinancing executed more than 90 days in advance of the outstanding debt optional call
date will require a higher savings threshold of at least 5% of the principal amount being
refinancing, on a net present value basis. While taking into consideration for using this
method of refinancing, the City shall place greater emphasis on determining whether an
alternative refinancing opportunity with higher savings is reasonably expected in the
future.
CALL OPTIONS
Call options or optional redemption provisions enable the municipal user to partially or
totally repay a bond issue before its stated maturity. The City can exercise a call option
City of Redlands —Debt Management Policy Page S
June 18, 2019
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to achieve future interest savings through the refunding of bonds. The Finance Director,
in coordination with a Municipal Advisor, will evaluate and recommend the use of a call
option, if needed, and the call protection period of each issuance.
USE OF ALTERNATIVE DEBT INSTRUMENTS
There are numerous types of financing structures and debt instruments available to the
City, each with specific benefits, risks, and costs. Potential funding sources will be
reviewed by management with the assistance of a municipal advisor, unless management
deems a municipal advisor is not necessary, within the context of the Policy, to ensure
that use of the funding source is consistent with the Cityas goals and objectives. A
thorough review must be performed for each use of debt instruments. This review will
take the following into consideration:
a) Debt affordability
b) Debt capacity
c) Potential risks that may arise
d) Potential benefits from using the funding source
e) Analysis on the impact of the City's credit rating
1. Variable Rate Debt
Depending on market conditions, variable rate debt may provide the City with the
potential to achieve a lower interest expense. Due to the potential risks of using such
funding sources, the City will seek to limit the usage of variable rate debt.
a) Purpose for Variable Rate Debt
The City may consider the use of variable rate debt for the purposes of:
i. Potential for enhanced management of assets and liabilities (matching
short-term debt with the City's short-term investments).
ii. Diversification of interest rate exposure.
iii. Reducing the costs of interest expense on debt issues.
iv. Increased flexibility for accelerating principal repayment and amortization.
b) Considerations and Limitations on using Variable -Rate Debt
The City may consider the use of all alternative structures and modes of variable rate
debt to the extent allowable under California law. The City will determine which
different types of variable -rate debt to use based on benefit, risk, and cost factors.
The City will consider the following factors and [imitations in determining whether to
utilize variable rate debt:
City of Redlands — Debt Management Policy Page 9
June 18, 2019
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i. The likelihood of projected debt service savings as compared to the cost of
fixed rate bonds.
ii. Costs, implementation, and administration are determined and taken into
consideration.
iii. Cost and availability of liquidity facilities (lines of credit necessary for
variable rate debt obligations and commercial paper in the event that the
bonds are not successfully remarketed) are determined and taken into
consideration.
iv. Ability to convert debt to another mode (daily, monthly, fixed) or redeem at
par at any time is permitted.
V. The findings and results of a thorough risk management assessment.
vi. Variable rate general fund debt shall not exceed 20% of total City General
Fund -backed debt.
vii, Variable rate general fund debt shall be fully hedged by current or expected
future unrestricted General Fund reserve levels.
viii. Whether interest cost and market conditions (including the shape of the
yield curves and relative value considerations) are unfavorable for issuing
fixed rate debt.
c) Risk Assessment and Management
Issuance of variable rate debt will require a thorough risk assessment. The risk
assessment may include, but not be limited to, factors discussed in this section, Using
variable rate debt may subject the City to additional financial risks, including tax risks,
interest rate risks, and other certain risks related to providing liquidity for certain types
of variable rate debt.
The City will properly manage the risks as follows:
i. interest Rate Risks and Tax Risks — The risk that market interest rates
increase on variable -rate debt due to market conditions, interest changes
on municipal bonds, or reductions in tax rates.
Risk Mitigation — The City will limit the total variable rate exposure per the
defined limits and match the variable rate liabilities with short term assets.
ii. Liquidity/Remarketing Risks— The risk that holders of variable rate bonds
exercise their "put" option and tender their bonds, requiring the bond
liquidity facility provider to repurchase the bonds. This will result in the City
paying a higher penalty rate of interest to the facility provider and the
potential rapid amortization of the repurchased bonds.
City of Redlands — Debt Management Policy Page 10
June 18, 2019
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4.
Risk Mitigation — The City will limit the total direct variable -rate exposure.
It will seek liquidity facilities which allow for longer (3-5 years) amortization
of any draws on the facility and secure credit support facilities that result in
bond ratings of the highest possible short-term ratings and long-term ratings
not less than A+. If the City's bonds are downgraded below these levels as
a result of the facility provider's ratings, a replacement provider shall be
sought.
iii. Liquidity/Rollover Risks — The risk that arises due to the shorter term of
most liquidity provider agreements (1-5 years) relative to the longer -term
amortization schedule of the Citys variable -rate bonds. In particular, (1) the
City may incur higher renewal fees when renewal agreements are
negotiated and (2) the liquidity bank market constricts such that it is difficult
to secure third party liquidity at any interest rate.
Risk Mitigation — The City will negotiate longer terms on provider contracts
to minimize the number of rollovers.
2. Derivatives
The use of certain derivative products to hedge variable rate debt, such as interest
rate swaps, may be an option considered to the extent the City has such debt
outstanding or under consideration. The City will exercise extreme caution in the use
of derivative instruments for hedging purposes, and will consider their utilization only
when sufficient understanding of the products and sufficient expertise for their
appropriate use has been provided and a separate derivatives policy has been
adopted by the City.
MARKET COMMUNICATION, ADMINISTRATION, AND REPORTING
1. Rating Agency Relations and Annual or Ongoing Surveillance -- The Finance
Director shall maintain the City's relationships with credit rating agencies such as S&P
Global Ratings, Fitch Ratings and Moody's Investor's Service. The City is committed
to maintaining and/or improving its existing rating levels. In addition to general
communication, the Finance Director shall:
a) Communicate with credit analysts at each agency as requested by the
rating agencies or as recommended by a Municipal Advisor.
b) Prior to each proposed new debt issuance, schedule meetings and/or
conference calls with agency analysts and provide a thorough update on
the City's financial position, including the impacts of the proposed debt
issuance.
City of Redlands — Debt Management Policy Page 11
June 18, 2019
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c) Ensure the rating agencies are provided with updated financial information
on the City as soon as it becomes publically available.
2. City Council Communication — The Finance Director shall report feedback from
rating agencies regarding the City's financial strengths and weaknesses and
recommendations for addressing any weaknesses as they pertain to maintaining the
City's existing credit ratings.
3. Continuing Disclosure Compliance --The Cityshall remain in compliance with Rule
15c2-12 by filing its annual financial statements and other financial and operating data
forthe benefitof its bondholders as required in any such agreement for any debtissue.
The City shall maintain a log or fife evidencing that all continuing disclosure flings
have been made promptly.
Upon the requirement of entering into a continuing disclosure obligation, effective on
or after February 27, 2019, the City Attorney, City Manager, or other senior staff, or
other executive positions within the City, will provide written notice to the Finance
Director of receipt by City of Redlands of any default, event of acceleration,
termination event, modification of terms (only if material or may reflect financial
difficulties), or other similar events (collectively, a "Potentially Reportable Event")
under any agreement or obligation to which the City is a party and which may be a
"financial obligation" as discussed below. Such written notice should be provided by
the City Attorney to the Finance Director as soon as the City Attorney is placed on
written notice by City staff, consultants, or external parties of such event or receives
written notice of such event so that the Finance Director can determine, with the
assistance of disclosure counsel, whether notice of such Potentially Reportable Event
is required to be filed on EMMA pursuant to the disclosure requirements of SEC Rule
15c2-12 (the "Rule"). If filing on EMMA is required, the filing is due within 10 business
days of such Potentially Reportable Event to comply with the continuing disclosure
undertaking for the various debt obligations of the City.
The City Attorney, City Manager, 'or other senior staff or other executive positions
within the City, as applicable, will report to the Finance Director the execution by the
City of any agreement or other obligation which might constitute a "financial obligation"
for purposes of Rule 15c2-12 and which is entered into on or after February 27, 2019.
Amendments to existing City agreements or obligations with "financial obligation"
which relate to covenants, events of default, remedies, priority rights, or other similar
terms should be reported to the Finance Director as well as soon as the City Attorney,
City Manager, or such other senior staff is placed on written notice by City staff,
consultants, or external parties of such event or receives a written notice of such
amendment requests. Notice to the Finance Director is necessary so that the Finance
Director can determine, with the assistance of disclosure counsel, whether such
agreement or other obligation constitutes a material "financial obligation" for purposes
of Rule 15c2-12. If such agreement or other obligation is determined to be a material
City of Redlands — Debt Management Policy Page 12
June 18, 2019
"financial obligation" or a material amendment to a "financial obligation" described
above, notice thereof would be required to be filed on EMMA within 10 business days
of execution or incurrence. The types of agreements or other obligations which could
constitute "financial obligations" and which could need to be reported on EMMA
include:
1. Bank loans or other obligations which are privately placed;
2. State or federal loans;
3. Commercial paper or other short-term indebtedness for which no
offering document has been filed on EMMA;
4. Letters of credit, surety policies or other credit enhancement with
respect to the City's publicly offered debt;
5. Letters of credit, including letters of credit which are provided to third
parties to secure the City's obligation to pay or perform (an example
of this is a standby letter of credit delivered to secure the City s
obligations for performance under a mitigation agreement);
6. Capital leases for property, facilities, fleet or equipment; and
7. Agreements which guarantee the payment or performance
obligations of a third party (regardless of whether the agreements
constitute guarantees under California law).
Types of agreements which could be a "financial obligation" under the Rule
include:
1. Payment agreements which obligate the City to pay a share of another
public agency's debt service (for example, an agreement with a joint
powers agency whereby the City agrees to pay a share of the joint
powers agency's bonds, notes or other obligations); and
2. Service contracts with a public agency or a private party pursuant to
which the City is obligated to pay a share of such public agency or
private partys debt service obligation (for example, certain types of P3
arrangements).
Types of agreements which may be a "financial obligation" subject to the Rule
include:
1. Any agreement the payments under which are not characterized as an
operation and maintenance expenses for accounting purposes if such
agreement could be characterized as the borrowing of money,
The Finance Director will continue to work with the City Attorney and disclosure
counsel to refine the definition of financial obligation going forward based on future
SEC guidance.
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June 18, 2019
4. Debt Issue Record -Keeping — A copy of all debt -related records shall be retained at
the City s offices in accordance with the provisions and terms of the City's Regulations
Governing the Retention and Disposition of Records, and the associated Retention
Schedule. At minimum, these records shall include all official statements, bond legal
documents, transcripts, resolutions, trustee statements, leases, and title reports for
each City financing (to the extent available).
5. Arbitrage Rebate— The use of tax-exempt bond proceeds and their investments must
be monitored to ensure compliance with all Internal Revenue Code Arbitrage Rebate
Requirements. The Finance Director shall ensure that all tax-exempt bond proceeds
and investments are tracked in a manner which facilitates accurate calculation; and,
if a rebate payment is due, such payment is made in a timely manner. See the City's
Investment Policy for more details on the objectives and criteria on investing of bond
proceeds.
6. Annual Debt Transparency Report — Pursuant to Government Code Section
8855(k), the City will submit annual debt transparency reports for debt issued on or
after January 1, 2017 every year until the later date on which the debt is no longer
outstanding or the proceeds have been fully spent. The City shall comply with all
applicable California Debt and Investment Advisory Commission (CDIAC) rules and
regulations.
7. Periodic Review - The City will periodically review compliance with the requirements
of the federal and California law necessary to preserve the tax advantages of such
debt. Such review should include final allocations of proceeds not later than 18 months
after completion of bond -financed facilities and annual reviews to ensure private
business use of bond financed facilities does not exceed allowable levels. Such
annual review should be conducted in connection with the preparation of the City's
audited financial statements.
METHODS OF ISSUANCE AN SALE
1. Methods of Sale
Long-term debt issues are sold to an underwriter or underwriting syndicate either
through a public offering or a private offering. Public offerings can either be completed
through a negotiated sale (sale with a specific underwriter) or by a competitive sale (bid
process with multiple underwriters). Private offerings are negotiated directly with banks,
financial institutions, and federal, or state government agencies. For all negotiated
sales, underwriters will be required to demonstrate sufficient experience related to the
debt issuance being proposed. In a negotiated sale, the selected underwriter may not
also fulfill the role of financial advisor for the debt issuance. The selection of
underwriters may be for an individual, series of financings, or a specified time period.
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June 18, 2019
The selected method of sale will be that which is the most advantageous to the City.
The City Council must approve the process selected priorto the sale.
2. Official Statement Disclosure Requirements
All debt issues will meet the disclosure requirements of the Securities and Exchange
Commission (SEC) and other government agencies before and after the bond sales
take place. The City Attorney is responsible for ensuring the disclosure of any material
litigation or issues that may impact the City�s financial condition or ability to repay debt.
The Finance Director is responsible for validating the accuracy and completeness of
financial disclosures.
FINANCIAL CONSULTANTS AND OTHER SERVICE PROVIDERS
Consultants and/or service providers contracting with the City must meet the Citys
contract and insurance requirements. The City will maintain or procure professional
service agreements with qualified professionals related to the issuance and
management of debt which may include, but not be limited to, the following
professionals:
• Bond counsel
• Disclosure counsel
• Financial advisor(s)
• Investment Advisor
• Trustee and paying agent(s)
• Escrow agent(s)
• Printer(s)
• Insurer(s)
• Arbitrage and rebate tax consultant(s)
Compensation for bond counsel, underwriter's counsel, financial advisors and other
financial service providers will be as economically feasible as possible based on desired
qualification levels and consistent with industry standards. Costs and fees related to
issuance of bonds will be paid out of bond proceeds.
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June 18, 2019
g
CONFLICT OF INTEREST
Employees of the City involved in the debt issuance and debt management process will
not engage in any personal business activities that might impair their ability to make
impartial decisions, or that could conflict with proper lawful execution of the City's debt
issuance and post -issuance management of debt.
INTERNAL CONTROLS
In order to comply with CD VAC rules and regulations promulgated pursuant to SIB 1 029
and to assure that the proceeds of the debt will be directed to the intended use for which
the debt has been issued, the following internal controls shall be followed:
I . The City shall keep and retain debt -related records, including official statements,
legal documentation and annual reports fled with CDIAC pursuant to Section
8855(k) of the California Government Code, and records of disbursements from
proceeds through a period of 5 years after bonds are paid in full.
2. The Finance Director shall keep a record of the original intended use for which
the debt has been issued and whether any change in intended use has been
authorized by the governing body subsequent to the original issuance of debt.
The Finance Director shall discuss any change in use of debt proceeds with the
City Manager and determine, in consultation with bond counsel, the appropriate
reporting requirements to the City Council.
3. If circumstances arise such that the project timeline or scope of project has
changed in a way that all or a portion of the debt cannot be expended as
expected, the Finance Director shall consult with the City Manager and bond
counsel as to available alternatives for the expenditure of the remaining debt
proceeds (including prepayment of the debt).
4. To ensure that proceeds of any debt are issued in accordance with its governing
documents and this Policy, no disbursements shall be made without the approval
of the Finance Director and City Manager. The draw request shall be provided to
the City by the project engineer with the consent of the City's inspector. Approval
shall only be provided when the Finance Director is in receipt of an appropriate
certification from the construction project manager with supporting invoices from
suppliers and 1 or contractors evidencing appropriate expenses in connection with
the project. The Purchasing Services Manager will electronically scan, file and
retail all purchase orders and invoices by vendor, check number, check date and
purchase order number, if applicable.
5. The Finance Director will charge capital expenditures that are financed by debt
to the corresponding capital projects fund. Each project will have specific fund
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June 18, 2019
number used to track that project, and discrete expenditures will be further
categorized by project location (by street address or name of facility) and
functional description of financed improvement. The Purchasing Services
Manager will enter purchase orders and the Finance Director will and capture
such purchase orders in the general ledger by the specific account code.
6. Under final allocation of bond proceeds, on a monthly basis, at a minimum, the
Finance Director will analyze each project for expenditures and will summarize
such expenditures on a spreadsheet showing the year-to-date expenditures for
that project and will identify facilities or requirement financed or refinanced by
debt. A copy of the City s transaction activity report and/or summary report by
account code generated from the general ledger will be used to back up this
spreadsheet and filed with that spreadsheet.
7. The Finance Director will ensure that the investment of all proceeds of debt is
tracked by fund o account (i.e. debt service fund, debt service reserve fund,
project or construction find, etc.) and investment yield.
8. In the case of an issue of bonds the proceeds of which will be used by a
governmental entity other than the City, the City may rely upon a certification by
such other governmental entity that it has adopted the policies described in SB
1929.
The City shall also comply with Government Code Section 5852.1 by disclosing
specified good faith estimates in a public meeting prior to the authorization of the
issuance of bonds.
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June 18, 2019