Debt Management Policy
This Debt Management Policy (this "Policy") establishes parameters and provides guidance governing the issuance, management, continuing evaluation of, refunding, and reporting on all debt obligations of the Emerald Bay Service District (District). This Debt Policy shall guide the issuance and management of all debt funded through the capital markets, including the selection and management of related financial and advisory services and products. The District hereby recognizes that fiscally prudent debt policy is required in order to:
- Maintain the District's sound financial position.
- Ensure the District has the flexibility to respond to changes in future service priorities, revenue levels, and operating expenses.
- Protect the District's credit-worthiness.
- Ensure that all debt is structured in order to protect both current and future taxpayers, ratepayers and constituents of the District.
- Ensure that the District's debt is consistent with the Districts's planning goals and objectives and capital improvement program or budget, as applicable.
This Policy is intended to comply with Government Code Section 8855(i)
Purposes for Which Debt May be Issued
Long-term debt may be issued to finance the construction, acquisition, and rehabilitation of capital improvements and facilities and equipment to be operated by the District.
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.
- Long-term debt financings will not generally be considered appropriate for current operating expenses and routine maintenance expenses.
The District may use long-term debt financing subject to the following conditions:
- The project to be financed must be approved by the Governing Board.
- The 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.
- The General Manager estimates that sufficient revenues will be available to service the debt through its maturity.
- The District determines that the issuance of the debt will comply with the applicable state and federal law.
Short-term debt. Short-term debt may be issued to provide financing for the District'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 District may undertake lease-purchase financing for equipment.
Type of debt. The District may issue all such types of debt as are permitted by the State Constitution, applicable State Statutes, and the District's ordinances, and may include, but are not limited to:
- Bank or Agency Loans
- General Obligation Bonds
- Revenue Bonds
- Bond or Grant Anticipation notes
- Special Assessment/Special District Debt
- Tax and Revenue Anticipation Notes
- Line of Credit
- Refunding Obligations
Relationship of Debt to Capital Improvement Program and Budget.
New debt issues, and refinancing of existing debt, should be analyzed for compatibility with the District's Capital Improvement Plan. The District 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 District shall seek to avoid the use of debt to fund infrastructure and facilities improvements that are the result of normal wear and tear. The District 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.
Policy Goals Related to Planning Goals and Objectives.
The District is committed to long-term financial planning, maintaining appropriate reserve levels, and employing prudent practices in governance, management and budget administration. The District intends to issue debt for the purposes stated in this Policy and, in doing so, to implement policy decisions incorporated in the District's long-term capital plans and its annual operating budget.
General Debt Guidelines
- Purposes of Issuance. The District will utilize debt obligations only after giving due consideration to all available funding sources, including available cash reserves, available current revenues, potential future revenue sources, potential grants, and all other financing sources legally available to be used for such purposes. Long-term debt will not be issued for operations or maintenance costs. Expenditure of bond proceeds should be limited to major, non-recurring expenditures/expenses, including but not limited to: the financing of costs related to capital project planning and design, land acquisition, real property, and equipment acquisition; the construction or renovation of buildings and permanent structures and the equipping thereof; financing costs related to the issuance of securities, capitalized interest, necessary or financially prudent debt service reserves; or other costs as permitted by law. Refunding bond issues designed to restructure currently outstanding debt are an acceptable use of bond proceeds.
- Approval by the Board of Directors. All long-term financing transactions shall be approved by the Board of Directors. The Board of Directors shall comply with all public hearing requirements applicable to the specific type of debt being approved.
- Maximum Maturity. All debt obligations shall have a maximum maturity of the earlier of: i) the estimated useful life of the capital improvements being financed, ii) 30years or, iii) in the event obligations are being issued to refinance outstanding debt obligations, the final maturity of the debt obligations being refinanced unless a longer term is approved by the District.
- Debt Limitations. All long-term financings will comply with applicable statutory regulations and District policy. Specifically, the District will maintain compliance with California Government Code Section 43605 limiting applicable indebtedness to 15% of the District's assessed all real and personal property valuation. Other debt limitations will be established for specific issuances to ensure all debt covenants can be met and operations can be maintained.
- Debt Structures - The District is not restricted in the structure of the debt that it issues, which includes issuing variable rate debt. Should the District issue variable rate debt, the annual debt service should be budgeted at 1.5 times the prior year's actual debt service to ensure adequate funds are available should interest rates rise materially.
- Capitalized Interest (Funded Interest). Subject to federal and state law, interest may be capitalized from date of issuance of debt obligations through the completion of construction. Interest may also be capitalized for projects in which the revenue designated to pay the debt service on the bonds will be collected at a future date, not to exceed six months from the estimated completion of construction and offset by earnings in the construction fund.
- Bond Covenants and Laws. The District shall comply with all covenants and requirements of applicable bond resolutions, indentures, trust agreements, and other financing documents, as well as applicable state and federal laws authorizing and governing the issuance and administration of debt obligations.
- Method of Sale. Bonds will be sold on a competitive basis unless it is in the best interest of the District to conduct a negotiated sale or private placement. Negotiated sales may occur when selling bonds to refund existing debt, for land-secured debt, for variable interest rate debt, for conduit debt, or for other appropriate reasons. Private placements may occur when economically advantageous for conduit debt, for capital requirements too small to bear the costs of a public debt issuance, for debt obligations with short amortization schedules, or for other valid reasons. Staff shall evaluate the cost-effectiveness of alternative financing methods before the District conducts a private placement of debt. The Board of Directors should seek the advice of its professional managers, special legal counsel, and/or qualified municipal advisors in making the determination of the appropriate method of bond sale.
- Derivatives. Derivative products may have application to certain District borrowing programs. In certain circumstances these products can reduce borrowing costs and assist in managing interest rate risk. However, these products carry with them certain risks not faced in standard debt instruments. The General Manager shall evaluate the use of derivative products on a case-by case basis to determine whether the potential benefits are sufficient to offset any potential costs.
- Refunding. The District shall review its outstanding debt for the purpose of determining if the financial marketplace will afford the District the opportunity refund an issue and lessen its debt service costs. For refunding undertaken to achieve debt service savings, the sum total of all savings (net of expenses and funds contributed by the issuer at the time of closing), discounted to the present at the bond true interest cost, should at a minimum produce net present value savings equal to at least 3o/o of the par amount of refunding bonds to be sold. Refunding may be undertaken for reasons other than to achieve debt service savings, such as to remove restrictive covenants or restructure debt payments. Such restructuring refunding do not need to achieve 3a/o ne-t present value savings.
- Municipal Code and State and Federal Laws. All debt issued must be in conformance with applicable sections of the Municipal Code, as well as with state and federal laws in effect at the time of issuance.
- Use of Public Financing Authorities. Depending upon the nature of the debt being issued, the District may elect to create a public financing authority should doing so be to the District's advantage.
- Arbitrage Rebate Monitoring. Staff will comply with the arbitrage rebate and monitoring requirements as set forth by the U.S. Treasury Department. Should staff determine that it is advisable to do so, arbitrage rebate analysis reports may be performed more frequently than once every five years as is required by the U.S. Treasury Department.
- Investment of Bond Proceeds. Bond proceeds will be invested only in investments as permitted by the applicable governing document of the bond issue. When placing such investments, staff will ensure that there is sufficient liquidity to meet the underlying needs (i.e. construction funds or debt service reserve funds) of the funds being invested. Staff will give due consideration to credit risk and counterparty risk when investing such funds.
- Continuing Disclosure. The District will remain in compliance with Title 17 Code of Federal Regulations 5240 15c2-12, Municipal Securities Disclosure, by filing our annual financial statements and other financial information for the benefit of our bondholders no later than the last day of the seventh month following the close of the fiscal year and file material event notices in a timely manner.
- Use of Bond Proceeds. The General Manager, Treasurer and other appropriate City personnel shall:
- Monitor the use of Bond proceeds and the use of Bond-financed assets (e.g., facilities, furnishings or equipment) throughout the term of the Bonds (and in some cases beyond the term of the Bonds) to ensure compliance with covenants and restrictions set forth in applicable District resolutions.
- Maintain records identifying the assets or portion of assets that are financed or refinanced with proceeds of each issue of Bonds.
- Consult with Bond Counsel and other professional expert advisors in the review of any contracts or arrangements involving use of Bond-financed facilities to ensure compliance with all covenants and restrictions set forth in applicable District resolutions and Tax Certificates.
- Maintain records for any contracts or arrangements involving the use of Bond-financed facilities as might be necessary or appropriate to document compliance with all covenants and restrictions set forth in applicable District resolutions and Tax Certificates.
- The District, whenever reasonably possible, and for the purpose of ensuring that proceeds of debt will be used for it intended purpose, proceeds of debt will be held by a third-party trustee or fiscal agent and the District will submit written requisitions for such proceeds. The District will submit a written requisition signed by the General Manager after it has been approved by the Board of Directors. If it is not reasonably possible for debt proceeds to be held by a third-party, the General Manager shall ensure that written records are kept about the use of the debt proceeds through the final payment date of the debt.