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HomeMy WebLinkAbout2.c. Debt Mamagement PlanCITY OF ROSEMOUNT EXECUTIVE SUMMARY FOR ACTION COMMITTEE OF THE WHOLE MEETING DATE: July 12, 2000 AGENDA ITEM: Debt Management Policy AGENDA SECTION: PREPARED BY: Jeff May, Finance Director AGEND ; 2 ATTACHMENTS: Draft of Policy APPROVED BY: �- Attached for your review and discussion is a draft Debt Management Policy. I hope to go through the policy this evening and get your ideas and comments to further refine this policy if necessary before we approve the document into policy. The format will be changed to match our City's other policies after the content is.-agreed upon. Also, I hope to incorporate all of our financial policies into one document at some point in the future. This may take some time, but I feel that at least getting the policy into place at this point in time is the most important issue. The policy will have 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 will not have included actual dollar figures that are used in computing those percentages because we would then have to change the policy constantly. 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. If there are any questions prior to the meeting please do not hesitate to call me. We will proceed with the policy after the meeting as deemed appropriate. NOTES: Working Draft Debt Management Policy of the City of Rosemount, Minnesota .- July 12, 2000 Table of Contents Page(s — L - PURPOSE ................... ............................... ................. ..... . 1 I I. 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 of 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 1 -1 Debt Administration Policies Section H 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 credibility 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 11 -1 City of Rosemount, Minnesota F. Determination of type and security of debt should 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 will not be employed 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. Monitor 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 Cost' basis. Page III -1 City of Rosemount, Minnesota Variable 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. • Regulatory 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 dosing 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 government should be undertaken to avoid periodic marketing conflicts as well as increase awareness of the impact of debt on property tax - paying entities. Page 111 -2 Types of Instru Sect IV A. General Obligation Property Tax - 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 Department, 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 y City of Rosemount, Minnesota Secondary disclosure responsibility must be clear on any potentially pooled lease. Page IV -2 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. V Appendix B Definitions Bond Years: The product of the number of bonds (1 bond - $1,000, regardless 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. -Iou saop OIN pue Aeuow jo enlen aua!l ayl siap!suoo 0I1 aouis `poylaw OIN ayl wojl juejog p AIlg6 ajnbg a oonpad suollelnduaoo- OIl - spuoq 941 col pan!aoaJ eoud asegojnd 9qj of salep Ajpnjew Isaialui pue led!ou!ad an!}oadsaj eqj uo elgeAed slunowe ay} junoosip o} tiesseoeu `Allenuue!was popunodwoo `ajej 941 se paugap si isoo isaialu! `Isoo sdamoJjoq eqj 6u!;ndwoo }o poglaw s!y} aapun :(3il) Isoo ;saxa;ul anal - slasse pun4 6u!Nuis pnpap jo jgap 6u!ddela9Ao apnloui jou saop „IgaQ lelrol„ - ajn}ona }s ales ogpeds a Aq pa:poddns jgep uo!le6!igo lejau96 pue spuoq anuanaa uo!}ebilgo lepods uegj aayjo jgep IIb :;qad ie;ol - spuoq 6u!snog pue luewdolanap ieuIsnpui pe:poddns -wed puooes `o} pa}!w!l jou Inq `6u!pnpu! `pewnsse sl uo!le6!lgo Iejow ao Ie!oueug ou goigm aol Inq `uolldwexe xel sil s}uea6 A4!o ay} yolgm col spuoq anuanaU :spuos 'anuanaa uoi}e6iigp leioadS - 6u Noeq uo!le6!Igo Iejaua6 s,fi4!0 eqj tijeo osle Aew spuoi3 - seal jasn jaglo pue `seal 6uhljed `senuanaa as!adjalua `sexel sales se Bons `senlen /j-iado id_ ajelse lean uo paseq jou sanuanaj Aq Allogm pe:poddns eie goigm spuoq :peVoddng- enuanaHj 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% Note: Debt margin shown is not net of debt service funds which, when applied to reduce outstanding debt, will increase the debt margin. i . `v i 111 -1 -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 property. • Direct general obligation debt and capital leases will $1,800 $1,511 not exceed $1,800 per capita. IV -1 -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