HomeMy WebLinkAboutRES NO 110-17RESOLUTION NO. 1 10— 17
A RESOLUTION OF THE BAKERSFFIELD
CITY COUNCIL ADOPTING A
DEBT MANAGEMENT POLICY
WHEREAS, Section 8855 of the California Government Code established
reporting requirement for local government agencies that issue debt; and
WHEREAS, Senate Bill 1029 amended Section 8855 requiring, among
other things, a written debt management policy concerning the use of debt
and that all proposed debt issuances are consistent with this policy; and
WHEREAS, the City of Bakersfield desires to adopt a Debt Management
Policy to conform with the California Government Code.
NOW THEREFORE, BE IT RESOLVED by the Council of the City of
Bakersfield as follows:
The Council of the City of Bakersfield hereby adopts the Debt Management
Policy as set forth in Exhibit "A" attached hereto and part hereof.
HEREBY CERTIFY that the foregoing Resolution was passed and
adopted by the Council of the City of Bakersfield at a regular meeting thereof
held
L�AYE-G�'�j On AU61 6 2017 by the following vote:
COUNCILMEMBER R RIV RA, GON ALES, X610 -W FREEMAN, SULLIVAN. PARLIER
NOES: COUNCILMEMBE
ABSiAI COUNCILMEMBER N
K5 COUNCILMEMBER �Mt
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CITY CLERK and E) ffcio Clerk of the
Council of the City of Bakersfield
AUG 16 2011
APPROVED
By
KAREN GOH
MAYOR
APPROVED as to form:
VIRGINIA GENNARO
City Attorney
t LI H. RUDNICK
ty City Attorney
Attachment
Exhibit "A"
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CITY OF BAKERSFIELD
DEBT MANAGEMENT POLICY
INTRODUCTION
The City of Bakersfield's (the "City ") Debt Management Policy (this "Policy ")
establishes objectives and guidelines for the issuance and administration of debt
and other financing obligations of the City and related entities for which the
governing body consists of the some individuals as the City Council (including,
but not limited to, the Successor Agency of the Bakersfield Redevelopment
Agency and the Bakersfield Public Benefit Corporation). As in this Policy, "City"
shall mean the City and /or the City and its related entities, as context may
require.
This Policy is intended to improve the quality of decisions, provide justification for
the structure of debt issuance, identify policy goals and demonstrate a
commitment to long -term financial planning, including a multi -year capital plan.
Adherence to a debt management policy signals to rating agencies and the
capital markets that a government is well managed and should meet its
obligations in a timely manner.
The guidelines established by this Policy will govern the issuance and
management of all debt incurred for long -term capital financing needs and not
for general operating functions. The Finance Department recognizes that
changes in the capital markets and other unforeseen circumstances may
require action which may deviate from this Policy. In cases which require
exceptions to this Policy, approval from the City Council will be necessary for
implementation.
II. GOALS AND OBJECTIVES
This section of this Policy sets forth certain equally important goals and
objectives for the City and establishes overall parameters for responsibly issuing
and administering the City's debt. Additionally, this Policy is intended to
facilitate compliance by the City, and is consistent with, Section 8855(i) of the
California Government Code as amended by SB 1029 ( "SB1029 "), enacted by
Statutes of 2016.
• To finance capital projects in a timely and cost - effective manner
• To minimize debt service and issuance costs
• To maintain access to cost - effective borrowing
• To achieve and maintain the highest reasonable credit rating
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• To allow for full and timely repayment of debt
• To maintain compliance with financial disclosure and reporting
undertakings
• To ensure compliance with state and federal laws
• Insure integrity of the debt management process
III. DELEGATION OF AUTHORITY
Pursuant to the provisions of Sections 37209 and 40805.5 of the Government
Code of the State of California, the Finance Director shall be the head of the
Finance Department and shall be responsible for all of the financial affairs of the
City. This Policy grants the Finance Director the authority to select the debt
financing team ( "Financing Team "), coordinate the administration and issuance
of debt, communicate with the rating agencies, as well as to fulfill all the pre -
issuance and post- issuance disclosure information.
The Finance Director or designee will use the Request for Proposal (RFP) process
to select various Financing Team members. Below is a brief description of the
main Financing Team, along with their functions, and the mandated frequency
of soliciting RFPs.
The typical Financing Team consists of:
1. Financial Advisor -
• Assists with capital planning and long -term financial planning
• Coordinates the financing and debt issuance process
• Helps evaluate underwriter proposals and provides financial analysis and
recommendations
• Assists with the securing of other professional services and other members
of the Financing Team
• Monitors and evaluates market conditions for opportunities to issue debt
at low interest rates
• Works with the City and underwriter to develop investor outreach and
market approach
• Manages competitive bid process
• Ensures negotiated prices are "fair" and reasonable in the marketplace
Requests for Proposals for financial advisor services should be done on a
periodic basis; at least every ten (10) years, but may be subject to review more
often if deemed necessary.
2. Bond Counsel -
• Prepare an approving legal opinion
• Provide expert and objective legal opinion and advice
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• Prepare and review documents necessary to authorize the, issue, sale and
delivery of the bonds, as well as coordination of the authorization and
execution of closing documents
• Review legal issues relating to the structure of the bond issue
• Prepare election proceedings or pursue validation proceedings if
necessary
• Review or prepare those sections of the official statement that relate to
the bonds, financing documents, bond counsel opinion, and tax
exemption
• Assist the City in presenting information to bond rating organizations and
credit enhancement providers relating to legal issues affecting the
issuance of the bonds
• Review or prepare the notice of sale or bond purchase contract for the
bonds and review or draft the continuing disclosure undertaking of the
City
• Post- issuance advice for bond covenant compliance
Requests for Proposals for bond counsel services should be done in co-
ordination with the City Attorney on a periodic basis; at least every ten (10)
years, but may be subject to review more often if deemed necessary.
3. Disclosure Counsel -
Prepare the 1 Ob -5 opinion certificates and letter
Prepare, review, and maintain drafts of preliminary and final official
statements
Assist with filings made with the Municipal Securities Rulemaking Board's
(MSRB) Electronic Municipal Market Access (EMMA) website and other
websites
Requests for Proposals for disclosure counsel services should be done in co-
ordination with the City Attorney on a periodic basis; at least every ten (10)
years, but may be subject to review more often if deemed necessary.
4. Underwriter -
• Provide the City with market knowledge
• Assist with credit analysis and preparation
• Premarketing of the bonds
• Pricing and sale of bonds
• Trading of the bonds
Underwriter services should be solicited through a Request for Proposal
(RFP) for every bond issue, or by developing a pool of pre - qualified underwriters
from which to select.
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5. Placement Agent -
• Provide the City with market knowledge
• Assist with credit analysis and preparation
• Premarketing of the bonds
• Pricing and Sale of bonds
• Trading of the bonds
Placement agent services should be solicited through a Request for Proposal
(RFP) for every bond issue, or by developing a pool of pre - qualified placement
agents from which to select.
6. Trustee /Fiscal Agent /Paying Agent -
• Establishes and holds the funds and accounts relating to the bond issue
• Maintains the list of names and addresses of all registered owners of the
bonds and recordings of transfers and exchanges of the bonds
• Acts as the authenticating agent
• Acts as the paying agent
• Protects the interests of the bondholders by monitoring compliance with
covenants and acts on behalf of the bondholders in the event of default
• As the escrow agent, holds the proceeds from a refunding bond issue
(either money or securities purchased with such bond proceeds) and uses
such funds for the payments of debt service on the refunded bonds
• As a dissemination agent, acts on behalf of the issuer or other obligated
person to disseminate annual reports and event notices to repositories
under Securities and Exchange Commission Rule 15(c)2 -12
RFPs for trustee /fiscal agent /paying agent services should be done on a
periodic basis if the recurring trustee /fiscal agent /paying agent fees increase
excessively (in excess of the prevailing Los Angeles- Riverside- Orange County
inflation rate).
IV. TYPES OF DEBT
The Finance Director with the assistance of a financial advisor will examine and
evaluate all available alternatives for new issues and make a recommendation
to the City Manager and the City Council. Factors that should be considered
include: 1) Is the issuing option appropriate under existing laws? 2) Are there
formal policies with respect to the method of sale? 3) Does the nature of the
proposed offering suggest that one method of marketing is more efficient than
another? And, 4) Have the City's past issuance practices yielded acceptable
results? Only after review and acceptance by the City Manager, will the
proposed new debt issuance be presented to the City Council for review and
consent.
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The following are the types of debt the City could issue
1. New Money Bonds
New money bonds are bonds issued to finance the cost of capital improvement
projects or other large and extraordinary costs as approved by the City Council.
2. Refunding Bonds
Refunding bonds are bonds issued to refinance (refund) previously issued
outstanding debt. The City may issue refunding bonds to refinance the principal
of and interest on outstanding bonds or other debt to achieve debt service
savings, restructure scheduled debt service, convert from or to a variable or
fixed interest rate, change or modify the source(s) of payment and security for
the refunded debt, or modify covenants otherwise binding upon the City.
Refunding bonds may be issued either on a current or advance basis.
3. Revenue Bonds
Revenue Bonds are generally issued by enterprise funds that are financially self -
sustaining without the use of taxes and therefore rely on the revenues collected
by the enterprise fund to repay the debt.
4. Fixed Interest Rate vs. Variable Interest Rate Debt
Fixed interest rate debt is typically preferred to maintain a more predictable
debt service burden. Variable interest rate debt can be utilized on a limited
basis when the potential advantages of capturing the lowest interest rates
available in the current market outweigh the forecasted risks.
5. Variable Rate Debt Obligation (VRDO)
Predetermined intervals are set where the rate can be reset to current market
conditions. VRDO's with a long maturity can be priced as short -term instruments
making it potentially a less costly option in a normal upward sloping yield curve
environment.
6. Assessment Bonds
The Improvement Bond Act of 1915 (Streets and Highways Code Section 8500 et
seq.) allows the City to issue bonds to finance the "specific benefit"
improvements on the real property within its jurisdiction provided by the City.
Installments are collected by posting to the secure property tax roll of the
county.
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7. General Obligation Bonds
In California, General Obligation ( "GO ") bonds require a supermajority voter
approval. Most GO bonds are backed by the issuer's ability to level ad valorem
tax in amounts sufficient to meet debt service requirements.
8. Certificate of Participation
Also known as a "COP ", this type of debt may take one of two forms:
a) Installment Sale Agreement- this is where specific revenue is pledged to
construct certain public improvements where there is often a direct
relationship or "nexus" between the revenues pledged and the type of
improvements to be constructed. The installment payments are often
assigned to a third party that issues certificates of participation. The
certificates represent a share of the installment payment to be received
by the investor.
b) Abatement Lease Agreement - this is where a City makes available
certain unencumbered City assets as security for the debt through a lease
purchase transaction, the interest in that City's lease payment often is
assigned to a third party that issues certificates of participation. The
certificates represent a share of the lease payment to be received by the
investor.
4. Capital Leases
Capital leases may be used to purchase buildings, equipment, furniture, fixtures
and intangible assets (such as water rights). The term of any capital lease will not
exceed the useful life of the asset leased.
10. State Water Resources Control Board Loans
The State of California's Division of Financial Assistance (DFA) administers the
implementation of the State Water Resources Control Board's (State Water
Board) financial assistance programs that include below market financing for
construction of municipal sewage and water recycling facilities, remediation for
underground storage tank releases, watershed protection projects, nonpoint
source pollution control projects, etc.
11. Bond Anticipation Notes and Grant Anticipation Notes
Bond Anticipation Notes ( "BANs ") are short -term debt instruments that will be
repaid with proceeds of an upcoming bond issue. Grant Anticipation Notes
( "GANs ") are short -term instruments that will be repaid from expected future
Federal or State grants accepted by the City. Issuance of BANs and GANs
should not occur in amounts or result in amortization that would result in the
failure by the City of its ability to satisfy its rate covenants and the debt
coverage goals contained in this Policy.
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12. Commercial Paper
Commercial Paper is a short -term obligation with maturities ranging from 1 to
270 days. The payment when due of principal and interest on each series of
Commercial Paper notes also is secured by separate irrevocable, direct -pay
letters of credit. The City may refinance, refund or purchase outstanding
Commercial Paper by issuing new Commercial Paper, by issuing bonds, or by
using available City funds.
Any outstanding Commercial Paper anticipated to be paid off and not reissued
within the current fiscal year shall be excluded from any calculations of variable
rate exposure for internal debt management purposes.
The City may issue Commercial Paper as sources of interim financing for capital
projects. Before issuing such Commercial Paper notes, the take out of such
Commercial Paper must be anticipated in the financing plan and determined
to be feasible and advantageous by the City.
V. PURPOSE OF DEBT
Long -term Debt
Long -term debt may be used to finance purchases or improvement of land,
infrastructure, facilities, or equipment when it is appropriate to spread these
costs over more than one budget year. Long -term debt may also be used to
fund capitalized interest, costs of issuance, required reserve, and any other
financing related costs which may be legally capitalized. Long -term debt may
not be used to fund City operating costs.
Short -term Debt
Short -term debt, such as notes, commercial paper, and lines of credit will be
studied as an interim source of funding in anticipation of long term borrowing.
Short -term debt may be issued for the some purpose as long -term debt. In
addition, short -term debt borrowing may be considered to address justifiable
cash flow requirements to meet short -term operating needs to provide
necessary public services, subject to applicable restrictions in California Law.
Refunding
Periodic reviews of existing debt will be undertaken to identify refunding
opportunities. Refunding will be considered (within State law and Federal tax
law provisions) if and when there is a net benefit of refunding. Non - economic
refunding may be considered to achieve City goals relating to changes in
covenants, call provisions, operational flexibility, tax status, or the debt service
profile. The City may purchase its bonds in the open market for the purpose of
retiring the obligation when the purchase is cost effective.
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VI. MANNER OF SALE
There are a number of market factors that will affect the success of a bond
offering and each should be carefully considered before selecting a method of
sale. These factors include but are not limited to, the following: 1) market
perception of the City's credit quality, 2) interest rate volatility, 3) size of the
proposed sale, 4) complexity of the proposed issue, and 5) completion with
other issuers for investor interest (bond supply).
Competitive Sales of Bonds
The terms and prices of the bonds will be negotiated by the City and various
underwriters through a bidding process amongst approved, impartial
underwriters and /or underwriting syndicates. Both the City and the underwriter
collaborate in the origination and pricing of the bond issue. The issue is awarded
to the underwriter judged to have submitted the best bid that offers the lowest
interest rate, taking into account underwriting spread, interest rates and any
discounts or premiums.
Negotiated Sale of Bonds
A method of sale for bonds, notes, or other financing vehicles in which the City
selects in advance, on the basis of proposals received or by other means, one
or more underwriters to work with it in structuring, marketing and finally offering
an issue to investors. The negotiated sale method is often used when the issue is:
a first time sale by a particular issuer (a new credit), a complex security structure,
such as a variable rate transaction, an unusually large issue, or in a highly
volatile or congested market.
Direct or Private Placement
A direct or private placement is a variation of a negotiated sale in which the
City, usually with the help of a financial advisor, will attempt to place the entire
new issue directly with an investor. The investor will negotiate the specific terms
and conditions of the financing before agreeing to purchase the issue. Direct or
private placements are generally undertaken because the transaction is
complex or unique, requiring direct negotiations with the investor, when market
conditions indicate that this type of sale may result in a lower interest rate on the
debt, or because the issue is small and a direct offering provides economies of
scale.
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VII. DERIVATIVE PRODUCTS
Because of their complexity, unless otherwise amended, derivative products
such as interest rate swaps, inverse floaters, and other hybrid securities are
prohibited by this Policy.
VIII. PERFORMANCE STANDARDS
The City strives to maintain 'investment grade' ratings in the municipal market.
Ratings assigned by a nationally recognized statistical rating organization of
"BBB" (or equivalent) of higher are considered investment grade (without regard
to numerical or " +" or " -" modifiers within the BBB category).
IX. MARKET RELATIONSHIPS
The Finance Director will be responsible for maintaining relationships with
investors, credit analysts, and rating agencies.
X. ON -GOING DEBT ADMINISTRATION
The Finance Director will regularly review the City's outstanding obligations,
particularly in declining interest rate environments. When rates begin to
approach levels at which refunding is cost - effective, the City shall select a
financing team to begin preparations for a refunding issue.
Continuing Disclosure
The Finance staff will ensure that the City's annual financial statements and
associated reports are posted on the City's web site. The City will also contract
with Consultant(s) to comply with the Securities and Exchange Commission Rule
15(c)2 -12 by filing its annual financial statements, other financial and operating
data and certain enumerated event notices for the benefit of its bondholders
on the Electronic Municipal Market Access (EMMA) website of the Municipal
Securities Rulemaking Board (MSRB).
Arbitrage Rebate Compliance and Reporting
The use and investment of bond proceeds must be monitored to ensure
compliance with arbitrage restrictions. Existing regulations require that issuers
calculate rebate liabilities related to any bond issues, with rebates paid to the
Federal Government every five years and as otherwise required by applicable
provisions of the Internal Revenue Code and regulations. The Finance Director
shall contract with a specialist to ensure that proceeds and investments are
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tracked in a manner that facilitates accurate, complete calculations, and if
necessary, timely rebate payments.
XI. INTERNAL CONTROL PROCEDURES REGARDING USE OF DEBT PROCEEDS
One of the City's priorities in the management of the debt is to insure that the
proceeds will be directed to the intended use for which the debt has been
issued. In furtherance of this requirement, the following procedures have been
established:
1. The Finance Director shall retain a copy of each annual report filed with the
California Debt and Investment Advisory Commission (CDIAC) pursuant to
the Section 8855(k) of California Government Code concerning (1) debt
authorized during the applicable reporting period (whether issued or not), (2)
debt outstanding during the reporting period, and (3) the use during the
reporting period of proceeds of debt issued.
2. In connection with the preparation of each annual report to be filed with the
CDIAC, the Finance Director or his /her designee shall keep a record of the
original intended use of which the debt has been issued, and indicate
whether the proceeds spent during the applicable one -year reporting period
for such annual report align with the intended use (at the time of the original
issuance or as modified pursuant to the following sentence). This
determination of whether proceeds were used as intended will be based on
the review of the trustee account statements to verify proper distributions. If a
change in the intended use has been authorized subsequent to the original
issuance of the debt, the Finance Director shall indicate in the record when
the change in use was authorized and whether the City Council has
authorized the change in intended use. The Finance Director shall report any
apparent deviation from the intended use in debt proceeds to the City
Manager for further discussion, and if the City Manager determines
appropriate in consult with the City Attorney, to the City Council.
3. If debt has been issued to finance a capital project and the project timeline
or scope of the project has changed in a way that all or a portion of the
debt proceeds cannot be expended on the original project, the Finance
Director shall consult with the City Manager and the City Attorney as to
available alternatives for the expenditure of the remaining debt proceeds
(including prepayment of the debt). If deemed advisable after such
consultation, direction of the City Council may be sought as an alternative
for the expenditure or use of such remaining debt proceeds.
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