HomeMy WebLinkAboutStaff Report 4.C 01/09/2017Agenda Item #4.0
DATE: January 9, 2017
TO: Honorable Mayor and Members of the City Council through City Manager
FROM: William Mushallo, Finance Director
Corey Garberolio, Principal Financial Analst g
SUBJECT: Resolution Establishing the City of Petaluma Debt Management Policy
RECOMMENDATION
It is recommended that the City Council adopt the attached Resolution Establishing the City of
Petaluma Debt Management Policy.
BACKGROUND
In the past the City has issued debt for various reasons. Examples of past issuances include
Water and Wastewater system and infrastructure improvements; redevelopment Tax Allocation
Bonds; Certificates of Participation for Airport improvements; and, as a financing mechanism for
projects related to assessment districts.
DISCUSSION
On September 12, 2016, a statute (SB 1029) was enacted that, among other things, requires
issuers of bonds after January 1, 2017, to have adopted a "local debt policy" that, at a minimum,
includes the following items:
• The purposes for which the debt proceeds may be used
i The types of debt that may be issued
• The relationship of the debt to, and integration with, the issuer's capital improvement
program or budget, if applicable
• Policy goals related to the issuer's planning goals and objectives
• The internal control procedures that the issuer has implemented, or will implement, to
ensure that the proceeds of the proposed debt issuance will be directed to the intended
use
The debt policy is intended to comply with Government Code Section 8855(i), effective on
January 1, 2017, and shall govern all debt undertaken by the City. Issuers must certify
compliance with this requirement to the California Debt and Investment Advisory Commission
(CDIAC) at least 30 days before the pricing date for any future bonds, meaning that appropriate
policies must be adopted by an issuer's governing body more than 30 days before the pricing
date. The attached policy is based on a draft provided by the City's bond counsel, Jones Hall.
That document was drafted to ensure compliance with the new statutory requirements. The
policy does not change the way the City will issue debt in the future. It allows the types of debt
that have been issued in the past, and provides for additional types of debt to be issued in the
future. The policy includes a provision that states: "The issuer may from time to time find that
other forms of debt would be beneficial to further its public purposes and may approve such debt
without an amendment of this debt policy" The policy can also be revised or amended by the
City Council as necessary.
FINANCIAL IMPACTS
There are no financial impacts associated with the City Council's establishment of the Debt
Management Policy.
ATTACHMENTS
1. Resolution Establishing the City's Debt Management Policy
2. Debt Management Policy
3. Exhibit A — Copy of SB 1029
a
ATTACHMENT 1
RESOLUTION ESTABLISHING THE CITY'S DEBT MANAGEMENT POLICY
WHEREAS, the City has issued debt in the past for various reasons; and
WHEREAS, on September 12, 2016, a statute (SB 1029) was enacted that, among other things,
requires issuers of bonds after January 1, 2017, to have adopted a local debt policy; and
WHEREAS, the debt policy is in compliance with Government Code Section 8855(1), effective
on January 1, 2017, and shall govern all debt undertaken by the City.
NOW, THEREFORE, BE IT RESOLVED that the City Council adopts the attached Debt
Management Policy in order to comply with statutory requirements.
1
Attachment 2
DEBT MANAGEMENT POLICY
This Debt Management Policy (the "Debt Policy") of the City of Petaluma (the "Issuer") was
approved by the Petaluma City Council on January 9t", 2017. The Debt Policy may be amended by the
City Council as it deems appropriate from time to time in the prudent management of the debt of the
Issuer.
1. Findings
This Debt Policy is intended to comply with Government Code Section 8855(1), effective on
January 1, 2017, and shall govern all debt undertaken by the Issuer.
The Issuer hereby recognizes that a fiscally prudent debt policy is required in order to:
• Maintain the Issuer's sound financial position.
• Ensure the Issuer has the flexibility to respond to changes in future service priorities,
revenue levels, and operating expenses.
• Protect the Issuer's credit -worthiness.
• Ensure that all debt is structured in order to protect both current and future taxpayers,
ratepayers and constituents of the Issuer.
• Ensure that the Issuer's debt is consistent with the Issuer's planning goals and
objectives and capital improvement program or budget, as applicable.
2. Policies
A. Purposes For Which Debt May Be Issued
(i) Long -Term Debt. Long-term debt may be issued to finance the construction, acquisition,
and rehabilitation of capital improvements and facilities, equipment and land to be owned and
operated by the Issuer.
(a) Long-term debt financings are appropriate when the following conditions exist:
• When the project to be financed is necessary to provide basic services.
• When the project to be financed will provide benefit to constituents over multiple
years.
• When total debt does not constitute an unreasonable burden to the Issuer and its
taxpayers and ratepayers.
• When the debt is used to refinance outstanding debt in order to produce debt
service savings or to realize the benefits of a debt restructuring.
Attachment 2
(b) Long-term debt financings will not generally be considered appropriate for current
operating expenses and routine maintenance expenses.
(c) The Issuer may use long-term debt financings subject to the following conditions:
• The project to be financed must be approved by the City Council.
• The weighted average maturity of the debt (or the portion of the debt allocated to
the project) will not exceed the average useful life of the project to be financed by
more than 20%.
• The Issuer estimates that sufficient revenues will be available to service the debt
through its maturity.
• The Issuer determines that the issuance of the debt will comply with the applicable
state and federal law.
(ii) Short-term debt. Short-term debt may be issued to provide financing for the Issuer's
operational cash flows in order to maintain a steady and even cash flow balance. Short-term debt
may also be used to finance short-lived capital projects; for example, the Issuer may undertake
lease -purchase financing for equipment.
(iii) Financings on Behalf of Other Entities. The Issuer may also find it beneficial to issue
debt on behalf of other governmental agencies or private third parties in order to further the public
purposes of Issuer. In such cases, the Issuer shall take reasonable steps to confirm the financial
feasibility of the project to be financed and the financial solvency of any borrower and that the
issuance of such debt is consistent with the policies set forth herein.
B. Types of Debt
The following types of debt are allowable under this Debt Policy:
• general obligation bonds
• bond or grant anticipation notes
• lease revenue bonds, certificates of participation and lease -purchase transactions
• other revenue bonds and certificates of participation
• tax and revenue anticipation notes
• land -secured financings, such as special tax revenue bonds issued under the
Mello -Roos Community Facilities Act of 1982, as amended, and limited obligation
bonds issued under applicable assessment statutes
• tax increment financing to the extent permitted under state law
• conduit financings, such as financings for affordable rental housing and qualified
501c3 organizations
Attachment 2
The Issuer may from time to time find that other forms of debt would be beneficial to
further its public purposes and may approve such debt without an amendment of this
Debt Policy.
Debt shall be issued as fixed rate debt unless the Issuer makes a specific determination
as to why a variable rate issue would be beneficial to the Issuer in a specific
circumstance.
C. Relationship of Debt to Capital Improvement Program and Budget
The Issuer is committed to long-term capital planning. The Issuer intends to issue debt
for the purposes stated in this Debt Policy and to implement policy decisions incorporated in the
Issuer's capital budget and the capital improvement plan.
The Issuer shall strive to fund the upkeep and maintenance of its infrastructure and
facilities due to normal wear and tear through the expenditure of available operating revenues.
The Issuer shall seek to avoid the use of debt to fund infrastructure and facilities improvements
that are the result of normal wear and tear.
The Issuer shall integrate its debt issuances with the goals of its capital improvement
program by timing the issuance of debt to ensure that projects are available when needed in
furtherance of the Issuer's public purposes.
The Issuer shall seek to avoid the use of debt to fund infrastructure and facilities
improvements in circumstances when the sole purpose of such debt financing is to reduce
annual budgetary expenditures.
The Issuer shall seek to issue debt in a timely manner to avoid having to make
unplanned expenditures for capital improvements or equipment from its general fund.
D. Policy Goals Related to Planning Goals and Objectives
The Issuer is committed to long-term financial planning, maintaining appropriate
reserves levels and employing prudent practices in governance, management and budget
administration. The Issuer intends to issue debt for the purposes stated in this Policy and to
implement policy decisions incorporated in the Issuer's annual operations budget.
It is a policy goal of the Issuer to protect taxpayers, ratepayers and constituents by
utilizing conservative financing methods and techniques so as to obtain the highest practical
credit ratings (if applicable) and the lowest practical borrowing costs.
The Issuer will comply with applicable state and federal law as it pertains to the
maximum term of debt and the procedures for levying and imposing any related taxes,
assessments, rates and charges.
When refinancing debt, it shall be the policy goal of the Issuer to realize, whenever
possible, and subject to any overriding non-financial policy considerations, (i) minimum net
present value debt service savings equal to or greater than 3.0% of the refunded principal
amount, and (ii) present value debt service savings equal to or greater than 100% of any
escrow fund negative arbitrage.
0
Attachment 2
E. Internal Control Procedures
When issuing debt, in addition to complying with the terms of this Debt Policy, the Issuer
shall complywith any other applicable policies regarding initial bond disclosure, continuing
disclosure, post -issuance compliance, and investment of bond proceeds.
The Issuer will periodically review the requirements of and will remain in compliance with
the following:
• any continuing disclosure undertakings under SEC Rule 15c2-12,
• any federal tax compliance requirements, including without limitation arbitrage
and rebate compliance, related to any prior bond issues, and
• the Issuer's investment policies as they relate to the investment of bond
proceeds.
Whenever reasonably possible, proceeds of debt will be held by a third -party trustee and
the Issuer will submit written requisitions for such proceeds. The Issuer will submit a requisition
only after obtaining the signature of the Finance Director. In those cases where it is not
reasonably possible for the proceeds of debt to be held by a third -party trustee, the Finance
Director shall retain records of all expenditures of proceeds through the final payment date for
the debt.
Exhibit A
Senate Bill No. 1029
CHAPTER 307
An act to amend Section 8855 of the Government Code, relating to state
government.
[Approved by Governor September 12, 2016. Filed with
Secretary of State September 12, 2016.]
LEGISLATIVE COUNSEL'S DIGEST
SB 1029, Hertzberg. California Debt and Investment Advisory
Commission: accountability reports.
Existing law establishes the California Debt and Investment Advisory
Commission to, among other things, maintain contact with state and
municipal bond issuers, underwriters, investors, and credit rating agencies
to improve the market for state and local government debt issues and to
assist state and local governments to prepare, market, and sell their debt
issues. Existing law requires the commission to collect, maintain, and provide
comprehensive information on all state and all local debt authorization and
issuance and to serve as a statistical clearinghouse for all state and local
debt issuance.
This bill would additionally require the commission to track and report
on all state and local outstanding debt until fully repaid or redeemed.
Existing law requires the issuer of debt of state or local government to
submit reports to the commission, within specified timeframes, of the
proposed issuance of debt and of final sale, as provided.
This bill would require that the report of proposed debt include a
certification by the issuer that it has adopted local debt policies, which
include specified provisions concerning the use of debt and that the
contemplated debt issuance is consistent with those local debt policies.
This bill would also require a state or local public agency to submit an
annual report for any issue of debt for which it has submitted a report of
final sale on or after January 21, 2017. The bill would require the annual
report to cover a reporting period of July 1 to June 30, inclusive, and to
include specified information about debt issued and outstanding and the use
of proceeds from debt during the reporting period. The bill would require
that the report be submitted within 7 months after the end of the reporting
period by any method approved by the commission. The bill would require
the commission to consult with appropriate state and local debt issuers and
organizations representing debt issuers prior to approving any annual method
of reporting pursuant to these provisions, as provided.
This bill would make various findings and declarations regarding its
provisions.
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Exhibit A
Ch. 307 —2—
The
2—
The people of the State of California do enact as follows:
SECTION 1. The Legislature hereby finds and declares all of the
following:
(a) California's 4,200 units of local government have issued $1.5 trillion
in debt since 1984. The California Debt and Investment Advisory
Commission (CDIAC) was created in 1982 to provide information,
education, and technical assistance on debt issuance and investments to
local public agencies and other public finance professionals. Over the past
three decades, CDIAC has emerged as a national thought leader in public
finance.
(b) Nationally, there is approximately $3.7 trillion of state and local
government debt outstanding. Of all outstanding state and local government
debt, approximately 75 percent is held by households and mutual funds
owned predominantly by households. State governments, local governments,
and their stakeholders benefit from better data about public debt.
Transparency on public debt promotes better government and market
integrity. It is in the interest of the people that state and local agencies utilize
technological opportunities to provide transparency to the public.
(c) State and local agencies should adopt comprehensive written debt
management policies pursuant to the recommendation of the Government
Finance Officers Association, a professional organization of over 18,000
public officials united to enhance and promote the professional management
of governmental financial resources. These policies should reflect local,
state, and federal laws and regulations.
(d) It is the intent of the Legislature that all debt issuance of state and of
local governments be published in a single, transparent online database that
allows the citizens of California to analyze, interpret, and understand how
debt authorized by the public is utilized to finance facilities and services at
the state and local level.
SEC. 2. Section 8855 of the Government Code is amended to read:
8855. (a) There is created the California Debt and Investment Advisory
Commission, consisting of nine members, selected as follows:
(1) The Treasurer, or his or her designee.
(2) The Governor or the Director of Finance.
(3) The Controller, or his or her designee.
(4) Two local government finance officers appointed by the Treasurer,
one each from among persons employed by a county and by a city or a city
and county of this state, experienced in the issuance and sale of municipal
bonds and nominated by associations affiliated with these agencies.
(5) Two Members of the Assembly appointed by the Speaker of the
Assembly.
(6) Two Members of the Senate appointed by the Senate Committee on
Rules.
(b) (1) The term of office of an appointed member is four years, but
appointed members serve at the pleasure of the appointing power. In case
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Exhibit A
3— Ch. 307
of a vacancy for any cause, the appointing power shall make an appointment
to become effective immediately for the unexpired term.
(2) Any legislators appointed to the commission shall meet with and
participate in the activities of the commission to the extent that the
participation is not incompatible with their respective positions as Members
of the Legislature. For purposes of this chapter, the Members of the
Legislature shall constitute a joint interim legislative committee on the
subject of this chapter.
(c) The Treasurer shall serve as chairperson of the commission and shall
preside at meetings of the commission.
(d) Appointed members of the commission shall not receive a salary, but
shall be entitled to a per diem allowance of fifty dollars ($50) for each day's
attendance at a meeting of the commission not to exceed three hundred
dollars ($300) in any month, and reimbursement for expenses incurred in
the performance of their duties under this chapter, including travel and other
necessary expenses.
(e) The commission may adopt bylaws for the regulation of its affairs
and the conduct of its business.
(f) The commission shall meet on the call ofthe chairperson, at the request
of a majority of the members, or at the request of the Governor. A majority
of all nonlegislative members of the commission constitutes a quorum for
the transaction of business.
(g) The office of the Treasurer shall furnish all administrative assistance
required by the commission.
(h) The commission shall do all of the following:
(1) Assist all state financing authorities and commissions in carrying out
their responsibilities as prescribed by law, including assistance with respect
to federal legislation pending in Congress.
(2) Upon request of any state or local government units, to assist them
in the planning, preparation, marketing, and sale of debt issues to reduce
cost and to assist in protecting the issuer's credit.
(3) Collect, maintain, and provide comprehensive information on all state
and all local debt authorization and issuance, track and report on all state
and local outstanding debt until fully repaid or redeemed, and serve as a
statistical clearinghouse for all state and local debt. This information shall
be available to the public.
(4) Maintain contact with state and municipal bond issuers, underwriters,
credit rating agencies, investors, and others to improve the market for state
and local government debt issues.
(5) Undertake or commission studies on methods to reduce the costs and
improve credit ratings of state and local issues.
(6) Recommend changes in state laws and local practices to improve the
sale and servicing of state and local debts.
(7) Establish a continuing education program for local officials having
direct or supervisory responsibility over municipal investments and debt
issuance. The commission shall undertake these and any other activities
92
Ch. 307 —4— Exhibit A
necessary to disclose investment and debt issuance practices and strategies
that may be conducive for oversight purposes.
(8) Collect, maintain, and provide information on local agency
investments of public funds for local agency investment.
(9) Publish a monthly newsletter describing and evaluating the operations
of the commission during the preceding month.
(i) (1) The issuer of any proposed debt issue of state or local government
shall, no later than 30 days prior to the sale of any debt issue, submit a report
of the proposed issuance to the commission by any method approved by
the commission. This subdivision shall also apply to any nonprofit public
benefit corporation incorporated for the purpose of acquiring student loans.
The commission may require information to be submitted in the report of
proposed debt issuance that it considers appropriate. Failure to submit the
report shall not affect the validity of the sale. The report of proposed debt
issuance shall include a certification by the issuer that it has adopted local
debt policies concerning the use of debt and that the contemplated debt
issuance is consistent with those local debt policies. A local debt policy
shall include all of the following:
(A) The purposes for which the debt proceeds may be used.
(B) The types of debt that may be issued.
(C) The relationship of the debt to, and integration with, the issuer's
capital improvement program or budget, if applicable.
(D) Policy goals related to the issuer's planning goals and objectives.
(E) The internal control procedures that the issuer has implemented, or
will implement, to ensure that the proceeds of the proposed debt issuance
will be directed to the intended use.
(2) In the case of an issue of bonds the proceeds of which will be used
by a governmental entity other than the issuer, the issuer may rely upon a
certification by that other governmental entity that it has adopted the policies
described in subparagraphs (C), (D), and (E) ofparagraph (1), and references
to the "issuer" in those subparagraphs shall be deemed to refer instead to
the other governmental entity.
0) The issuer of any debt issue of state or local government, not later
than 21 days after the sale of the debt, shall submit a report of final sale to
the commission by any method approved by the commission. A copy of the
final official statement for the issue shall accompany the report of final sale.
If there is no official statement, the issuer shall provide each ofthe following
documents, if they exist, along with the report of final sale:
(1) Other disclosure document.
(2) Indenture.
(3) Installment sales agreement.
(4) Loan agreement.
(5) Promissory note.
(6) Bond purchase contract.
(7) Resolution authorizing the issue.
(8) Bond specimen.
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Exhibit A
5— Ch. 307
The commission may require information to be submitted in the report
of final sale that it considers appropriate. The issuer may redact confidential
information contained in the documents if the redacted information is not
information that is otherwise required to be reported to the commission.
(k) (1) A public agency, whether state or local, shall submit an annual
report for any issue of debt for which it has submitted a report of final sale
pursuant to subdivision 0) on or after January 21, 2017. The annual report
shall cover a reporting period from July 1 to June 30, inclusive, and shall
be submitted no later than seven months after the end of the reporting period
by any method approved by the commission. Before approving any annual
method of reporting pursuant to this subdivision, the commission shall
consult with appropriate state and local debt issuers and organizations
representing debt issuers for purposes that shall include, but not be limited
to, making a proposed reporting method more efficient and less burdensome
for issuers. The annual report shall consist of the following information:
(A) Debt authorized during the reporting period, which shall include the
following:
(i) Debt authorized at the beginning of the reporting period.
(ii) Debt authorized and issued during the reporting period.
(iii) Debt authorized but not issued at the end of the reporting period.
(iv) Debt authority that has lapsed during the reporting period.
(B) Debt outstanding during the reporting period, which shall include
the following:
(i) Principal balance at the beginning of the reporting period.
(ii) Principal paid during the reporting period.
(iii) Principal outstanding at the end of the reporting period.
(C) The use of proceeds of issued debt during the reporting period, which
shall include the following:
(i) Debt proceeds available at the beginning of the reporting period.
(ii) Proceeds spent during the reporting period and the purposes for which
it was spent.
(iii) Debt proceeds remaining at the end of the reporting period.
(2) Compliance with this subdivision shall be required for each issue of
debt with outstanding debt, debt that has been authorized but not issued, or
both, during the reporting period.
(3) The commission may, if technology permits, develop an alternate
reporting method, provided that any alternate reporting method is in
furtherance of the purpose of collecting the data required by this subdivision.
Before approving any alternate annual method of reporting pursuant to this
subdivision, the commission shall consult with appropriate state and local
debt issuers and organizations representing debt issuers for purposes that
shall include, but not be limited to, making a proposed reporting method
more efficient and less burdensome for issuers.
Cel
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