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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 0 8ARF9N T m U O ORIGINAL 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" o``eAKF9� T F v o ORIGINAL 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 r oOAXF9 U O ORIGINAL • 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 of 0A F9N 2 ' m � o ORIGINAL • 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. 3 o�gAKF9Nl m v 0 ORICINAI 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. 4 o�gAKF9� T I m U O ORIGINAL 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. 5 �gAXF9 o T ti m � o ORIGINAL 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. 6 o gAHF,9m -� � m U O ORIGINAL 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. 0 0AKF9� 7 T U O ORIGINAL 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. 8 F0ATF9 o st U p ORIGINAL 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 F6A F9 9 O T m U G aRIQ NAL 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. 6AKF 10 pF 9N M U p ORIGINAL