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CP075 (Debt Management)CITY OF JANESVILLE Policy No. 75 Page 1 of 4 CITY COUNCIL POLICY STATEMENT Date Issued: 5/13/97 Revised: 8/23/11 4/13/15 2/10/20 General Subject: Administration Effective Date: 2/10/20 Special Subject: Debt Management Responsible Dept./Div/: City Manager’s Office / Finance Office Cancellation Date Supersedes PURPOSE To record and clarify the City Council's policy regarding the management and issuance of debt. STATEMENT OF POLICY In accordance with State Statutes, Chapter 67, the City is granted the authority to issue debt. The following practices and procedures shall be followed by the City: 1. Conditions for Debt Issuance The City shall limit the issuance of debt to capital outlays (and costs associated with the capital outlay), including the acquisition or construction of capital facilities; infrastructure; vehicles and equipment; and other capital assets. 2. Capital Improvement Plan (CIP) The Administration prepares an updated five-year Capital Improvement Plan (CIP) on an annual basis. The CIP will indicate the source of funding for all proposed capital projects and/or assets. The first year of the CIP will be included in the annual budget as the Major Capital Projects budget. Those capital projects and/or assets which require financing through the issuance of debt will be reconsidered when the City Council awards public works contracts, commits to borrow funds in a future debt issuance, or undertakes the debt issuance process. 3. General Obligation Debt The City will issue General Obligation Debt for those capital projects benefiting the City as a whole. Such debt would be secured by the full faith, credit, and taxing powers of the City. Every capital project proposed for financing through General Obligation Debt should be accompanied by a full analysis of the future operating and maintenance costs associated with the project, including the impact of the proposed project on the annual operating budget. Whenever possible, the City will finance capital projects by using self-supporting Revenue or Special Assessment Bonds. Such Bonds assure the greatest degree of equity because those who benefit from a project closely match those who pay for a project. CITY OF JANESVILLE Policy No. 75 Page 2 of 4 CITY COUNCIL POLICY STATEMENT Date Issued: 5/13/97 Revised: 8/23/11 4/13/15 2/10/20 General Subject: Administration Effective Date: 2/10/20 Special Subject: Debt Management Responsible Dept./Div/: City Manager’s Office / Finance Office Cancellation Date Supersedes 4. General Obligation Debt Limit Section 67.03(1) of the Wisconsin Statutes provides that the amount of General Obligation indebtedness of a municipality shall not exceed five (5) percent of the equalized assessed valuation of the taxable property in the municipality. The City shall limit outstanding General Obligation Debt to less than two and a half (2.5) percent of the equalized assessed value. The City Council, by super majority vote, may increase the stated debt limit. The City recognizes the importance of issuing debt prudently and should first determine its long-term financial capability to repay. 5. Revenue Debt To promote taxpayer equity, the City will consider the issuance of Revenue Debt for capital projects providing benefits to specific users. Such debt would be secured by revenues of the financed project. However, if the projected revenues will not be sufficient to meet the corresponding annual debt service payments or the credit rating of the proposed Revenue Debt instrument would result in an adverse interest rate, the City would consider issuing General Obligation Debt for such projects. 6. Governmental Fund Debt Service Limitations Annual Governmental Fund Debt Service payments for General Obligation Debt, exclusive of that funded by enterprise operations or debt approved exceeding the debt limit described above, shall not exceed twenty (20) percent of annual budgeted expenditures for Governmental Funds. 7. Review of Financing Alternatives The City will seek all possible Federal and State reimbursements for mandated projects and/or programs. The City will encourage pay-as-you-go financing of capital improvement projects where feasible. However, it will strive to maintain a balanced relationship between issuing debt and pay-as-you-go financing to ensure property tax stabilization. The City will seek to maintain a sufficient General Fund cash balance in order to prevent the need for external cash flow borrowing. CITY OF JANESVILLE Policy No. 75 Page 3 of 4 CITY COUNCIL POLICY STATEMENT Date Issued: 5/13/97 Revised: 8/23/11 4/13/15 2/10/20 General Subject: Administration Effective Date: 2/10/20 Special Subject: Debt Management Responsible Dept./Div/: City Manager’s Office / Finance Office Cancellation Date Supersedes 8. Timing of Debt Issuance Debt should be issued when capital projects are or will be for bid or construction starts within 6 months. Capital projects funded with borrowed funds shall be completed within 24 months from of the issuance of debt. If funds are not expended within 18 months, consideration should be given to reprogramming the funds for another approved capital project. 9. Characteristics of Debt Issuance The issuance of debt for funding annual general operating expenditures is prohibited. The use of derivatives is prohibited. The average maturities of long-term obligations shall only exceed 10 years if the expected useful life of the capital project or asset financed justifies it. The scheduled maturities of long-term obligations should not exceed the expected useful life of the capital project or asset(s) financed. 10. Debt Issuance Process The City will use competitive sales as the primary means of selling long-term bonds and notes. Negotiated sales will be permitted only if there is evidence of volatile market conditions, complex security features, or other unique factors. Bonds - The issuance of bonds requires the City Council to follow various procedures identified in State Statutes 67.05. These include separate City Council actions to authorize and establish the bond details and are comprised of, but not limited to, setting the final amount of bonds to be issued. Promissory Notes - Although State Statutes 67.12 permits the City Council to combine the authorization and details of a note issue into one City Council action, the City Council will adopt the aforementioned issuance procedure required for bonds. 11. Professional Services The City shall retain an independent Municipal Advisor for debt structuring, the rating review process, marketing debt issuances, sale and post-sale services, and to assist in issuing the City's Official Statement. The City shall retain bond counsel for legal and procedural advice on all debt issuances, which include determining the legal authority to issue the proposed debt and that it CITY OF JANESVILLE Policy No. 75 Page 4 of 4 CITY COUNCIL POLICY STATEMENT Date Issued: 5/13/97 Revised: 8/23/11 4/13/15 2/10/20 General Subject: Administration Effective Date: 2/10/20 Special Subject: Debt Management Responsible Dept./Div/: City Manager’s Office / Finance Office Cancellation Date Supersedes qualifies for tax-exempt status. 12. Market Relations The City will maintain effective communications with investors and credit rating agencies concerning the City's financial condition by posting information to the Municipal Securities Rulemaking Board (MSRB) Electronic Municipal Market Access (EMMA) website. Additionally, the City recognizes there are several key debt ratios used by investors and credit rating analysts when reviewing the City's credit worthiness. Therefore, the City will address the following ratios: • Debt Per Capita. • Debt as a Percentage of Equalized Property Value. • Annual Debt Service as a percentage of annual Governmental Fund operating expenditures. The City will comply with the Security and Exchange Commission’s (SEC’s) reporting requirements concerning "Continuing Disclosure Undertakings". 13. Credit Rating Goals The City will seek to maintain and improve its credit rating to minimize borrowing costs and to ensure access to markets.