HomeMy WebLinkAbout6.h. Debt Management Policy CITY OF ROSEMOUNT
� EXECUTIVE SUMMARY FOR ACTION
CITY COUNCIL MEETING DATE: August 1, 2000
AGENDA ITEM: Debt Management Policy AGENDA SECTION:
Consent
PREPARED BY: Jeff May, Finance Director AGEND �� �
����� �t',y,�6
ATTACHMENTS: Policy APPROVED BY•
Attached for consideration of adoption is the Debt Management Policy. The policy was.discussed at
the July Committee of the Whole meeting and was recommended for approval at the first Council
meeting in August.
The policy has percentages of certain items that will be checked by staff annually or when debt is
issued to make sure that we are following the policy. The policy does have included actual dollar
figures that are used in computing those percentages as of the date of adoption of the policy. These
numbers are included in the appendixes of the policy. Here again these numbers will be updated
periodically to reflect the proper period of time but we will not bring forward the policy for
amendments when these numbers are changed, as they are informationat in nature only.
Most of the information in the policy is standard information that we have been practicing for years.
We had assistance from Springsteds, our financial advisors, in getting samples from other cities and
counties on how they have put together debt management policies. I believe that having a written
policy in place gives everyone a confidence level that we have solid planning procedures in place for
our debt management.
This policy does not really address 429 special assessment debt, because this debt should normally
not affect the taxpayers of the City. This debt is typically collected through special assessments and
does not affect the ad valorem taxes of the City.
RECOMMENDED ACTION:
Motion to approve the Debt Management Policy for the City of Rosemount.
COUNCIL ACTION:
Debt Management Policy of the .
City ofRosemount, Minnesota
August 1, 2000
Table of Contents -
Pa e s
I. PURPOSE ........................................................................................ 1
II. DEBT ADMINISTRATION POLICIES ............................................. 1-2
III. DEBT PLANNING POLICIES ......................................................... 1-2
IV. TYPES OF INSTRUMENTS ........................................................... 1
List of Standard Disclosure Documents ................................... APPENDIX A
Definitions ................................................................................ APPENDIX B
Authorized Debt Limitations Update.......................................... APPENDIX C
� Purpose Section I
The City of Rosemount and its subordinate entities, a metropolitan
unit of government, faces a continuous stream of infrastructure
demands from citizens and business interests. These demands upon
the capital resources of the City must be met in an orderly and
balanced manner that allows the City to:
• Acquire capital at the lowest possible borrowing cost.
. Preserve debt capacity for future capital needs.
. Maintain a high credit standing.
. Administer its obligations in an efficient manner.
. Improve coordination between C.I.P. fund expenditures and
debt-financed projects.
Page I-1
Debt Administration Policies Section II -
In developing, offering and administering its debt obligations, the City
of Rosemount will adhere to the following policies:
A. Competitive and open process will be the standard
related to the planning, structuring, approving, and selling of
general obligation and revenue bonds, and other obligations
issued by the City.
B. Communications with the investing public and the
national bond rating community will be given a high priority in
order to maintain credibiliry through the flow of information both
by personal contact and electronic means.
C. Complete and full disclosure of all financial and economic
operations will be met through the timely distribution of the
comprehensive annual financial report, debt offering statement,
operating budget, capital improvement plan, and the immediate
transmission of information and details related to any material
event.
D. Compliance with the terms, conditions, and covenants of
all outstanding bond or lease transactions will be continually
monitored and followed by the Finance Department.
E. Complex financial transactions requiring City limited or
unlimited guarantees may be publicly sold through negotiation
with a syndicate of investment banks, provided credit rating
agency communications and disclosure responsibilities are
closely coordinated with the Finance Department.
Page II-1
' City of Rosemount, Minnesota
F. Determination of type and security of debt snou�d be
made based upon a review of the following factors:
• Direct and indirect beneficiaries of the project.
. Useful life of the project to be funded.
. Ability of a project to fund itself through user fees.
G. Refunding and advance refunding. Savings .
opportunities will be monitored by the Finance Department and
the City's financial advisor and action taken when determined
financially advantageous. Net Present Value debt service
savings of a minimum of five percent (5%)will be the target
savings threshold.
Refundings at the time of the call or in advance of the call may
be considered from time to time to remove restrictive covenants
of revenue bond issues.
H. General obligation bond proceeds wi�� not be emp�oyed
to fund the general operation of the City.
Page II-2
Debt Planning Policies Section III -
In planning capital facility and equipment needs, the City of
Rosemount will establish policies that promote balance as follows:
A. MOnitoT trends of key financial, economic, and debt ratios
such as:
• Annual debt service for general obligation direct debt and
capital leases will not exceed 15% of general and special
revenue fund expenditures.
• Debt as a funding source for capital projects will not exceed
90% of total C.I.P. budgeted expenditures.
• The principal amount outstanding for direct general
obligation debt and capital leases will not exceed three and
one-half percent(3.5%) of Assessor's Market Value of
taxable property.
• Direct general obligation debt and capital leases will not
exceed $1,800 per capita
B. Structural considerations:
. Preservation of statutory debt capacity will be a primary
consideration. The minimum debt capacity (debt margin) to
be preserved for future projects and contingencies will be
thirty percent (30%).
. Scheduled maturities of long-term debt may not exceed the
expected useful life of the capital project or asset acquired.
• Average life of City general obligation property tax-supported
bonds should not exceed fifteen (15)years.
• Call features should be utilized to allow maximum future
debt management flexibility, but maintaining sensitivity to
bond market needs.
• Bids for bonds will be compared on a "True Interest CosY'
basis.
Page III-1
' City of Rosemount, Minnesota
. Variabie rate bond structures may be considered on
revenue-based financings where credit and liquidity
agreements are available.
• Variable rate debt will not make up more than twenty
percent (20%) of the combined debt portfolio of the City.
• Variable rate transactions will be structured by considering
the prevailing fixed interest rates, and the interest spread
accrued between the fixed and variable rate cost will be
used to call bonds.
C. Timing considerations:
. Need for Capital: The City's ability to currently fund
construction or acquisition.
. Market Volume: Similar types of debt and credit ratings that
will be offered in the targeted sale period.
. General Market Condition: The State, regional and national
economy; the bond market; and its ascending or descending
trends.
. Requlatorv Compliance: The City's ability to meet federal
arbitrage spend-down requirements.
. Advance Refunding Opportunities: Carefully evaluate the
optimal time including analysis of optional scenarios through
the call date.
. Bond Files: Included in closing file should be a pre-sale
(recommendations) and a post-sale (bond record) report.
D. Coordination of capital needs with overlapping or other
units of govemment should be undertaken to avoid periodic
marketing conflicts as well as increase awareness of the impact
of debt on property tax-paying entities.
Page III-2
Types of Instruments Section IV -
A. General Obligation Property T�-Supported
• Used to finance only capital facilities and equipment that are
essential to the continued maintenance or development of
the City.
• Annual debt service levy for voted general obligation debt
limited to seven and one-half percent (7.5%) of the City's
taxable net tax capacity.
B. Special Obligation Revenue Bonds
• Bonds issued by the City that carry no direct financial or
moral obligation pledge of the City should be issued when
the proposed development is expected to be financially
feasible and contributes to the general welfare or
development of the City.
• Bonds should be issued only when strong written
guarantees are provided relating to the financial viability of
the project.
• Bonds issued on behalf of non-profit entities must be rated
investment grade, secured by a letter of credit, or privately
placed with a knowledgable buyer.
C. Lease Transactions
• Appropriate when borrowing costs for capital facilities or
equipment are equal to or less than the borrowing costs of
general obligation capital notes.
. Appropriate for the financing of capital facilities or equipment
when no other general statutory authority exists but
adequate general or enterprise revenues are available to
service the payments.
. Centralized in the Finance Depa�tment, lease transactions
for periodic equipment acquisitions funded under a master
lease program are preferable to single vendor leases.
• Full disclosure of total lease payments and transaction costs
for the life of the obligation are required for all proposed
lease transactions.
Page IV-1
� City of Rosemount, Minnesota
. Secondary disclosure responsibility must be clear on any
potentialiy pooled lease.
Page IV-2
Appendi�� A .
List of Standard Disclosure Documents
1. Comprehensive Annual Financial Report
This report shall contain audited financial statements in conformity with generally
accepted accounting principles of the City's reporting entity.
2. Annual Disclosure Report
This report shall include all required items listed in the continuing disclosure undertaking
for existing bond issues. Typically the content of this report will be included with the
information presented in an Official Statement issued during a bonding process. If no
debt is issued during a year, the Finance Department will compile the information or will
contract with its financial advisor to provide the information in a separate report or
include the information with the comprehensive annual financial report. This report will
be submitted to the Nationally Recognized Municipal Securities Information
Repositories, as required by the SEC.
3. Ten-Year Capital Improvement Plan (CIP)
This report will present a schedule of improvements, rationale for the project priorities,
and the recommended method of financing. Cumulative information on past
performance and justification for changes in programming or project priority should be
included in the detailed sheets describing the individual projects.
' Appendix B
�
Definitions
Bond Years: The product of the number of bonds (1 bond - $1,000, regardiess of actual
denomination) and the period of time from issuance to the stated maturity. It is used in
calculating the average life of an issue and the net interest cost. Computations often include
bond years for each maturity or for each interest rate, as well as total bond years for the entire
issue.
average life = Total bond years
number of bonds
Direct Debt: The sum of the total bonded debt less debt issues which are payable from
revenue sources other than property taxes, assessments and tax increment.
Market Valuation: County Assessor's assessed market value.
Net Direct Debt: Direct debt less sinking fund accumulations.
Net Interest Cost (NIC): A common method of computing the interest expense to the issuer of
bonds. NIC allows for premium and discount and represents the dollar amount of interest
payable over the life of an issue, without taking into account the time value of money. While net
interest cost actually refers to the dollar amount of the issuer's interest cost, it is also used in
reference to the average net interest cost rate, which reflects the overall rate of interest to be
paid by the issuer over the life of the bonds.
Overlapping Debt: The issuer's proportionate share of the debt of the other local
governmental units which either overlap it (the issuer is located either wholly or partly within the
geographic limits of the other units) or underlie it (the other units are located within the
geographic limits of the issuer). The debt is generally apportioned based upon relative
assessed value.
Property Tax Supported: Directly supported by property tax-base generated revenues, such
as general property tax. Includes all general obligation pledges of the City, including bonds
having additional support from other pledged revenue sources.
Revenue-Supported: Bonds which are supported wholly by revenues not based on real estate
property values, such as sales taxes, enterprise revenues, parking fees, and other user fees.
Bonds may also carry the City's general obligation backing.
Special Obligation Revenue Bonds: Revenue bonds for which the City grants its tax
exemption, but for which no financial or moral obligation is assumed; including, but not limited
to, second party-supported industrial development and housing bonds.
Total Debt: All debt other than special obligation revenue bonds and general obligation debt
supported by a specific rate structure. "Total Debt" does not include overlapping debt or deduct
sinking fund assets.
True Interest Cost (TIC): Under this method of computing the borrower's cost, interest cost is
defined as the rate, compounded semiannually, necessary to discount the amounts payable on
the respective principal and interest maturity dates to the purchase price received for the
bonds. TIC computations produce a figure slightly different from the NIC method, since TIC
considers the time value of money and NIC does not.
' Appendix C
Authorized Debt Limitations Update (2000)
City of Rosemount, Minnesota
Legal Debt Limit
� 1999 Estimated Market Value $729,501,200
Times 2.0% x0.02
Legal Debt Limit $ 14,590,024 100.0%
Less: Outstanding General Obligation Debt 2,369,605 16.2
Legal Debt Margin $ 12.220.419 83.8%
Nofe: Debt margin shown is not net of debt service funds which, when
applied to reduce outstanding debt, will increase the debt margin.
�
III-I-A: Key Financial, Economic, And Debt Ratios �
Limit Current
• Annual debt service for general obligation direct debt $952,698 $527,723
and capital leases will not exceed 15% of general and
special revenue fund expenditures.
. Debt as a funding source for capital projects will not $817,200 $527,723
exceed 90% of total C.I.P. budgeted expenditures.
• The principal amount outstanding for direct general $25,532,542 $21,908,460
obligation debt and capital leases will not exceed three
and one-half percent (3.5%) of Assessor's Market �
Value of taxable properiy.
• Direct general obligation debt and capital leases will $1,800 $1,511
not exceed $1,800 per capita.
IV-I-A: General Obligation Property Tax-Supported
Limit Current
• Annual debt service levy for voted general obligation 7.5% 3.0%
debt limited to seven and one-half percent (7.5%) of
the City's taxable net tax capacity. $943,289 $382,253