HomeMy Public PortalAboutDebt Management Policy
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CITY OF PARKVILLE, MISSOURI
Policy Title: Debt Management Policy
Policy Number: 100-05 Category: Board
Effective Date: September 16, 2014
Resolution No. 09-01-14 Updates:
INTRODUCTION
The issuance of debt is a strategy for financing major capital expenditures that otherwise might
not be achievable with pay-as-you-go financing. Determining the method and timing for
financing is subject to numerous considerations. For the purpose of this policy, debt financing
includes general obligation bonds, special assessment bonds, revenue bonds, temporary notes,
lease/purchase agreements including certificates of participation, and other City obligations
permitted to be issued or incurred under Missouri law.
The Debt Management Policy sets forth guidelines for the financing of capital expenditures. It is
the objective of the policies that (1) the City obtain financing only when necessary, (2) the
process for identifying the timing and amount of debt or other financing be as efficient as
possible, (3) the most favorable interest rate and other related costs be obtained, and (4) when
appropriate, future financial flexibility be maintained.
The cost of financing through the issuance of debt is also affected by the strength of the City’s
financial position. Bond ratings and investor’s bids are influenced by the City’s debt
management policies, as well as, the overall financial policies of the City. The City’s debt
policies are intended to encourage conservative debt management while maintaining the
flexibility to use the various financing mechanisms that are available to the City.
POLICIES
1. General Policies
a. To enhance creditworthiness and prudent financial management, the City is
committed to systematic capital planning, intergovernmental cooperation and
coordination, and long-term financial planning. Evidence of this commitment to
capital planning will be demonstrated through adoption and periodic adjustment of
the Parkville Master Plan and the annual adoption of a Capital Improvement Program
(CIP) identifying the benefits, costs, and method of funding each capital improvement
planned for the succeeding five years.
b. Long-term borrowing shall be limited to capital equipment and capital improvements
that cannot be financed from current revenues. Long-term debt shall not be used for
ongoing operating and maintenance expenditures.
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c. In general, long-term financing will only be considered under the following
circumstances:
i. When the project/equipment is included in the City’s CIP and is in conformance
with the Parkville Master Plan.
ii. When the project/equipment is not included in the City’s CIP but it is an urgent
need or it is a project/equipment mandated immediately by state or federal
requirements, or it is a desirable project/equipment for which grant money has
been offered and the matching funds are not readily available from other
sources.
iii. When the project is the result of growth-related activities within the community
that require unanticipated and unplanned infrastructure or capital
improvements by the City.
iv. When there are designated revenues sufficient to service debt, whether from
project revenues, other specified and reserved resources, or infrastructure cost
sharing revenues.
d. Any capital improvement projects or capital equipment financed through debt should
be financed for a period not to exceed the expected useful life of the project or
equipment.
e. Total debt outstanding, including overlapping debt, will be considered when planning
additional debt issuance.
f. Financing requirements will be reviewed annually. The timing for financing will be
based upon the City’s need for funds, market conditions and debt management
policies.
g. The City seeks to maintain the highest possible credit ratings for all categories of
short- and long-term general obligation and revenue debt that can be achieved
without compromising the delivery of basic City services and the achievement of
adopted City policy objectives. The City recognizes that external economic, natural,
or other events may from time to time affect the creditworthiness of its debt.
Nevertheless, the City is committed to ensuring that actions within its control are
prudent.
h. In general, the City will issue general obligation debt through a competitive bidding
process. Bids will be awarded on a true interest cost basis (TIC), provided other
bidding requirements are satisfied. Issuance of other City debt will be by competitive
bidding process or negotiated sale depending on the nature of the debt being issued.
Factors to be considered in determining the form of sale include, but are not limited
to, the complexity of the issue; the need for specialized expertise; maximizing
savings in time or money; or circumstances in which market conditions or City credit
are unusually volatile or uncertain. The underwriter(s) for a negotiated sale will be
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selected through a competitive request for proposals process that considers criteria
such as experience, capacity, expertise, and price.
i. The primary responsibility for administering this policy rests with the City
Administrator, who shall be assisted by other City staff. The primary responsibility for
adopting, and for periodically reviewing and as needed amending, this policy rests
with the Board of Aldermen upon recommendation from the Finance Committee.
2. Evaluation Criteria
The following criteria will be used to evaluate pay-as-you-go versus debt financing in
funding capital improvements and equipment:
a. Factors which favor pay-as-you-go financing include the following:
i. Current revenues and fund balances are available.
ii. Phasing-in of projects is feasible.
iii. Additional debt levels would adversely affect the City's credit rating.
iv. Market conditions are unfavorable or suggest difficulties in marketing new debt.
b. Factors which favor debt financing include the following:
i. Revenues available for debt issues are considered sufficient and reliable so
that long-term financing can be marketed with an appropriate credit rating,
which can be maintained;
ii. Market conditions present favorable interest rates and demand for City debt
financing.
iii. A project is mandated by state or federal government and current revenues or
fund balances are insufficient to pay project costs.
iv. A project is immediately required to meet or relieve capacity needs.
v. The life of the project or asset financed is five years or longer.
vi. The life of the project or asset is less than five years, but short-term financing
that does not exceed the useful life of the project or asset is feasible.
vii. Cost savings can be achieved by completing improvements as a single large
project rather than as a multi-year series of pay-as-you-go smaller projects.
c. The City shall use an objective analytical approach to determine whether it can afford
to assume new general obligation bonds beyond what it retires each year. Generally
this process will evaluate debt levels compared to key demographic data such as
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debt per capita, debt as a percentage of taxable value, debt service payments as a
percent of current revenues and expenditures, and the overlapping debt of all local
taxing jurisdictions. The process shall also examine the direct costs and benefits of
any proposed expenditures.
d. For eligible projects, the City should consider a Fewson Fund loan as an alternative
to traditional debt financing in order to eliminate or reduce financing costs. Fewson
Fund loans should be evaluated based on the criteria outlined in the Fewson Fund
Policy, adopted by Resolution No. 12-01-13.
e. For the City to issue new revenue bonds, projected annual revenues shall exceed
projected debt payments to a level that will ensure prudent coverage provisions
based on type of revenues and market conditions.
f. The City shall exercise caution with the issuance of tax increment financing bonds,
special assessment bonds, or other debt instruments for economic development
purposes. In general, the following conditions will apply:
i. Economic development debt financing will only be considered for public
improvements that accommodate growth and development with a direct
economic impact.
ii. The City should avoid use of debt financing for speculative projects.
iii. The applicant must demonstrate that future city property and/or sales taxes will
equal or exceed the value of the debt financing incentive during the term of
debt issue. The City reserves the right to perform an independent cost-benefit
analysis, at the applicant’s cost, to verify (1) the project’s return on investment
for the City and (2) feasibility and capacity of the development to generate
revenues adequate to cover annual debt service.
iv. The applicant must receive approval for a preliminary or final development plan
before or in conjunction with the Board of Aldermen’s consideration of
economic development debt financing. The City desires to confirm that the
proposed development is consistent with the Parkville Master Plan and all
applicable development standards and regulations before conferring economic
development incentives.
v. The applicant may be required to enter into a development agreement with the
City as a condition of debt financing. The development agreement will address
the standards and conditions unique to each project such as, but not limited to,
collateral to secure the City’s debt financing risk and milestones that must be
met by the applicant before debt is issued.
3. Administration and Financing
a. All payments of general obligation bonds and revenue bonds shall be from a
segregated debt service fund established for that purpose. The fund balance plus
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anticipated revenues will be maintained at a level equal to or greater than the total
principal and interest payable from that Fund for the upcoming semi-annual debt
service payment.
b. All general obligation and revenue bond proceeds shall be invested separate from
the City’s consolidated cash pool unless otherwise specified by the bond legislation.
Investments will be consistent with those authorized by state law and the City’s
applicable investment policies in order to maintain safety and liquidity of the funds.
c. The City will retain external bond counsel for all debt issues. All debt issued by the
City will include a written opinion by bond counsel affirming that the City is authorized
to issue the debt, stating that the City has met all State constitutional and statutory
requirements necessary for issuance, and determining the debt’s federal income tax
status. The bond counsel retained must have comprehensive municipal debt
experience and a thorough understanding of Missouri law as it relates to the
issuance of municipal debt.
d. The City will retain an external independent financial advisor to be selected through a
competitive request for proposals process. The financial advisor shall not have a
relationship with any underwriters. The major criteria in the selection process for a
financial advisor will be comprehensive municipal debt experience, experience with
diverse financial structuring and pricing of municipal securities, as well as overall
cost of services.
4. Debt Limitations
a. Debt will be structured to achieve the lowest possible net cost to the City given
market conditions, the urgency of the capital project, the type of debt being issued,
and the nature and type of repayment source. Moreover, to the extent possible, the
City will design the repayment of its overall debt so as to rapidly recapture its debt
capacity for future use.
b. The Missouri Constitution permits a city, by vote of two-thirds of the voting electorate,
to incur general obligation indebtedness for city purposes not to exceed 10% of the
assessed value of taxable tangible property. The City may issue additional debt not
to exceed 10% of assessed valuation (20% total) for street and sewer improvements,
or purchasing or constructing water or electric utility plants. The City’s total general
obligation indebtedness should not exceed 80% of the limit prescribed by State law.
c. The City does not have a prescribed limit for per capita general obligation bond
principal. In evaluating opportunities to issue debt, the City will maintain per capita
debt levels at rates reflective of infrastructure needs, population growth, bond rating
standards, and other relevant factors.
d. The City will not issue short term tax anticipation debt.
5. Refunding of Debt
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a. Periodic reviews of all outstanding debts will be undertaken to determine refunding
opportunities. Refunding will be considered (within federal tax law constraints) if and
when there is a net economic benefit of the refunding or the refunding is essential in
order to modernize covenants essential to operations and management.
b. City staff and the financial advisor shall monitor the municipal bond market for
opportunities to obtain interest cost savings by refunding outstanding debt. As a
general rule, current refundings will be undertaken only if there is a present value
savings, and advanced refundings will be undertaken only if the present value
savings, after refinancing costs, exceed 3% of the refunded debt service.
c. Refunding issues that produce net present value savings of less than the targeted
amount may be considered on a case-by-case basis. Refunding issues with
negative savings will not be considered unless there is a compelling public policy
objective.
6. Conduit Financings
a. The City may sponsor conduit financings in the form of Chapter 100 Industrial
Revenue Bonds for those economic activities that have a general public purpose and
are consistent with the City’s overall service and policy objectives as determined by
the Board of Aldermen. All conduit financings must insulate the City completely from
any credit risk or exposure and must first be approved by the Finance Committee
before being submitted to the Board of Aldermen for consideration. The City will
retain the right to approve the underwriter and bond counsel, require compliance with
disclosure and arbitrage requirements, and establish minimum ratings or credit
worthiness acceptable for conduit debt. Credit enhancements, such as insurance or
letters of credit, may be required for certain issues.
7. Post Issue Management
a. The City will establish procedures for ensuring the City is compliant with tax-exempt
financing rules and regulations.
b. Federal arbitrage legislation is intended to discourage governmental entities from
issuing tax-exempt obligations unnecessarily. In compliance with the spirit of this
legislation, the City will issue obligations only when it appears the proceeds will be
utilized in a timely fashion. Because of the complexity of arbitrage regulations and
the severity of non-compliance penalties, the City will engage outside consultants
when arbitrage related questions arise and to calculate potential arbitrage liability.
c. The City is committed to meeting secondary disclosure requirements on a timely and
comprehensive basis. The City is committed to full and complete primary and
secondary financial disclosure and to cooperating fully with rating agencies,
institutional and individual investors, City departments and agencies, other levels of
government, and the general public to share clear, comprehensible, and accurate
financial information.
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d. Official statements accompanying debt issues, audited financial statements, and
continuing disclosure statements will meet (at a minimum), the standards articulated
by the Government Accounting Standards Board (GASB), the National Federation of
Municipal Analysts, the Securities and Exchange Commission (SEC), and Generally
Accepted Accounting principles (GAAP).
e. The City shall take care to stay in compliance with all continuing disclosure
agreements entered into in connection with issuance of debt. The City should
thoroughly understand its obligations to gather and keep current the required
information. The City will post the year-end financial report along with any other
required information to the Electronic Municipal Market Access (EMMA) site
maintained by the Municipal Securities Rulemaking Board (MSRB) within the time
agreed to in the disclosure agreement. If a material event occurs as identified by the
agreement, the City will file a notice to EMMA within 10 business days.