HomeMy WebLinkAboutRES NO 110-17(1)RESOLUTION NO. ,1 10 - 170
AMENDMENT NO. 1 TO RESOLUTION NO. 110-17
ADOPTING A DEBT MANAGEMENT POLICY (COUNCIL
POLICY 4.19).
WHEREAS, the Council of the City of Bakersfield adopted Resolution No. 58-
96 thereby adopting a City Council Policy and Procedural Manual ("Manual"
herein); and
WHEREAS, Manual serves as a guideline to govern the actions, conduct and
business of the City of Bakersfield and its City Council; and
WHEREAS, certain policies and procedures of Manual have become
antiquated and require either clarification, updating, or repeal; and
WHEREAS, City Council directed City Attorney to update Chapter Four of
Manual.
NOW, THEREFORE, BE IT RESOLVED by the Council of the City of Bakersfield
as follows:
1. The above recitals are true and correct and incorporated herein by
reference.
2. Resolution No. 110-17 re: DEBT MANAGEMENT POLICY is hereby
amended with an updated Exhibit "A."
3. This Resolution shall become effective and in full force upon final
passage.
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Page 1 of 2 Pages
Resolution Amending Section 4.19 Resolution No. 110-17
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ORIGINAL
HEREBY CERTIFY that the foregoing Resolution was passed and adopted
by the Council of the City of Bakersfield at a regular meeting thereof held on
, by the following vote:
YFS� COUNCILMEMBER, ARIAS, GONZALES, WEIR, SMITH, FREEMAN, GRAY, PARL ER
NOES: COUNCILMEMBER NV -Q -
ABSTAIN: COUNCILMEMBER "Vrle-
ABSENT: COUNCILMEMBER NOCNA-
J LIE DRIMAKIS, CMC
CITY CLERK and EX OFFICIO CLERK of
the Council of the City of Bakersfield
APPROVED MAR 1 1 1011
NX A'.A p-1 Al
By
KA EN GOH
Mayor
APPROVED AS TO FORM:
VIRGINIA ENNARO
City Attor ey
VI GINIA 6ENNAR0
City Attorney
Attachment: Exhibit "A"
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Resolution Amending Section 4.19 Resolution No. 110-17 13 CT
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ORIGINAL
CITY OF BAKERSFIELD
DEBT MANAGEMENT POLICY
I. 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 same 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(1) of the California
Government Code as amended by SB 1029 ("SB 1029"), 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
• To allow for full and timely repayment of debt
Exhibit A (Chapter 4, Section 4.19)
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• 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 Finance Director shall be responsible for and in charge of (i) federal tax and
securities law post -issuance compliance with respect to all debt obligations and
(ii) timely submitting to the California Debt and Investment Advisory Commission
any annual debt report required under Section 8855(k) of the California
Government Code.
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.
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2. Bond Counsel -
• Prepare an approving legal opinion
• Provide expert and objective legal opinion and advice
• 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 fax 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 l 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
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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.
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
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Exhibit A (Chapter 4, Section 4.19)
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proposed new debt issuance be presented to the City Council for review and
consent.
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.
Generally, the City will pursue refunding opportunities if the expected net present
value savings provide sufficient compensation for the exercise of the optional
redemption provision. Recommendations as to the sufficiency of the net present
value savings will be provided by the City's financial advisor.
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.
9. 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. Revenue Anticipation Notes
Revenue Anticipation Notes (RANs) are a form of note or short-term loan that a
government entity may issue to solve problems associated with a mismatch
between the receipt of property tax or other revenues and ongoing expenditures
during the current fiscal year. The RANs are repaid from a named revenue source
to be received during or accruing to the current fiscal year in which the RAN is
issued.
13. 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.
14. Direct Laws, Floating Rate Notes and Revolving Credit Facilities
The City may enter into a direct loan with a financial institution or other lending
entity to meet certain of its financing needs. A direct loan is made directly with a
financial institution or other lending entity and may be a fixed or variable product.
One type of direct loan, a Revolving Credit Facility, provides the City with the
flexibility to drawdown, repay and redraw loans. The City may use direct loans as
interim or permanent financing for capital projects or to refinance outstanding
debt. Before entering into direct loans, the take out for such obligations must be
anticipated in the financing plan and determined to be feasible and
advantageous by the City.
Variable Rate direct loans may take the form of Floating Rate Notes (FRNs),
including Revolving Credit Facilities, that have a variable coupon, equal to an
acceptable industry benchmark rate (reference rate), plus a spread. The spread
is a rate that remains constant. At the beginning of each coupon period, the
coupon is calculated by taking the fixing of the reference rate for that day and
adding the spread. Because the coupon has resets based on a short-term index,
the issuer is exposed to rising interest rates. However, unlike VRDOs or Commercial
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Paper, FRNs are not supported by a bank liquidity facility, and therefore do not
pose short-range liquidity/refinancing risk to 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 same 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.
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
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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.
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.
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Exhibit A (Chapter 4, Section 4.19)
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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 establish a system of record keeping and reporting to meet the arbitrage
rebate compliance requirements of the Federal tax code and ensure
compliance with other Federal tax regulations and post -issue compliance as
required by Bond Counsel at the time of issuance of the debt. This effort shall
include tracking expenditures of bond proceeds to ensure such expenditures
comply with federal tax law requirements and tracking investment earnings on
proceeds of the bond issue. The Finance Director shall contract with a specialist
to ensure that proceeds and investments are 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)
Exhibit A (Chapter 4, Section 4.19)
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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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