I. RECOMMENDATION:
Financial Services Director recommends the City Council adopt Council Resolution No. 4005 approving the City's Debt Management and Continuing Disclosure Policies.
II. BACKGROUND:
California Government Code Section 8855(i) requires the City, as of 2017, to adopt local debt management policies prior to any issuance or incurrence of any debt.
Periodically, the City incurs indebtedness primarily for the purposes of capital improvement and for other reasons allowable by law and generally for the financing of acquisition, construction, improvement, and rehabilitation of land and/or capital facilities and/or equipment owned, to be owned or operated by the City. Cities also may incur short-term debt ordinarily to generate funding for cash-flow needs and as interim sources of funding in anticipation of long-term borrowing. Finally, some issuance of debt may occur on behalf of other entities such as other governmental agencies or third parties in order to further the public purposes of the City (in those instances of third-party issuances the City does not incur the liability or assume responsibilities for payment of debt service).
This Debt Management Policy outlines the key priorities achieved through the adoption of the policies, including: Maintaining the Sound Financial Position of the City; Ensuring flexibility to respond to changing service needs, and fluctuations in revenues and expenditures; protection of the City's credit-worthiness; ensuring all City debt is structured to best protect current and future rate payers and constituents; ensuring that all debt is consistent and coordinated with the City's Capital Improvement Plan and planning goals and objectives.
These priorities are achieved through implementation of guidelines for the issuance of debt that outline when long-term and short-term or third-party issuances are appropriate. It also outlines the types of debt that are generally acceptable and makes certain types of debt unacceptable, such as derivatives, and outlines favoring fixed-rate debt over variable rate debt (which is discouraged as a matter of policy).
Certain types of debt are incurred for capital projects and this policy outlines the coordination of the issuance of debt to the City's Capital Improvement Program and Budgets. It provides that the term of financing not generally exceed the life of the asset, and that debt issue be timely so as not to create a circumstance where unplanned expenditures for capital improvements or equipment cause impacts to the general fund.
The policy creates new internal controls and procedures and requires appropriate City officials to review and remain compliant with continuing disclosure undertakings, and assigns specific disclosure functions with oversight conducted by the City's Financial Services Director. Proceeds of issued debt is to include the involvement of third-party trustees who distribute funds through written requisitions to ensure the proceeds are used for the intended purposes.
For all initial and continuing disclosure procedures, a "Disclosure Working Group" is created with specifically assigned and divided functions for the Administrative Services Director, The City Manager and the City Attorney, as well as any other individual recommended and appointed by the City Manager, such as those from private entities contracted for the purposes of tracking and managing the City's timely and complete responses to and compliance with any disclosure requirements it has. This working group is required to provide annual reports to the City Council and provide advance copies of disclosure reports to them prior to submission of the reports with the Municipal Securities Rulemaking Board (MSRB) or other entities requiring the reports.
Finally, the policy provides for members of the Disclosure Working Group to be properly trained in order that they understand and perform their responsibilities with respect to initial and continuing disclosure obligations.
A note: Nothing in the resolution of council adopting the policy or in the policy itself causes the City to incur or issue debt.
III. DISCUSSION:
IV. ALTERNATIVES:
1. Council could decline to adopt the Policies in which case it could not incur future debt because of the requirements in Government Code 8855(i).
2. Council could request modifications to the Policies and return it to Staff to be brought forward again at a later date.
V. FISCAL IMPACT:
Adoption of any of these policies does not, in and of itself cause the City to incur costs, however the policies provide for training for staff, which may separately result in training costs. It also contemplates the potential for the City to use an outside vendor, as it has both used in the past and is currently using, to meet and manage its continuing disclosure obligations. Any training costs or additional outside vendors retained for these purposes would be the subject of a separate Council action or as part of the annual budget process. |