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Home My WebLink About173-02 RESOLUTIONi RESOLUTION NO. 173-02 A RESOLUTION TO APPROVE THE CITY OF FAYETTEVILLE DEBT MANAGEMENT POLICY BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF FAYETTEVILLE, ARKANSAS: Section 1. That the City Council of the City of Fayetteville, Arkansas hereby approves the City of Fayetteville Debt Management Policy attached as Exhibit "A". PASSED and APPROVED this the 5th day of November, 2002. APPROVED: By: ATTEST: By: eather Woodruff, City C NAME OF FILE: CROSS REFERENCE. Item # Date Resolution No.173-02 Document 1 1 11/05/02 Resolution # 173-02 2 10/11/02 Debt Management Policy 3 11/05/02 Staff review form 4 12/05/02 Memo from Heather Woodruff, City Clerk to Marsha Farthing NOTES: 1 • • EXHIBIT A CITY OF FAYETTEVILLE, ARKANSAS DEBT MANAGEMENT POLICY OCTOBER 11, 2002 PURPOSE The Debt Management Policy set forth is to provide guidelines for the timing and structuring of the issuance of debt for capital and infrastructure improvements while minimizing the impact of the debt on current revenues. The primary objective of this policy is to establish conditions for the use of debt to minimize the City's debt service and issuance costs, retain the highest possible credit rating, and to ensure full debt financial disclosure and reporting. DEBT MANAGEMENT COMMITTEE This policy establishes a Debt Management Committee. The committee shall be comprised of the Mayor, the Administrative Services Director, the Budget Manager, the Accounting Manager, and one other Department Director. The responsibilities of the committee shall be to: Meet annually to consider the need for debt financing and as needed for special debt issue assessments. 2. To review the provisions of ordinances authorizing the issuance of debt obligations and to meet as necessary in preparation for a financing. 3. To review changes in state and federal legislation pertaining to debt financings and to make recommendations to update the debt policy as needed. To serve on the selection committee for the financial advisor, the bond counsel and for underwriting services. GENERAL/LONG TERM DEBT POLICY The City shall consider issuance of debt obligations such as general obligation bonds, revenue bonds, and special assessment bonds using the following general guidelines. 1. In general, the City will rely on a "pay-as-you-go" program using internally generated funds, grants, or contributions to finance its capital projects. Long- term general obligation or revenue bonds may be issued to finance significant capital improvements. Issuing general obligation bonds requires voter authorization. Revenue bonds may be issued in response to public need without voter authorization. Debt shall be issued for a capital project only if there is an immediate need to meet or relieve capacity needs, to achieve a fair allocation of costs between current and future beneficiaries or users, or in the case of an emergency. 2. A resolution of intent to issue bonds authorizing staff to proceed with preparations shall be presented for the consideration of the City Council when the capital budget is presented. 3. The capital project requiring debt financing, to the extent applicable, should be included in the City's five-year capital improvement program and the project must have a projected life that will be equal to or exceed the term of the financing. Modifications to the capital improvement plan that include the issuance of debt shall be submitted to the City Council for approval after the Council has received a report of the impact of the contemplated borrowing on the existing capital improvement plan. 4. The General Fund and Street Fund supported debt service shall not exceed 10% of annual general revenues and road tax revenues and the principle amount of General Fund and Street Fund supported debt shall not exceed 5 % of the assessed value of taxable property in the city, except under catastrophic or emergency conditions. 5. The project shall have designated revenues sufficient to service the debt. 6. Trends in interest rates are favorable for debt financing. 7. A capital project or combination of projects, requiring debt financing of $5,000,000 or more in any given year, shall be sufficiently planned to meet the two year spend down requirement under arbitrage legislation with exception to complex projects that cannot be completed within two years 8. Long-term debt financing is not considered appropriate for any recurring purpose such as current operating and maintenance expenditures. 9. Outstanding short-term debt and Amendment 78 debt obligations combined shall not exceed 5% of the City's taxable real property. SHORT-TERM DEBT Short-term debt that is expected to be repaid in less than twelve months can include tax anticipation notes, revenue anticipation notes, tax and revenue anticipation notes, bond anticipation notes, and grant anticipation notes. The City shall consider issuance of short-term debt obligations using these additional guidelines. 1. Interim short-term financing may be appropriate for projects when interest rates are expected to decline in the future and the City intends to refund the debt and replace it with long-term financing. 2. When the amount of financing required in the immediate future is relatively small it may be more cost efficient to issue short-term debt. 3. Funding sources for repayment of short-term debt, such as a pledge of tax or revenues, shall be identified. CAPITAL LEASES • The City shall consider entering into capital leases using these additional guidelines. 1. The cost to the City will generally be higher in a lease purchase agreement than purchasing the asset outright. The City will evaluate the usage of capital leases on a case by case basis and will go forward when the analysis is demonstrably favorable to the City. 2. If a capital lease option is approved, a tax exempt rate shall be sought. The City shall seek to obtain at least three competitive proposals for any major lease financing. The purchase price of the equipment shall be competitively bid as well as the financing costs. The net present value of the competitive bids shall be compared, taking into account whether payments are made in advance or in arrears, and how frequently payments are made. 3. Repayment of the lease/purchase obligation shall occur over a period not to exceed the useful life of the asset or in any case longer than 5 years. 4. Interest rates in the lease/purchase agreement will not exceed those allowable by state law. 5. The advice of the City's bond counsel and/or a financial advisor shall be obtained in any leasing arrangement. DEBT REFUNDING The City shall consider refunding debt when there is a potential for net present value savings of generally at least 3% of the principal being refunded or when the refunding is essential to modernize covenants or for reasons essential to the efficient operations and management of the City. BOND COUNSEL The City shall contract with Bond Counsel through the request for qualifications process. The City will seek advice on all financings and on questions involving tax or arbitrage law. The City's Bond Counsel is responsible for preparing the ordinance authorizing the issuance of the obligations and various closing documents to complete the sale. The Bond Counsel will issue an opinion as to the legality and the tax exempt status of the obligations. The selection of bond counsel may relate to an individual or a series of financings or for a specific period of time. FINANCIAL ADVISOR The City shall contract with a Financial Advisor through the request for proposal process as deemed necessary. The Financial Advisor will advise the City on the structuring of the obligations, inform the City of various options and how the City's choices will impact the marketability of the City's obligations, and perform other duties as defined by contract approved by City Counsel. To ensure independence, the Financial Advisor shall not concurrently serve as financial advisor and underwriter on the same City debt issue. UNDERWRITER The City shall solicit proposals for underwriting services as needed for debt issuance. The selection of underwriters may relate to an individual or a series of financings or for a specific period of time. COUNCIL AUTHORIZATION All debt issues will be authorized by the City Council prior to issuance. CREDIT RATING The City seeks to maintain the highest possible credit ratings that can be achieved for all categories of debt, without compromising basic City services. New debt should be issued in a prudent manner to maintain the credit worthiness of the City. FINANCIAL DISCLOSURE The City is committed to producing clear and accurate financial information on a timely basis to ensure full and complete financial disclosure to rating agencies, institutional and individual investors, City departments, other agencies and governments, and to the general public. X AGENDA REQUEST CONTRACT REVIEW GRANT REVIEW • STAFF REVIEW FORM For the Fayetteville City Council Meeting cf: November5,2002 FROM: Marsha Farthing Name Accounting and Audit Administrative Services Division Department Staff is seeking Council approval of a City of Fayetteville Debt Management Policy. COST TO CITY: No costs $ Cost of this request Account Number Project Number Category/Project Budget. Program Category / Project Name Funds Used to Date Program / Project Category Name Remaining Balance Fund Name BUDGET REVIEW: /Budget Manager Budgeted Item Budget Adjustment Attached /b _j7'0 Z--- pate _Date Administrative Services Director Date CONTRACT/GRANT/LEASE REVIEW: Accounting Managpa City Attorney vv - Purchasing Manager ;0/117/62- 7)/n LA /011/7/oa— i Date Internal A itor Date /J/0toZ Date ADA Coordinator Date 10(IS IbY Date Grant Coordinator Date STAFF RECOMMENDATION: Cross Reference Division Head Date Department Director tive Services Director New Item: Yes No Date Previous Ord/Res#: ('D/2/�O?i Orig. Contract Date Da e Orig. Contract Number May Description �taff Review Form - Page 2 • Meeting Date November 5, 2002 Comments: Reference Comments: Budget Manager Accounting Manager City Attorney Purchasing Manager ADA Coordinator Internal Auditor Grants Coordinator FAYETTEVILLE THE CITY OF FAYETTEVILLE, ARKANSAS DEPARTMENTAL CORRESPONDENCE • To: Dan Coody, Mayor and all Department Directors Thru: Steve Davis, Administrative Services Director f(, From: Marsha Farthing, Accounting Manager Date: October 11, 2002 Subject: Debt Policy The City of Fayetteville has never formally adopted a Debt Management Policy. A formal debt policy will help provide a foundation for a well-managed debt program The policy should help guide officials and staff through difficult decisions and promote achievement of the City's financial objectives. The draft of a debt policy for the City is being submitted for your review and comments. After the policy has been reviewed and approved by the Mayor and Department Directors, it will be submitted to the City Council for their approval, hopefully by the Nov. 5th agenda. Please return your comments by Friday October 18th. Thank you for your help. FAYETTEVIe.E THE CITY OF FAYETTEVILLE. ARKANSAS DEPARTMENTAL CORRESPONDENCE To: Marsha Farthing From: Heather Woodruff, City Clerk Date: December 5, 2002 Attached is a copy of Resolution # 173-02 to approve the City of Fayetteville debt management policy. The original will be microfilmed and filed with the City Clerk. cc: Nancy Smith, Internal Auditor