HomeMy Public PortalAboutRES-CC-2019-44RESOLUTION NO: 44-2019
A RESOLUTION ESTABLISHING A
DEBT POLICY FOR THE CITY OF MOAB
WHEREAS, The City Manager and Finance Director recommend Council adopt the debt policy for the
City of Moab which policy shall guide City officials as they consider the proper use of debt
to fund capital projects, and
WHERAS, The primary objective is to establish conditions for the use of debt and to create policies that
minimize the City's debt service and issuance costs, retain the highest credit rating, and
maintain full and complete financial disclosure and reporting, and
WHEREAS, It is in the best interest of the City of Moab to adopt a debt policy as contained in
Exhibit "A" which is attached to this resolution.
NOW, THEREFORE, Be It Resolved by the Council of the City of Moab, Utah.
SECTION 1.
This policy encompasses legal and regulatory requirements, types of permitted debt, how
to select the bond type, the "prudent person" rule and planning for debt. The policy states
guidelines on issuing debt, financing altematives, how to use debt derivatives and how to structure
and market a debt issue. It also describes the method of sale for debt, debt disclosures, and it
outlines debt targets.
The policy establishes a procedure for annual appropriation requirement for debt and how
to apply and communicate with credit rating agencies. Lastly, it outlines when to defease debt, as
well as how to handle investment of debt proceeds, monitoring covenant compliance, reporting
debt obligations and how to manage arbitrage and rebates.
SECTION 2,
City Council having received the City Manager and Finance Director recommendation
hereby accepts their recommendation and adopts the debt policy attached hereto and incorporated
herein by reference.
SECTION 3.
This resolution shall be in full force and take effect upon its passage.
r1i
Passed this day of All r , 2019.
0O
MAYOR
Emily S. Niehaus
City of Moab
Resolution No. 44-2019
CITY REC011.I5ER
CITY OF MOAB
EXHIBIT A
DEBT POLICY
Debt Policy
Introduction
The purpose of this policy is to guide City officials as they consider the proper use of debt to
fund capital projects. The primary objective is to establish conditions for the use of debt and
to create policies that minimize the City's debt service and issuance costs, retain the highest
credit rating and maintain full and complete financial disclosure and reporting. The debt policy
is intended to guide the prudent use of resources to provide the needed services to the citizens
of the City of Moab and to maintain sound financial management practices. These policies,
therefore, are flexible in design to allow for exceptions under changing and extraordinary
circumstances.
The City's debt policy is the guideline for City staff to use in issuing debt. The policy will be
reviewed on an annual basis by the Finance Director and the City Manager. Any substantive
modifications made to the policy must be approved by the City Council.
Jena' ✓Z Reaniatary Reauirements
Management responsibility for the City's debt program is hereby delegated to the Finance
Director, who will establish written procedures for the operation of the debt program
consistent with the Debt Policy.
The Finance Director, upon City Council approval and with consent from the City Manager and
City Attorney, will coordinate their activities to ensure that all financings are issued in full
compliance with the City's governing statutes and regulations. The Finance Director will select
the bond counsel for a bond issue. Bond Counsel will review all documents to the issuance of
securities by the City.
Sam
This debt policy applies to debt issued directly by the City and debt issued on behalf of the
City. This policy also provides guidelines regarding the execution of capital leases between
conduit issuers and the City to finance capital improvements projects.
This debt policy will be all-inclusive of debt issued by the City, but not be limited to: general
obligation debt, government purpose revenue debt, economic development related debt,
lease obligations, certificates of participation, debt derivatives and all forms of debt having
an annual appropriation of City revenues. Additionally, this policy governs the use of any swap
transactions used in conjunction with the City's debt program.
This debt policy contains certain elements on procedures and practices to achieve the
objectives of the policy and to ensure that professional standards are defined and met in the
policy's implementation. In numerous specified cases within this policy, these procedures and
policies are adopted by reference from the Government Finance Officers Association (GFOA)
published "Recommended Practices for Debt Management". These best standards are
amended over time, and this policy incorporates these ongoing changes. This policy
concludes with a glossary of terms frequently used in the municipal debt industry and in this
policy.
Guidelines for lige
A. Debt is a financing tool which should be judiciously used when the City has legal,
financial and market debt capacities and will be considered when some or all of the
following conditions exist:
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CITY OF MOAB Debt Policy
1. Estimated future revenue is sufficient to ensure the repayment of the debt
obligation;
2. Other financing options have been explored and are not viable for the timely or
economic acquisition or completion of a capital project;
3. A capital project is mandated by federal or state authorities with no other viable
funding option available; and
4. The capital project or asset lends itself to debt financing rather than pay-as-
you-go funding based on the expected useful life of the project based on the
City's ability to pay debt service.
5. Debt will not be used to fund ongoing operating expenses of the City.
6. Any City debt issued in support of a development project will first be reviewed
and approved under the auspices of the City's economic development policies
and procedures.
The City will manage its cash in a fashion that will prevent any borrowing to meet needed
operating expenses. The City will primarily rely on current revenue and cash set -asides to
finance its capital improvements. The City believes in funding a significant portion of capital
improvements on a "pay-as-you-go" basis. Therefore, the City will strive to increase each
year the percentage of its capital improvements financed by current revenues.
The City's General Fund equity balance has been built over the years to provide the City with
sufficient working capital and enable it to finance unforeseen emergencies without borrowing.
To conserve the General Fund eauity balance and to avoid reliance on this balance,
the City will not finance operations from the General Fund equity balance for periods
lonaer than two years.
Types of Permitted Deht
The City has numerous choices regarding types of debt available to meet its financing
objectives. The following is a listing if the types of permitted debt and general guidelines as
to their use.
A. General Obligation.
General Obligation (G.O.) bonds provide the investor with its most secure City
transaction, because the City's pledge of its unlimited authority to levy property taxes
for debt services. G.O. bonds are authorized to be issued in the following variations:
full faith and credit, double -barrel.
The sum of all G.O. debt outstanding (regardless of type) is governed by the City's
statutory legal debt margin but must also conform to limitations on the general credit
of the City. The city may obtain voter authority to issue G.O. by a majority vote
(50.1%) at the general municipal, primary or general election day.
a. Full Faith and Credit - To be issued for projects, which benefit the City as a whole.
Principal and interest to be paid from City's debt levy assessed on all real and
personal property.
b. Double -barrel (including public benefit districts) - To be issued for purposes
consistent with the voted authority. Principal and interest to be paid from a
designated revenue source (e.g. sales tax, tax increment financing etc.) or a special
assessment on real property (e.g. sewer special assessment). Revenue shortfalls
to be made up from the City's debt levy assessed on all real and personal property.
Selecting Bond TVa@
The City of Moab will seek voter authorization to issue general obligations only for essential
projects. In addition, such authority will be sought only after it is determined by City Council
that no other funds are available to meet the projected costs. Lease purchase financing and
Certificates of Participation will only be undertaken when the project is considered essential
to the efficient operation of the City.
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CITY OF MOAB Debt Policy
The City will favor the use of limited obligation revenue bonds to finance capital improvements
as a means of insuring that beneficiaries of an enterprise pay for a fair share of the costs to
maintain a City service.
prudence
Debt will be issued with judgment and care —under circumstances then prevailing —which
persons of prudence, discretion and intelligence exercise in the management of their own
affairs. The standard of prudence to be used by debt issuance officials will be the "prudent
person" standard and will be applied in the context of managing an overall debt portfolio.
Debt managers acting in accordance with the debt policy and written procedures and
exercising due diligence will be relieved of personal liability for an individual security's credit
risk or market price changes, provided deviations from expectations are reported in a timely
fashion and appropriate action is taken to control adverse developments. The "prudent
person" is expected to be reasonably well informed person, not an investment banker or
market maker, who is obligated to act responsibly.
planning for Debt
The primary tool used to plan for debt is a capital improvement plan (CIP). A CIP is a multi-
year financial planning tool that identifies public facilities, infrastructure improvements,
machinery, and equipment requirements. A CIP identifies each proposed capital project, the
year it will be started; the estimated cost anticipated each year; and the proposed sources of
financing. Based on these individual project details, summaries of capital expenditures for
each year are prepared. These summaries are then matched with funding available from all
applicable sources including current revenues, cash reserves, grants, and borrowings. A CIP
represents the balancing of project requests with current and future financing capabilities.
A CIP document will assist the government in determining the amount of infrastructure and
equipment spending that will be required to accommodate anticipated growth and
development. Each year the City of Moab will adopt a CIP covering the subsequent five fiscal
years. The CIP will identify projects for further consideration over the next five- year period
and will recommend specific funding strategies for each identified project.
The City Manager and the Finance Director will develop criteria that will be used in the
evaluation of all capital projects. All capital projects will be accompanied by a description of
the sources of funding to cover the project costs. Where borrowing is recommended, the
source of funds to cover debt service requirements must be identified.
Projects with a useful life of less than five years will not be eligible for inclusion in bond issues.
The Finance Director, with approval from Bond Counsel, will determine the useful life of a
project. The Finance Director will incorporate an estimate of the useful life of the proposed
capital improvements in developing an amortization schedule for each bond issue.
financing Alternativec
One of the primary decisions made regarding the CIP is financing whether to use cash on
hand, capital leases, low -interest loans, short-term debt financing, or long-term debt
financing. This policy sets forth guidelines for this decision by identifying the parameters
within each funding source that are considered appropriate. These parameters are defined
below.
Cash Funding
City policy encourages funding capital projects with cash, on a "pay as you go" basis,
to the extent possible and practical. As part of the pay-as-you-go strategy, the City
will first look for grant funding for capital projects. The City will strive to allocate at
least 5% of its sales based tax collections to capital projects each year as funding
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CITY OF MOAB Debt Policy
permits and that money is used first for annual debt payments, and the amount
remaining after paying debt service is available for cash funded projects. Cash funding
is recommended under the following circumstances:
"a To finance purchases of assets whose lives are shorter than five years.
To To finance recurring maintenance expenditures (i.e. street repair vs. street
construction)
:e When market conditions are unstable or present difficulties in achieving
acceptable interest rates.
Debt Financing
Short term debt financing:
Short-term bond anticipation notes may be issued to finance projects or portions
of projects. Short-term debt is appropriate under the following conditions:
;r Short-term notes are suitable as a source of permanent financing for projects
with useful lives of less than five years.
'4 Notes are used as a temporary funding source prior to and in anticipation of
the completion of a bond sale.
Long-term debt financing:
It is prudent policy to use notes and bonds for capital asset funding under the
parameters set forth below. No single parameter stands alone; they must all be
considered under the then current circumstances and in relation to the others. The
parameters are as follows:
Variable rate bonds are suitable as long term financing tools designed to
manage interest costs. When variable rate bonds are used for long-term
financing, the City must schedule annual principal payments similar to a fixed
rate financing that will not exceed 20% of the City's outstanding debt.
Long-term bonds are recommended for projects with useful lives of ten years
or longer and for amounts.
-'a Debt is recommended when the fiscal year's beginning balance of the General
Fund is less than 15% of the budgeted General Fund Revenue.
+ It is preferred that the debt ratio of available capital fund dollars to sales based
tax supported debt payments does not fall below 2 to 1 in the current fiscal
year and projected forward over four years.
▪ Long-term bonds are considered especially appropriate when average long-
term interest rates, as indicated by the Bond Buyer General Obligation 20 Bond
Index, are at or below eighty-five percent of the index's twenty-year average.
Long-term bonds are considered less appropriate when average rates for the
index are at or above one hundred and fifteen percent of the twenty-year
average. The City will make every effort to structure the terms of its bonds to
match the status of the market at the time.
Debt funding is recommended for projects where the burden of payment rests
more directly on a selected group of taxpayers or beneficiaries, such as for
project revenue bonds, special assessment projects, tax increment financing,
or economic development projects.
Revenue Bonded Debt
• It will be a long-term goal that each utility or enterprise will ensure future
capital financing needs are met by using a combination of current operating
revenues and revenue bond financing. Therefore a goal is established that 15%
of total project costs should come from operating funds of the utility or
enterprise.
It is City policy that each utility or enterprise will provide adequate debt service
coverage. Per the trust indenture, a specific factor is established by City Council
that projected operating revenues in excess of operating expenses less capital
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CITY OF MOAB Debt Policy
expenditures, depreciation and amortization in the operating fund should be at
least 1.25 times the annual debt service costs.
Conduit Debt
;e Conduit debt is a bond or other debt obligation issued by the City to Fnance a
project for use by a third party. This arrangement is typically used for nonprofit
organizations. The term "conduit" refers to the fact that the issuer assumes no
commitment to pay or guarantee payment of the debt service underlying the
debt.
:+ The City may issue bonds through conduit agencies provided that the projects
financed have a general public purpose (e.g. infrastructure, economic
development, housing, health facilities, etc.) consistent with the City's overall
operating and capital plans. Principal and interest to be paid from project
revenues or specific taxes.
'. Conduit debt bonds are not included in the City's debt burden because they are
secured solely by revenues of the private or non-profit party. Principal and
interest on conduit bonds is paid solely from the net revenues of the project.
Issuance of these bonds does not constitute a general obligation of the City.
': The City will obtain a clear opinion that it will not be liable for the payment of
principal and interest in the event of default by the conduit borrower by
independent bond counsel. If no such opinion can be obtained, the conduit
borrower will purchase insurance or a letter of credit in the City's name to
protect taxpayers in the event of default.
,1 The City will require a commitment from all institutions that borrow money
under the City's name to agree to provide the market with continuing disclosure
information
Capital Lease Debt
7.0 Lease -backed debt may be issued by the City. It may be issued as tax-
exempt or taxable leasehold revenue bonds or special limited obligation bonds
(including redevelopment bonds) through not -for -profit municipal corporations
or by using a trust structure.
t Projects are primarily to be limited to public revenues or specific taxes.
Capital lease debt may be considered to finance capital improvements,
including vehicles and equipment. Principal and interest to be paid from the
operating budget or other dedicated resources of the department purchasing
equipment or constructing capital improvement.
;a Certificates of Participation (COPs). A form of lease obligation in which the City
enters into an agreement to pay a fixed amount annually to a third party,
usually a nonprofit agency or a private leasing company or trust structure,
subject to annual appropriation.
7.0 Capital leases are not considered an indebtedness of the City according to state
statute because the lease payments are subject to annual appropriation;
however, from a variety of perspectives (e.g. credit, accounting, etc.) all or
most of this type of debt may be considered an obligation of the City.
% Departments requesting capital financing must have an approved
budget appropriation.
c Departments will submit documentation for approved purchases to the
Finance Department each year within sixty days after the annual budget
is adopted.
a The Finance Department will consolidate all requests and may solicit
competitive or negotiated proposals for capital financing to insure the
lowest possible interest costs.
Low Interest Loan
The use of federal and state aided low interest loans will be a valid financing
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CITY OF MOAB Debt Policy
mechanism and should be considered before consideration of issuing any other forms
of debt. This method of financing should be used wherever possible to fund a project.
However, simply because funds are available for a particular project does not obligate
the City to proceed with a project without consideration of future cash flows and other
capital needs.
pebtStructurina and MarkPtinn
a. Fixed or Variable Rate Debt.
The City's debt portfolio may at any given time be comprised of a combination of both
fixed and variable rate debt. The City will always seek to manage its debt portfolio,
including the absolute amount(s) of outstanding fixed and variable rate debt, in a
manner which best supports the City's long term financial condition.
b. Use of Fixed Rate Debt.
The City will generally issue its debt on a fixed interest rate basis, wherein at the time
of the bond sale all interest rates are known and do not change while those bonds are
outstanding.
c. Use of Variable Rate Debt.
Particular conditions may arise where the City would consider the use of variable
interest rates that reset on a periodic basis (e.g. daily, weekly, monthly, etc.).
Conditions which would cause a consideration of variable rate debt are:
1. Adverse fixed-rate municipal market;
2. Uncertainty or variability of the amount of annual revenues for debt service;
3. The potential for rapid repayment of debt; or
4. The need or desire to maximize the City's asset and/or liability balance
Variable interest rate debt exposes the City to interest rate risk over the term of the
financing. While the credit rating agencies are supportive of an issuer of the magnitude
of the City having certain amount of unhedged variable rate debt, they suggest the
aggregate amount be capped at a level not exceeding 20-25% of all comparable debt
outstanding. Their guideline is generally applied to variable rate debt which has no
other significant risk mitigation factors.
Once variable rate debt is issued, the City may employ various risk mitigation factors
including "natural" hedging of its short term liabilities (i.e. variable rate debt) with its
substantial short-term assets to create a net financial margin (i.e., cash management
investment portfolio) or the use of derivatives, specifically interest hedges. From the
debt portfolio management perspective, the City will also seek the optimal mix of
hedged and unhedged variable rate debt, which best fits the City's long-term credit
and financial profile.
Jdethndc of SMP
The Finance Director will select the method of sale, which best fits the types of bonds being
sold, market conditions, and the desire to structure bond maturities to enhance the overall
performance of the entire debt portfolio. Three general methods exist for the sale of municipal
bonds:
a. Competitive Sale. Bonds are marketed to a wide audience of investment banking
(underwriting) firms. Their bids are submitted at a specified time. The
underwriter is selected based on its bid for its securities. Pursuant to this policy,
and within the parameters approved by the City Council, the Finance Director is
hereby authorized to sign the bid form on behalf of the City fixing the interest
rates on bonds sold on a competitive basis.
b. Negotiating Sale. The City selects the underwriter or group of underwriters of
securities in advance of the bond sale. The City financing team works with the
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CITY OF MOAB Debt Policy
underwriter to bring the issue to the marker and negotiates all rates and terms
of the sale. In advance of the sale, the City will determine compensation for
and liability of each underwriter employed and the designation rules and priority
of orders under which the sale itself will be conducted (e.g. retail, group net, net
designated, etc.) Pursuant to this policy and within the parameters approved by
the City Council, the Finance Director is hereby authorized to sign the bond
purchase agreement on behalf of the City fixing the interest rates on bonds sold
on a negotiated basis.
c. Private Placement. The City sells its bonds to a limited number of sophisticated
investors, and not the general public. Private placement bonds are often
characterized as having highest risk or a specific type of investor base.
The City will accept bids for its bonds via facsimile transmission or electronic submission. Such
bids must conform in all respects with the terms of the Official Notice of Sale. The Official
Notice of Sale will be designed by the Finance Director or designated agent to allow a degree
of flexibility for the prospective purchasers and may include a permitted discount, term bonds
with mandatory sinking fund installments, and other features to enhance the attractiveness
of the offering consistent with the receipt of the lowest true interest cost possible.
Disclosure,
Disclosure is both a regulatory requirement and a highly advisable means to enhance the
marketing of the City's bonds. The Securities and Exchange Commission (SEC) regulates both
primary disclosure, the initial marketing of a bond issue, and continuing disclosure, the
ongoing information to the market about the status of the issue and issuer. The regulations
place responsibility for primary disclosure on underwriters, and on issuers for continuing
disclosure. Failure by the City to properly manage disclosure and to timely provide its
continuing disclosure may have adverse impacts on the credit ratings and access to the tax-
exempt capital market. It may also subject the City to regulatory actions from both the SEC
and IRS.
Adequate disclosure on both a primary and continuing basis can enhance the marketability of
the City's bonds by providing potential investors with current and professional information
regarding the City. Timely and accurate completion of these tasks both influences investors'
decisions on purchasing the City's bonds and contributes to the competitive audience for the
City's bonds. The City will fully comply with disclosure regulations.
1. Primary.
In the preparation of official statements the City will follow professional and market
standards in the presentation of its issues and issuers. It will facilitate the distribution
of the official statements in a timely manner to allow investors adequate time to make
their investments in a timely manner. The City will execute continuing disclosure
undertaking in a manner to fully comply with regulatory provisions and ensure a full
disclosure of appropriate information to the market.
2. Secondary.
The City will meet all substantive and time requirements in its annual continuing
disclosure filings, which include making City's CAFR available to the public 180-270
days after the fiscal year end.
The City will keep current with any changes in both the administrative aspects of its
filing requirements and the national repositories responsible for ensuring issuer
compliance with continuing disclosure regulations. In the event a 'material event'
occurs that requires immediate disclosure notification to the parties impacted.
The City of MOAB will require all conduit securities to be issued with a complete official
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CITY OF MOAB Debt Policy
statement or other disclosure document; the documents will clearly describe the limited
source of repayment and lack of direct financial support from the City. The City will also
require the conduit borrower to provide ail information necessary for the City's audit in regard
to the specific debt issue.
Debt Taraeta
Maintaining an appropriate level of indebtedness is appropriate to reserve flexibility for future
infrastructure investments and to position for high credit quality. Each type of debt has its
own appropriate level. The appropriate levels are internally determined based on a variety of
factors, such as: infrastructure investment needs of the particular service area, capacity to
repay debt from the specific revenue source, and the sector's credit rating objectives. Since
these factors can change over time, any debt guideline must be periodically reviewed to reflect
evolving City conditions. Certain types of debt may have different applications but are treated
as one type by the credit rating agencies. Therefore, the City may develop guidelines which
reflect both the use of the debt type and its contribution to the credit rating debt burden.
The City will retire all debt on or before the maturity date. The City will also fully comply with
all statutory debt limitations imposed by the Utah Revised Code or those incorporated into
Moab City Municipal Code.
Annual Aoornnriatinn Renninamentc
General obligation and annual appropriations -backed bonds present both individual and
collective financial impacts. Individually, they place actual or potential demands on general
municipal revenue sources Collectively, they are reviewed by the credit rating agencies as to
their cumulative impact on these revenue sources. Guidelines for their individual and overall
levels assist on the ongoing evaluation of these impacts. As part of the debt management
program, City staff will report the following the debt ratios to the City Council, which are
routinely reviewed by the credit rating agencies:
Tax -Supported Debt Outstanding as a Percent of Market Value
Tax Supported Debt Outstanding Per Capita
Tax Supported Debt Service as a Percent of General Fund Revenue (GFR)
Additionally, the City Council will utilize the following two guidelines to ensure general
obligation indebtedness is maintained within constitutional debt limitations and non self-
supporting (net) tax -supported debt outstanding is maintained within a targeted range:
1. General Obligation Debt Outstanding as a Percent of Assessed Valuation 0<20%.
2. Net Tax -Supported Debt Service as a Percent of Net GFR 5-15% Revenue.
Each type of revenue bond indebtedness has an estimated capacity dictated by financial
position, user rate revenue generation capacity, and existing and anticipated future debt
requirements. Revenue bonds may also have legal restrictions on the amount of parity debt
that may be issued based on an additional bonds covenant for existing debt. The debt capacity
guidelines for each type of revenue bond indebtedness will be governed by their specific bond
covenant.
Retina Aaencv Aoolications and Cnmmuniratinna
The City of MOAB may seek a rating on all new issues that are being sold in the public market..
When applying for a rating on an issue of over $10,000,00 or more, the City of MOAB will
make a formal presentation of the finances and positive developments within the City to the
rating agencies. The City of MOAB will report all financial information to the rating agencies
on an annual basis.
The Finance Director will provide the rating agencies that maintain a rating of the City
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CITY OF MOAB Debt Policy
securities with all materials that have a pertinent bearing on the City finances on an annual
basis or at the request of the rating agencies.
Investor Information Proaram
The City will maintain a multi -faceted information program, which will include:
• Providing new informational materials to the agencies, on a periodic basis.
• Delivering rating presentations in the appropriate form prior to any bond sale.
• Seeking opportunities to have the agencies tour the City at times not necessarily
associated with a bond sale to update them on the changes to the community.
• Working with other governmental entities impacting the City's rating to coordinate
both the substance and presentation of the City's credit ratings case.
• The City of Moab will post its annual financial report on the internet at the City hosted
website of https://moabcitv.orq/ and provide hard copies of the document to
interested parties upon request.
Defeasance and Prenavment
The accelerated retirement and restructuring of debt can be valuable debt management tools.
Accelerated retirement occurs through the use of defeasance and the exercise of prepayment
provisions. Debt is often restructured to the benefit of the City through the issuance of
refunding bonds.
Defeasance can occur when funds are accumulated in a dedicated debt service fund or other
available reserve to place in an irrevocable escrow account an amount sufficient such that the
initial deposit plus accumulated investment earnings pay all scheduled debt service obligations
on the refunded bonds until an optional prepayment date, at which time all remaining
refunded bonds are retired.
In the case of dedicated debt service funds, the City will monitor such fund balances and will
periodically review the advisability of defeasing related bonds. In the case of other available
reserves, the City will periodically analyze the financial trade-offs of defeasing or other
advantageous uses of these bonds.
Prepayment provisions are structured into the original bond issue to provide the City with
opportunities to manage the issue. These opportunities take the form of using cash to reduce
all or a portion of outstanding principal and future debt service obligations. Prepayment
provisions play a major part in the economics of refunding debt.
The City will monitor the prepayment provisions on its outstanding debt to realize both of
these potential opportunities. By monitoring its debt service funds the City can gauge its
ability to prepay debt. Debt can be refunded to achieve one or more of the following
objectives:
• Reduce future interest costs;
• Restructure future debt service in response to evolving conditions regarding
anticipated revenue sources; and
• Restructure the legal requirements, termed covenants of the original issues to reflect
more closely the changing conditions of the City or the type of bond.
• Alter bond characteristics, such as call provisions or payment dates, on existing debt.
If the City pursues a refinancing for interest rate savings, it should initiate the transaction
(select method of sale, engage outside service providers and begin Preliminary Official
Statement preparation) when the present value savings exceed 1% of the par amount of the
outstanding issue, inclusive of all costs of issuance. Generally, the City will execute the
refunding once present value exceeds 3% of the outstanding par.
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CITY OF MOAB Debt Policy
Tnvectmentc of Bond Prnceerle
The investment of bond proceeds requires significant diligence in meeting the objectives of
regulatory compliance, the management of the Flow of funds described in bond documents,
and the needs of the projects being funded. The investment of bond proceeds should be
considered at the outset of every debt issuance and integrated throughout the process. As
one part of the City's investment management program, this policy incorporates by reference
the GFOA's Recommended Practice, "Investment of Bond Proceeds" and the City's Investment
Policy.
1. Maintenance of Records.
The City will maintain appropriate records in accordance with the federal, state, and
City requirements, and in accordance with its bond documents to fully meet their
provisions and provide for ease of any reporting requirements.
2. Arbitrage and Rebate Liabilities.
The City will structure and time its bond issues such that the investment of bond
proceeds will minimize any arbitrage and/or rebate liabilities.
Federal Arbitraae and Rebate Compliance
The City will fully comply with federal arbitrage and rebate regulations. Concurrent with the
policy, the City will take all permitted steps to minimize any rebate liability through proactive
management in the structuring and oversight of its individual debt issues. All the City's tax-
exempt issues, including lease purchase agreements, are subject to arbitrage compliance
regulations. The City may elect to utilize taxable interest debt instruments where compliance
with federal arbitrage rules would be impracticable or inefficient.
The Finance Department and the requesting departments will be responsible for the following:
1. Using bond proceeds only for the purpose and authority for which the bonds were
issued. Tax-exempt bonds will not be issued unless it can be demonstrated that
85% of the proceeds will be expended within the three-year temporary period.
2. Performing arbitrage rebate calculations on construction funds, as determined by
the IRS.
3. Performing arbitrage rebate computations no later than each five-year anniversary
date of the issuance and at the final maturity for all bonds.
4. Examining whether the City met the arbitrage rebate exception calculation rules.
5. Maintaining detailed investment records, including purchase prices, sale prices and
comparable market prices for all securities.
6. Monitoring the expenditure of bond proceeds and exercising best efforts to spend
bond proceeds in such a manner that the City will meet one of the spend -down
exemptions from arbitrage rebate.
7. Monitoring the investment of bond proceeds with awareness of rules pertaining to
yield restrictions.
To the extent any arbitrage rebate liability exists, the City will report such liability in the
comprehension annual financial report (CAFR).
plonitorina of Cnvenant Cmmnlianre
The City's revenue bonds generally have a number of bond covenants requiring ongoing
compliance and conditions for future bond issuance on an equal security (parity') basis. The
City will maintain a compliance monitoring system by revenue bond type of all bond
covenants. This system will specifically report information on coverage, rate and additional
bond covenant compliance. The system will track trends in coverage levels over time and
capacity availability under additional bonds' covenants.
Reaortina
The Finance Department is charged with the responsibility of preparing monthly financial
12
CITY OF MOAB Debt Policy
reports. Within the monthly financial report a summary of the City's outstanding debt type
including the outstanding principal amount for each. Additionally, the monthly financial report
will also include a calculation of debt capacity for the general municipal debt of the City (i.e.,
excludes enterprise -related revenue bonds). On an annual basis, the Finance Department will
prepare all required debt related schedules and footnotes for inclusion in the City's
comprehensive annual financial report.
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CITY OF MOAB Debt Policy
AD VALOREM TAXES
GLOSSARY OF TERMS
Real estate and personal property taxes calculated "according to the
value" of property. The taxes are based on the assessed valuation
of real property and, in certain cases, on the valuation of tangible
personal property.
AMORTIZATION The planned reduction of a debt obligation according to a stated
maturity or redemption schedule.
ARBITRAGE The gain that may be obtained by borrowing funds at a lower (often
tax-exempt) rate and investing the proceeds at higher (often
taxable) rates. The ability to earn arbitrage by issuing tax- exempt
securities has been severely curtailed by the Tax Reform Act of 1986,
as amended.
ASSESSED VALUATION
BALLOON MATURITY
The appraised worth of property as set by a taxing authority through
assessments for purposes of ad valorem taxation. The method of
establishing valuation is specified in the Utah Revised Code.
A maturity within a serial issue of securities that contains a
disproportionately large percentage of the principal amount of the
original issue. A balloon maturity is generally distinguished from a
term bond by the fact that a term bond generally has the benefit of
a sinking fund to smooth out the amount of principal paid from any
single year's operations.
BASIS POINTS The measure of the yield to maturity of an investment calculated to
four decimal places. A basis point is 1/100th of 1% (.01 percent).
BEARER BOND A security that does not identify its owner on its face or by
registration. The security is presumed to be owned by the person
possessing it. The Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA) curtailed the issuance of tax-exempt bearer bonds.
BOND
A written promise, generally under seal, to pay a specified amount
of money, called the face value, at a fixed time in the future, called
the date of maturity, and carrying interest at a fixed or variable rate,
usually payable periodically. NOTE: The difference between a note
and a bond is that the latter usually runs for a longer period
of time and requires greater legal formality.
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CITY OF MOAB Debt Policy
BOND ANTICIPATION
NOTE (BAN)
BONDED DEBT
BOND COUNSEL
BOND INSURANCE
BOND ISSUED
BOND RATING
BOOK -ENTRY -ONLY
CALL OPTION
CAPACITY
CAPITAL APPRECIATION
BOND
CAPITAL IMPROVEMENT
CAPITAL IMPROVEMENT
PROGRAM
A short-term interest -bearing security issued in anticipation of a
long-term bond issue. The investors typically rely upon the sale of a
subsequent issue of securities to pay a BAN upon maturity.
That portion of indebtedness represented by the outstanding
bonds.
An attorney or firm of attorneys retained by the issuer to give a legal
opinion concerning the validity of the securities. The bond counsel's
opinion usually addresses the subject of tax exemption. Bond
counsel may prepare, or review and advise the issuer regarding
authorizing resolutions or ordinances, trust indentures, official
statements, validation proceedings and litigation.
A type of credit enhancement where a monocline insurance company
indemnifies an investor against a default by the issuer. In the event
of a failure by the issuer to pay principal and interest in -full and on -
time, investors may call upon the insurance company to do so. Once
assigned, the municipal bond insurance policy generally is
irrevocable. The insurance company receives an up- front fee, or
premium, when the policy is issued.
Bonds sold.
A rating (made by an established bond rating company) from a
schedule of grades, indicating the probability of timely repayment of
principal and interest on bonds issued.
Bonds that are issued in fully registered form but without certificates
of ownership. The ownership interest of each actual purchaser is
recorded on computer.
The right to redeem a bond prior to its stated maturity, either on a
given date or continuously. The call option is also referred to as the
optional redemption provision.
A measure of an organization's ability to provide customers with the
demanded service or products, in the amount requested and in a
timely manner.
A bond without current interest coupons that is sold at a substantial
discount from par. Investors are provided with a return based upon
the accretion of value in the bond through maturity.
Land, buildings, structures and all facilities other than buildings,
traffic lights, machinery, equipment, automobiles, etc., with a unit
cost in excess of $5,000 and a useful life of five or more years.
A plan for capital expenditures to be incurred each year over a fixed
period of several future years setting forth each capital project,
identifying the expected beginning and ending date for
each project, the amount and the method of financing.
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CITY OF MOAB Debt Policy
CAPITAL LEASE
CAPITAL PROJECT
CERTIFICATE OF
PARTICIPATION
COMMERCIAL PAPER
(TAX-EXEMPT)
COMPETITIVE SALE
CONDUIT FINANCING
CONTINUING
DISCLOSURE
COUPON RATE
CUSIP NUMBER
The acquisition of a capital asset over time rather than merely paying
rent for temporary use. A lease -purchase agreement, in which
provision is made for transfer of ownership of the property for a
nominal price at the scheduled termination of the lease, is referred
to as a capital lease.
Major construction, acquisition or renovation activities which add
value to a government's physical assets or significantly increase their
useful life - also called capital improvements.
A financial instrument representing a proportionate interest in
payments such as lease payments by one party (such as a city acting
as a lessee) to another party (often a trustee).
By convention, short-term, unsecured promissory notes issued in
either registered or bearer form with a stated maturity of 270 days
or less
The sale of securities in which the securities are awarded to the
bidder who offers to purchase the issue at the best price or lowest
cost.
The issuance of securities by a governmental entity to finance a
project that will primarily benefit a third party, typically a private
corporation, college or university. The security for this type of
financing is usually the credit of the private entity, rather than the
governmental unit. Usually such securities do not constitute general
obligations of the issuer since the private entity is liable for
generating the pledged revenues for repayment. Industrial
development bonds or economic development bonds are a common
type of conduit financing.
The requirement by the Securities and Exchange Commission for
most issuers of municipal debt to provide current financial
information to the informational repositories for access by the
general marketplace.
The interest rate on specific maturities of a bond issue. While the
term "coupon" derives from the days when virtually all municipal
bonds were in bearer form with coupons attached, the term is still
frequently used to refer to interest rates on different maturities of
bonds in registered form.
The term CUSIP is an acronym for the Committee on Uniform
Securities Identification Procedures. An identification number is
assigned to each maturity of an issue, and is usually printed on the
face of each individual certificate of the issue. The CUSIP numbers
are intended to help facilitate the identification and clearance of
municipal securities.
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CITY OF MOAB Debt Policy
DEBT BURDEN
DEBT LIMITATION
DEBT SERVICE
DEBT SERVICE FUND
DEBT SERVICE FUND
REQUIREMENTS
DEBT SERVICE RESERVE
FUND
DEFAULT
DEFEASANCE
DEPOSITORY TRUST
COMPANY(DTC)
DERIVATIVES
DISCOUNT
The ratio of outstanding tax -supported debt to the market value of
property within a jurisdiction. The overall debt burden includes a
jurisdiction's proportionate share of overlapping debt as well as the
municipality's direct net debt.
The maximum amount of debt that is legally permitted by a
jurisdiction's charter, constitution, or statutes.
The amount necessary to pay principal and interest requirements
on outstanding bonds for a given year or series of years.
A fund established to finance and account for the accumulation
of resources for, and the payment of, general long-term debt
principal and interest. Also called a SINKING FUND.
The amounts of revenue which must be provided for a debt
service fund so that all principal and interest payments can be
made in full, on schedule.
The fund into which moneys are placed which may be used to
pay debt service if pledged revenues are insufficient to satisfy
the debt service requirements.
The failure to pay principal or interest in full or on time. An actual
default should be distinguished from technical default. The latter
refers to a failure by an issuer to abide by certain covenants but
does not necessarily result in a failure to pay principal or interest
when due.
Providing for payment of principal of premium, if any, and
interest on debt through the first call date or scheduled principal
maturity in accordance with the terms and requirements of the
instrument pursuant to which the debt was issued. A legal
defeasance usually involves establishing an irrevocable escrow
funded with only cash and U. S. Government obligations.
A limited purpose trust company organized under the New York
Banking Law. DTC facilitates the settlement of transactions in
municipal securities.
A financial product, the value of which is derived from the value
of an underlying asset, reference rate or index. Typically these
agreements are contracts between a lender/investor and a
burrower and include interest rate swaps, stations, caps, floors,
collars, and forward purchase agreements.
The difference between a bond's par value and the price it is
sold when the latter is less than par.
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CITY OF MOAB Debt Policy
DOUBLE-BARRELED
BOND
ENTERPRISE ACTIVITY
EQUITY
FINANCIAL ADVISOR
FINAL OFFICIAL
STATEMENT (FOS)
FLOW OF FUNDS
FULL FAITH AND
CREDIT
GAAP
GENERAL FUND
A bond secured by a defined source of revenue (other than
general property taxes) and the full faith and credit of an issuer.
A revenue -generating project or business. The project often
provides funds necessary to pay debt service on securities issued
to finance the facility. The debts of such projects are self-
liquidating when the projects earn sufficient monies to cover all
debt service and other requirements imposed under the bond
contract.
Balance remaining after liabilities is deducted from assets.
A consultant who advises an issuer on matters pertinent to a debt
issue, such as structure, sizing, timing, marketing, pricing, terms
and bond ratings.
A document published by the issuer that disclose material
information on a new issue of municipal securities including the
purposed of the issue, how the securities will be repaid, and the
financial, economic and social characteristics of the issuing
government. Investors may use this information to evaluate the
credit quality of the securities.
The order in which pledged revenues must be disbursed as set
forth in the trust indenture or bond resolution.
A pledge of the General Taxing power of a government to repay
debt obligations (typically used in reference to bonds).
Generally Accepted Account Principles. Uniform minimum
standards for financial accounting and recording, encompassing
the conventions, rules, and procedures that define accepted
accounting principles. The primary authoritative body on the
application of GAAP to state and local governments is the
Governmental Accounting Standards Board (GASB).
The fund that is available for any legal authorized purpose and
which is therefore used to account for all revenue and all
activities except those required to be accounted for in another
fund.
NOTE: The General Fund is used to finance the ordinary
operations of a governmental unit.
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CITY OF MOAB Debt Policy
GENERAL LEDGER A book, file or other devise which contains the accounts needed
to reflect the financial position and the results of operations of
an entity. In double entry bookkeeping, the debits and credits in
the general ledger are equal; therefore, the debit balances equal
the credit balances.
GENERAL OBLIGATION Bonds for whose payments the full faith and credit of the BONDS
DEBT issuing body are pledged. More commonly, but not necessarily,
general obligation bonds are considered to be those payable from
taxes and other general revenues.
GFOA
INDENTURE
Government Finance Officers Association. An organization
founded to support the advancement of governmental
accounting, auditing, and financial reporting.
A contract between the issuer and a trustee stipulating the
characteristics of the financial instrument, the issuer's obligation
to pay debt service, and the remedies available to the trustee in
the event of a default.
ISSUANCE COSTS The costs incurred by the bond issuer during the planning and
sale of securities. These costs include but are not limited to
financial advisory and bond counsel fees, printing and advertising
costs and other expenses incurred in the marketing of an issue.
ISSUER COUNSEL An attorney retained by the issuer to represent its best interest
in a debt transaction. Often this role is performed by bond
counsel, however, at time separate counsel is engaged that does
not have responsibility to issue the bond opinion as well as
represent the issuer's best interests.
JUNIOR LIEN BONDS Bonds that have a subordinate claim against pledged revenues.
LEASE An obligation wherein a lessee agrees to make payments to a
lesser in exchange for the use of certain property. The term may
refer to a capital lease or to an operating lease.
LEASE REVENUE BONDS Bonds that are secured by an obligation of one party to make
annual lease payments to another.
LESSEE The party to a lease agreement that obtains use of a facility or
piece of equipment on exchange for rental payments.
LESSOR The owner of the property being leased.
LETTER OF CREDIT
Bank credit facility whereby a bank will honor the payment of an
issuer's debt, in the event that an issuer is unable to do so,
thereby providing an additional source of security for
bondholders for a predetermined period of time. A letter of credit
often is referred to as an L/C or an LOC. Letter of Credit
can be issued on a "stand-by" or "direct pay" basis.
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CITY OF MOAB Debt Policy
LINE OF CREDIT Bank credit facility wherein the bank agrees to lend up to a
maximum amount of funds at some date in the future in return
for a commitment fee.
LONG-TERM DEBT Debt with a maturity of more than one year after the date of
issuance.
MANAGING The member (or members) of an underwriting syndicate charged
UNDERWRITER with the primary responsibility for conducting the affairs of the
syndicate. The managers take the largest underwriting
commitment.
MUNICIPAL SECURITIES A self-regulating organization established in September of 1975
RULEMAKING BOARD upon the appointment of a fifteen member Board by the
(MSRB) Securities and Exchange Agreement. The MRSB is comprised of
representatives from investment banking firms, dealer bank
representatives, and public representatives; it is entrusted with
the responsibility of writing rules of conduct for the municipal
securities market. New Board members are selected by the MSRB
pursuant to the method set forth inboard rules.
NEGOTIATED SALE A sale of securities in which the terms of sale are determined
through negotiation between the issuer and the purchaser,
typically an underwriter, without competitive bidding.
NET INTEREST COST
(NIC)
NOTE
OBLIGATIONS
OFFICIAL STATEMENT
(OS)
The average interest cost of a bond issue calculated on the basis
of simple interest. This calculation involves a fraction in which
the numerator is the gross amount of interest to be paid over the
bonds' life (adjusted for the amount or premium granted at the
time of sale), and the denominator is the average of the bond
issue multiplied by the issue's par value.
A written promise to pay a certain amount of money on a specific
date, with interest. By convention, the maturity of a note is one
year or less, making it short-term debt. However, financial
instruments with a longer stated maturity sometimes are called
Notes. For example, a bond anticipation note can have maturities
of two years or longer.
Amounts which a government may be legally required to meet
out of its resources. They include not only actual liabilities, but
also encumbrances not yet paid.
A document published by the issuer that discloses material
information on a new issue of municipal securities including the
purposes of the issue, how the securities will be repaid, and the
financial, economic and social characteristics of the issuing
government. Investors may use this information to evaluate
the credit quality of the securities.
20
CITY OF MOAB
OPERATING LEASE
ORIGINAL ISSUE
DISCOUNT BONDS
OVERLAPPING DEBT
PAR VALUE
PAYING AGENT
PRELIMINARY OFFICIAL
STATEMENT (POS)
PREMIUM
PRESENT VALUE
PRIVATE ACTIVITY BONDS
PUT OPTION
REFUNDING
REGISTERED BOND
RESERVE
RESERVE FUND
Debt Policy
A lease that enables the less to acquire the use of the asset only,
not its ownership as in a capital lease. The lease term typically
runs for only a portion of the asset's useful life.
Bonds sold at a substantial discount from their par value at the
time of the original sale.
The legal boundaries of local governments often overlap. In some
cases, one unit of government is located entirely within the
boundaries of another. Overlapping debt represents the
proportionate share of debt that must be borne by one unit of
government because another government with overlapping or
underlying taxing authority issued its own bonds.
The face value or principal amount of a security.
An agent of the issuer with responsibility for timely payment of
principal and interest to bond holders.
The POS is a preliminary version of the official statement that is
used by an issuer or underwriters to describe the proposed issue
of municipal securities prior to the determination of the interest
rate(s) and offerings price(s). The preliminary official statement,
also called a 'gyred herring", often is examined upon
by potential purchasers prior to making an investment decision.
The excess of the price at which a bond is sold over its face value.
The value of a future amount or stream of revenues or expenditures
in current dollars.
A bond where the use of bond proceeds is used for private purposes.
If deemed a private activity bond, the interest is not tax exempt
unless the use of the proceeds meets certain requirements of the
Internal Revenue Code.
The right to demand repayment of principal prior to a bond's
maturity. In the case of short-term variable rate debt, this right often
is referred to as a variable -rate demand option.
A procedure whereby an issuer refinances an outstanding bond
issue by issuing new bonds.
A security on which the ownership is recorded by the issuer or its
agent.
An account used to indicate that a portion of fund equity is legally
restricted for a specific purpose or not available for appropriation and
spending.
A fund established to accumulate money for a special purpose, such
as the purchase of new equipment.
21
CITY OF MOAB Debt Policy
REVENUE BOND
SECONDARY MARKET
A bond which is payable from a specific source of revenue and to
which the full faith and credit of an issuer with taxing power is not
pledged. They are payable from identified sources of revenue, and do
not permit the bondholders to compel the City to pay debt service
from any other source. Pledged revenues are derived from
the operation of an enterprise. Generally, no voter approval is
required prior to issuance.
The market in which bonds are sold after their initial sale in the new
issue market.
SENIOR LIEN BONDS Bonds having a prior or first claim on pledged revenues.
SERIAL BONDS A bond issue in which the principal is repaid periodic installments
over the issue's life.
SPECIAL ASSESSMENTS A charge imposed against property or parcel of land that receives a
special benefit by virtue of some public improvement that is not or
cannot be enjoyed by the public at large. Special assessment debt
issues are those that finance such improvements and are repaid by
the assessments charged to the benefiting property owners.
TERM BONDS
A bond issue in which the entire principal matures on one date. Term
bonds also refer to a particularly large maturity of a bond issue that
is created by aggregating a series of maturities. In the latter instance.
Provision is made for mandatory structuring fund installments in
advance of the term bond's maturity to reduce the burden of a
particular large debt service payment in any one fiscal year.
TRUE INTEREST COST (TIC) A method of calculating the overall cost of a financing that takes into
account the time value of money. The TIC is the rate of interest that
will discount all future payments so that the sum of their present
value equals the issue proceeds.
UNDERWRITER The term used broadly in the municipal market, to refer to the firm
that purchases a securities offering from a governmental issuer.
UNDERWRITER SYNDICATE The firms which collectively purchase a securities offering from a
OR GROUP governmental issuer.
UNDERWRITER'S COUNSEL An attorney engaged by the underwriter(s) to represent its interests
in a debt transaction. Underwriter's counsel prepares the bond
purchase agreement between the issuer and the underwriter and,
when appropriate, the agreement among underwriters.
VARIABLE -RATE BOND
A bond on which the interest rate is reset periodically, usually no
less often than semi-annually. The interest rate is reset either by
means of an auction or through an index.
22
CITY OF MOAB
YIELD CURVE
YIELD -TO -MATURITY
ZERO COUPON
Debt Policy
A graph that plots the market yield on securities with different
maturities, at a given point in time. The vertical axis represents the
yields, while the horizontal axis depicts the time to maturity. The
term structure of interest rates, as reflected by the yield curve, will
vary according to market conditions, resulting in a wide variety of
yield curve configurations.
The rate of return that an investor will receive if the bond remains
outstanding and the investor holds the bond to maturity. The investor
must take into account the price paid for the bonds, the dates of
purchase and maturity, and the coupon rate on the bonds. The "yield
to maturity" assumes that interest payments will be re- invested at
the same coupon rate borne by the bond.
A bond that does not pay interest periodically. Investors receive
interest on the scheduled principal maturity date of the obligation.
23