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HomeMy WebLinkAbout55D - RESO DEBT MGMT POLICYREQUEST FOR COUNCIL ACTION CITY COUNCIL MEETING DATE: FEBRUARY 6, 2018 TITLE: ADOPT A RESOLUTION ESTABLISHING THE DEBT MANAGEMENT POLICY (STRATEGIC PLAN NO. 4, 1) CITY ANAGER RECOMMENDED ACTION CLERK OF COUNCIL USE ONLY: APPROVED ❑ As Recommended ❑ As Amended ❑ Ordinance on 1$ Reading ❑ Ordinance on 2nd Reading ❑ Implementing Resolution ❑ Set Public Hearing For CONTINUED TO FILE NUMBER Adopt a Resolution approving the City's Debt Management Policy On January 8, 2018, the Economic Development, Infrastructure, Budget and Technology ("EDIBT") Committee was presented a draft of the Debt Management Policy. DISCUSSION Senate Bill 1029 ("SB1029") (Hertzberg) "California Debt and Investment Advisory Commission (CDIAC) Accountability Report" became effective on January 1, 2017. The overall goal of the legislation is to increase transparency on state and local government borrowing and on the use and spending of bond proceeds offered through the public market. The new law requires local governments to adopt debt policies concerning the use of bond proceeds prior to any debt issuance after January 21, 2017, while providing local control over the timeline and mechanism for adopting these local debt policies. Moreover, the new law will also require local governments to submit annual reports on debt issued after January 21, 2017 to CDIAC through a state wide repository in order to track borrowing and spending of bond proceeds offered through the public market by entity. In addition to applying the requirements of SB 1029 to debt offered through the public market, staff is also proposing to expand the requirements of SB 1029 to all privately placed debt as well. With no foreseeable debt being issued in 2017, staff employed a two-pronged comprehensive approach in developing the City's Debt Management Policy ("Policy"): 1) staff researched guidelines & industry standards and 2: researched best practices by surveying various California municipalities. A draft was then developed and presented to the Economic Development, Infrastructure, Budget and Technology ("EDIBT") Committee on January 8, 2018. Committee members wanted to ensure feedback from the Executive Management Team was considered and 5513-1 Debt Management Policy February 6, 2018 Page 2 incorporated where applicable. As such, submitted recommendations were reviewed and, when appropriate, have been embedded into the final version of the Policy. The Policy addresses several areas related to debt including: debt limits, debt structure, debt issuance and debt management. The underlying eight objectives that the Policy aims to achieve are to: 1) Ensure that all debt issuance is in alignment with the City's Strategic Plan as well as the City's Capital Improvement Plan (CIP); 2) Determine appropriate use of debt proceeds & purpose of the debt; 3) Establish parameters and specific limits for issuing debt; 4) Identify financing options & types of debt that may be issued; 5) Ensure cost-effective borrowing by minimizing debt service and issuance cost; 6) Ensure compliance with applicable state and federal laws; 7) Ensure full and timely repayment of debt service; 8) Maintain full and complete financial disclosure and reporting of debt. Adoption of the Policy will allow the City to issue debt in the future and provides guidelines on issuing permissible debt. Staff will evaluate the Policy on an annual basis and make updates and modifications when appropriate. STRATEGIC PLAN ALIGNMENT Approval of this item allows the City to meet Goal No. 4 City Financial Stability, Objective 1 (maintain a stable, efficient and transparent financial environment). FISCAL IMPACT There is no fiscal impact associated with this action. Francisco Gutierrez Executive Director Finance and Management Services Agency EXHIBITS: 1. Debt Management Resolution and Policy 2. EMT Revisions to the Debt Management Policy AC 55D-2 EXHIBIT 1 jmf 1/29118 RESOLUTION NO. 2018 -XXX A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA ANA ADOPTING THE CITY OF SANTA ANA DEBT MANAGEMENT POLICY BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SANTA ANA AS FOLLOWS: Section 1. The City Council of the City of Santa Ana hereby finds, determines, and declares as follows: A. California Senate Bill No. 1029 ("SB 1029") was enacted in September2016 and became effective on January 1, 2017. B. SB 1029 requires state and local agencies to adopt comprehensive debt management policies before any new debt can be issued. C. The City Council wishes to comply with SB 1029 and to adopt the proposed Debt,Management Policy for the City of Santa Ana, a copy of which is attached as Exhibit A ('Policy"). D. The City Council has reviewed and considered the Policy. -Section 2. The City Council of the City of Santa Ana hereby approves and adopts the Policy as the Debt Management Policy for the City of Santa Ana. Section 3. This Resolution shall take effect immediately upon its adoption by the City Council, and the Clerk of the Council shall attest to and certify the vote adopting this Resolution. ADOPTED this _ day of 2018. APPROVED AS TO FORM: Sonia R. Carvalho, City Attorney By: Wt6, %,L John M. Funk Assistant City Attorney Miguel A. Pulido Mayor 55D-3 Resolution No. 2018 -XXX Page 1 of 2 jmf 1/29118 AYES: Councilmembers NOES: Councilmembers ABSTAIN: Councilmembers NOT PRESENT: Councilmembers CERTIFICATE OF ATTESTATION AND ORIGINALITY I, Maria D. Huizar, Clerk of the Council, do hereby certify the attached Resolution No. 2018 _ to be the original resolution adopted by the City Council of the City of Santa Ana on .2018. Date: Clerk of the Council City of Santa Ana 55D-4 Resol Won No. 2018 -XXX Page 2 of 2 EXHIBIT A City of Santa Ana y=ri Administrative Policies and Procedures Mayor's Authorization Subject Date Debt Management Policy PURPOSE This Debt Policy ("policy") sets forth certain debt management objectives and establishes overall parameters for issuing and administering debt for which the City of Santa Ana ("City"), the Santa Ana Financing Authority ("Financing Authority") and/or the Successor Agency to the Santa Ana Redevelopment Agency (collectively, the "Santa Ana Issuers") are financially obligated or are responsible for managing. Included in this policy are general provisions related to: 1) debt limits, 2) debt structure, 3) debt issuance and 4) debt management, which are the four major categories addressed within this Policy. This Policy shall be reviewed annually by the Executive Director of the Finance & Management Services Agency ("Finance") or his/her designee and updated as needed. Any changes to this Policy are subject to City Council approval. This Debt Management Policy is intended to comply with California Government Code Section 8855(i), which requires municipalities that issue debt to develop and apply debt management policies to ensure that debt is issued and managed prudently. DEBT POLICY OBJECTIVES The following are general objectives that this policy intends to accomplish: • Ensure that all debt issuance is in alignment with the City's Strategic Plan goals & objectives as well as the City's Capital Improvement Plan; • Determine appropriate use of debt financing & the purpose of the debt; • Establish parameters and specific limits for issuing debt; • Identify financing options & types of debt that may be issued; • Ensure cost-effective borrowing by minimizing debt service and issuance costs; • Ensure compliance with applicable state and federal laws; • Ensure full and timely repayment of debt service; and • Maintain full and complete financial disclosure and reporting of debt. All eight objectives are reflected within the four major categories: 1) debt limits, 2) debt structure, 3) debt issuance and 4) debt management. Resolution No. 2018 -XXX Page 3 of 9 5501-5 DETERMINATION OF DEBT ISSUANCE Prior to any issuance of debt, the requesting department and, when appropriate, the Finance & Management Services Agency ("Finance"), will conduct a comprehensive assessment to ensure the following criteria are met: a) All debt must: i. Be in alignment with the City's Strategic Plan goals & objectives as well as the City's Capital Improvement Plan; ii. Promote an economic or public benefit; iii. Provide for economic vitality; iv. Lessen the burden of the City during economic uncertainties; V. Not cause undue burden on the City's General Fund; A. Extend the useful life of existing assets. b) Any prospective debt issuance must have an identified revenue source for repayment, which may include the general fund, enterprise funds, special revenue funds and/or community development funds; c) A feasibility analysis will also be performed on the fund that has been identified as the source of repayment that includes determining: i. Operating Position (Gain/Loss: Operating revenues less Operating Expenditures); ii. Existing Fund Balance (unassigned/unrestricted) capacity for current and future years; iii. Debt Service Coverage; and iv. Future economic outlook (multi-year forecast or pro forma). d) Evaluating any other material factors, including but not limited to: i. Risk of litigation or potential litigation; ii. Potential negative revenue and expenditure variances; and iii. Compliance to pertinent legislation. Generally, there will be a recommendation to issue debt when: 1) the aforementioned assessment has been completed, 2) if current operational resources are insufficient to finance the project, and 3) when debt financing is the optimal structure given the City's long-term financial outlook. When appropriate, Finance will evaluate the long-term impact of all outstanding and planned debt issuance on the City's finances. Such evaluation recognizes that the City has limited capacity for debt service in its budget and that each newly issued financing will obligate the City to a series of payments until the debt is repaid. Subsequent to the evaluation, Finance will provide a recommendation for the City Manager's consideration. The City Manager will make the determination to proceed with the issuance of debt, subject to City Council and, if necessary, voter approval. Resolution No. 2018 -XXX Page 4 of 9 5501-6 DEBT LIMITS Types of Financing Options and Use of Debt Proceeds Once it has been determined that issuing debt is a viable and beneficial option, the Santa Ana Issuers can issue the following types of debt under this Policy subject to state and federal law, the City's Charter, City's Municipal Code and City Council Policy (as approved by the majority of the City Council), as may be applicable: a) general obligation bonds (authorized by the affirmative votes of two-thirds (2/3) of the voters); b) lease revenue bonds or notes; c) certificates of participation; d) land -secured financings, such as special tax revenue bonds and/or limited obligation assessment bonds; e) tax increment financings to the extent permitted under state law; f) private placement and/or private loan financing g) conduit financings, whereby the City secures financing on behalf of a third party h) financings for affordable housing (TEFRA) and qualified 501(c) (3) organizations (access to tax-exempt financing); and I) any other or new type of debt that is allowed under state or federal law. Debt may be publicly issued or privately placed and may be issued on either a long-term basis ("Long-term Debt") or short-term basis ("Short-term Debt") consistent with the provisions of this Policy. Long-term debt, defined as a final maturity date greater than five years from the issuance date, may be used to finance the acquisition or improvement of land, facilities, or equipment that cannot be financed from current revenues and is appropriate to spread the costs over more than one fiscal year, and will be reflected in the Adopted Citywide Budget as well as the Seven- -Year Capital Improvement Plan ("CIP"), if applicable. Long-term debt may also be used to fund capitalized interest (for no longer than a three-year period), costs of issuance, required reserves, and any other financing -related costs which is legally permitted. Under no circumstance shall long-term debt be allowed to fund annual reoccurring operating costs or routine maintenance expenses. Short-term debt, defined as a final maturity date less than five years from the issuance date, through financing vehicles will be considered as an interim source of funding for the acquisition of equipment, funding for a capital improvement in anticipation of long-term borrowing, or any other purpose in which issuing long-term debt is not a viable option, provided that there is sufficient reason to pursue a short-term debt issuance. Short-term debt may also be issued for capitalized interests and other financing -related costs. The final maturity of the debt issued to finance the project shall be consistent with the useful life of the project, unless it is determined that extraordinary circumstances exist. In addition, short-term debt may be considered if available cash is insufficient to meet short-term operating needs. Resolution No. 2018 -XXX Page 5 of 9 55D-7 Debt Restrictions The Santa Ana Issuers will keep outstanding debt within the limits of applicable federal and state law. Specifically and in accordance with section 602 of the City Charter, the Issuers' total general obligation bond indebtedness shall not exceed 10 percent of the "total assessed value of real property within the City". As such, the City will keep outstanding general obligation debt within the specified limits. The Successor Agency, in particular, will issue debt to refund its outstanding debt consistent with applicable law. More specifically, in the event that the City issues: a. a general obligation bond: the debt service payments, in the aggregate, shall not exceed 10% of General Fund revenues; b. a lease revenue bond or certificates of participation: the debt service payments shall be limited by a debt service coverage ratio (e.g., annual net pledged revenue to annual debt service) of at least a 2.00, preferably higher; as well as additional bond provisions contained in the bond covenants; and c. a conduit debt: subject to approval based on the borrower's creditworthiness, purpose of the borrowing issue, and subject to a comprehensive review conducted by the City. Furthermore, it is generally recommended that any costs of issuance associated with the debt shall not exceed 5% of the principal amount of the debt, unless it can be determined that the public benefit outweighs the cost. DEBTSTRUCTURE All capital projects financed through the issuance of debt will be financed for a period not to exceed the useful life of the project. Debt will be structured for a period consistent with a fair allocation of costs to current and future beneficiaries of the financed capital project and, consideration will be given, so that the maturity of the debt issue is consistent with the useful life of the capital project to be financed. Ultimately, however, market conditions at the time of sale will inform the City on its decision regarding debt service structure. Certain types of financings such as certificates of participation and other lease -secured financings may require the use of capitalized interest from the issuance date until the City has beneficial use and occupancy of the financed project. Interest rate shall not be funded (capitalized) beyond a three-year period, or a shorter period if further restricted by the governing bond documents. The City may require that capitalized interest on the initial series of the bonds be funded from the proceeds of the bonds. Fixed and Variable Interest Rate The Santa Ana Issuers can make a determination to utilize either a variable or fixed interest rate debt based on the market conditions. In general, in order to maintain a predictable debt service burden, the City shall give preference to debt that carries a fixed interest rate. However, the City may consider variable rate debt in certain instances, such as: Resolution No. 2018 -XXX Page 6 of 9 55D-8 a) during a high interest rate environment; b) if the source for repayment fluctuates, and is anticipated to move in the same direction as market -generated variable interest rates, or the dedication of revenues allows capacity for variability; and c) if financing structure and budgetary safeguards are in place to prevent adverse impacts from interest rate shifts Moreover and in accordance with rating agency guidelines, the percentage of variable rate debt outstanding shall not exceed 20% of the City's total outstanding debt. DEBT ISSUANCE Service Providers During the course of a debt issuance, the City must select several professional services providers. The Santa Ana Issuers will utilize the services of independent financial/municipal advisors, underwriters, and pertinent legal counsel on all debt financings as well as other parties depending on the type of financing. Additionally, the City will require that all providers have the highest ethical standards as it relates to their performance with no existing material or egregious legal grievances against them or pending investigations for the same. The City will require full disclosure of any history of grievances or legal proceedings against providers The Santa Ana Issuers will strive to select service providers as necessary through a competitive bidding process. However, when appropriate, a sole -source selection may be allowed (i.e., timing of issuance, product & financing packaging). The overall goal is to achieve an appropriate balance between service and cost. Methods of Sale The Director of Finance shall also be responsible for determining the appropriate manner in which to offer any debt to investors, these include: competitive bid, negotiated sale and/or private placement, which will be considered on a case-by-case basis. The preference will be given to competitive sale method. In a competitive sale, the securities shall be awarded to the bidder providing the lowest interest cost as long as the bid adheres to the requirements set forth in the governing bond documents. In a negotiated sale, the City shall assess the following circumstances: a) size of the issue which may limit the number of potential bidders b) if market volatility is such that flexibility in timing the sale in changing interest rate environments is most beneficial for the City Debt Refunding The Finance Department shall also have the responsibility to analyze outstanding bond issues for refunding opportunities that may be presented by underwriting and/or financial/municipal advisory firms. Resolution No. 2018 -XXX Page 7 of 9 5501-9 In general, the City hereby establishes a net present value threshold of a minimum of three percent (3%) of the refunded bond principal amount. The net present value savings shall be net of all costs related to refinancing. Refunding debt that produce a net present value savings of less than three percent (3%) will be considered on a case-by-case basis. Refunding debt with negative savings will not be considered unless there is a compelling public policy objective that is accomplished by retiring the debt. In conjunction with the required net present value threshold, any savings from a refunding debt shall be significantly greater than the cost of issuance. DEBT MANAGEMENT The Finance Department, in collaboration with the requesting department, will be responsible for managing and coordinating all activities related to the issuance and administration of debt, including, but not limited to: a) investment of bond proceeds i. Investments of all bond proceeds or other forms of debt shall be consistent with federal tax requirements, any applicable state law requirements, the governing bond documents, and the City's Investment Policy as modified from time to time. b) monitoring compliance with bond covenants; c) implementing internal control procedures to ensure the use of bond proceeds will be directed to the intended use; d) monitoring use of facilities financed with the issued debt; e) continuing disclosure requirements; f) monitoring arbitrage compliance; and g) ongoing interactions with credit rating agencies Continuing Disclosure As a critical component to the debt management aspect, on June 21, 2016, the City Council adopted the "Municipal Securities Disclosure Policy & Procedures", which governs and outlines the initial and annual continuing disclosure process & requirements. Records Retention The Finance Department and other applicable departments, as may be necessary, will be responsible for maintaining the following documents for the term of debt issuance (including debt issued to refinance existing debt, if any): a) a copy of the closing transcript (s) and other relevant documentation delivered to the City at or in connection with closing of the issuance; b) a copy of all material documents relating to capital expenditures financed or refinanced by debt proceeds, including but not limited to: draw down requests and evidence as to the amount and date for each draw down, trustee requisitions, payment records, as well as documents relating to costs paid or reimbursed with the said proceeds Resolution No. 2018 -XXX Page 8 of 9 55D-10 c) a copy of all contracts involving the use of debt-financed or refinanced assets d) a copy of all records of investments, investment agreements, arbitrage reports, and underlying documents, including trustee statements and copies of all bidding documents, if any. Resolution No. 2018 -XXX Page 9 of 9 55D-11 55D-12 City of Santa Ana Administrative Policies and Procedures Mayor's Authorization Subject Date Debt Management Policy PURPOSE This Debt Policy ("policy") sets forth certain debt management objectives and establishes overall parameters for issuing and administering debt for which the City of Santa Ana ("City"), the Santa Ana Financing Authority ("Financing Authority") and/or the Successor Agency to the Santa Ana Redevelopment Agency (collectively, the "Santa Ana Issuers") are financially obligated or are responsible for managing. Included in this policy are general provisions related to: 1) debt limits, 2) debt structure, 3) debt issuance and 4) debt management, which are the four major categories addressed within this Policy. This Policy is •••194eEt W FeEGMMeRd GAS f9F imi;Fevements Ran R - basis. - sh shall be reviewed annually by the Executive Director of the Finance & Management Services Agency ("Finance") or his/her designee and updated as needed. Any changes to this Policy are subject to City Council approval. -is appmpFiete. This Debt Management Policy is intended to comply with California Government Code Section 885561 which reouires municipalities that issue debt to develop and apply debt management Policies to ensure that debt is issued and managed Prudently. The following are general objectives that this policy intends to accomplish: • Ensure that all debt issuance is in alignment with the City's Strategic Plan goals & objectives as well as the City's Capital Improvement Plan; • Determine appropriate use of debt financing & the purpose of the debt; • Establish parameters and specific limits for issuing debt; • Identify financing options & types of debt that may be issued; • Ensure cost-effective borrowing by minimizing debt service and issuance costs; • Ensure compliance with applicable state and federal laws; • Ensure full and timely repayment of debt service; and • Maintain full and complete financial disclosure and reporting of debt. All eight objectives are reflected within the four major categories: 1) debt limits, 2) debt structure, 3) debt issuance and 4) debt management. Prior to any issuance of debt, the requesting department and, when appropriate, the Finance & Management Services Agency ("Finance"), will conduct a comprehensive assessment to ensure the following criteria are met: 55D-13 EXHIBIT 2 Debt Management Policy Page 2 a) All debt must: L Be in alignment with the City's Strategic Plan goals & objectives as well as the City's Capital Improvement Plan; H. Promote an economic or public benefit; iii. Provide for economic vitality; iv. Lessen the burden of the City during economic uncertainties; V. Not cause undue burden on the City's General Fund; vi. Extend the useful life of existing assets. b) Any prospective debt issuance must have an identified revenue source for repayment, which may include the general fund, enterprise funds, special revenue funds and/or community development funds; c) A feasibility analysis will also be performed on the fund that has been identified as the source of repayment that includes determining: i. Operating Position (Gain/Loss: Operating revenues less Operating Expenditures); fl. Existing Fund Balance(unassigned/unrestricted) capacity for current and future years; iii. Debt Service Coverage; and iv. Future economic outlook (multi-year forecast or pro forma). d) Evaluating any other material factors, including but not limited to: L Risk of 144tigation or potential litigation: it. Potential negative revenue and expenditure variances; and iii. Compliance to pertinent legislation. Generally, there will be a recommendation to issue debt when: 1) the aforementioned assessment has been completed, 2) if current operational resources are insufficient to finance the project, and 3) when debt financing is the optimal structure given the City's long-term financial outlook. When appropriate, Finance will evaluate the long-term impact of all outstanding and planned debt issuance on the City's finances_ and Will -•-••'a- - •---mmenda•'-- te the City MaAageF. Such evaluation recognizes that the City has limited capacity for debt service in its budget and that each newly issued financing will obligate the City to a series of payments until the debt is repaid. Subsequent to the evaluation. Finance will provide a recommendation for the City Manager's consideration. The City Manager will make the determination to proceed with the issuance of debt, subiect to City Council and, if necessary, voter approval. DEBT LIMITS Types of Financing Options and Use of Debt Proceeds Once it has been determined that issuing debt is a viable and beneficial option, the Santa Ana Issuers can issue the following types of debt under this Policy subject to state and federal law, the City's Charter, City's Municipal Code and City Council Policyies(as approved by the maiority of the City Council as may be applicable: a) general obligation bonds (authorized by the affirmative votes of two-thirds (2/3) of the voters); b) lease revenue bonds or notes; c) certificates of participation; 55D-14 _.... -._. "_ . -.-- —t Debt Management Policy Page 3 d) land -secured financings, such as special tax revenue bonds and/or limited obligation assessment bonds; e) tax increment financings to the extent permitted under state law; f) private placement and/or private loan financing g) conduit financings, whereby the City secures financing on behalf of a third party h) financings for affordable housing (TEFRA) and qualified 501 (c) (3) organizations (access to tax- exempt financing); and i) any other or new type of debt that is allowed under new state or federal law. Debt may be publicly issued or privately placed and may be issued on either a long-term basis ("Long- term Debt") or short-term basis ("Short-term Debt") consistent with the provisions of this Policy. Long-term debt, defined as a final maturity date greater than five years from the issuance date, may be used to finance the acquisition or improvement of land, facilities, or equipment that cannot be financed from current revenues and is appropriate to spread the costs over more than one fiscal year, and will be reflected in the Adopted Citywide Budget as well as the Seven -Year Capital Improvement Plan ("CIP"), if applicable. Long-term debt may also be used to fund capitalized interest (for no longer than a three-year period), costs of issuance, required reserves, and any other financing -related costs which is legally permitted. Under no circumstance shall long-term debt be allowed to fund annual reoccurring operating costs or routine maintenance expenses. Shan -term debt, defined as a final maturity date less than five years from the issuance date, through financing vehicles will be considered as an interim source of funding for the acquisition of equipment, funding for a capital improvement in anticipation of long-term borrowing, or any other purpose in which issuing long-term debt is not a viable option, provided that there is sufficient reason to pursue a short- term debt issuance. Short-term debt may also be issued for capitalized interests and other financing - related costs. The final maturity of the debt issued to finance the project shall be consistent with the useful life of the project, unless it is determined that extraordinary circumstances exist. In addition, short-term debt may be considered if available cash is insufficient to meet short-term operating needs. Debt Restrictions The Santa Ana Issuers will keep outstanding debt within the limits of applicable federal and state law. Specifically and in accordance with section 602 of the City Charter, the Issuers'total general obligation bond indebtedness shall not exceed 10 percent of the "total assessed value of real property within the City_'. As such, the City will keep outstanding general obligation debt within the specified limits. The Successor Agency, in particular, will issue debt to refund its outstanding debt consistent with applicable law. More specifically, in the event that the City issues: a. a general obligation bond: the debt service payments, in the aggregate, shall not exceed 10% of General Fund revenues; b. a lease revenue bond or certificates of participation: the debt service payments shall be limited by a debt service coverage ratio (e.g., annual net pledged revenue to annual debt 55D-15 Debt Management Policy Page 4 service) of at least a 2.00, preferably higher; as well as additional bond provisions contained In the bond covenants; and c. a conduit debt: subject to approval based on the borrower's creditworthiness, purpose of the borrowing issue, and subject to a comprehensive review conducted by the City. Furthermore, it is generally recommended that any costs of issuance associated with the debt shall not exceed 5% of the principal amount of the debt, unless it can be determined that the public benefit outweighs the cost. DEBT STRUCTURE All capital projects financed through the issuance of debt will be financed for a period not to exceed the useful life of the project. Debt will be structured for a period consistent with a fair allocation of costs to current and future beneficiaries of the financed capital project and, consideration will be given, so that the maturity of the debt issue is consistent with the useful life of the capital project to be financed. Ultimately, however, market conditions at the time of sale will inform the City on its decision regarding debt service structure. Certain types of financings such as certificates of participation and other lease -secured financings may require the use of capitalized interest from the issuance date until the City has beneficial use and occupancy of the financed project. Interest rate shall not be funded (capitalized) beyond a three-year period, or a shorter period if further restricted by the governing bond documents. The City may require that capitalized interest on the initial series of the bonds be funded from the proceeds of the bonds. Fixed and Variable Interest Rate The Santa Ana Issuers can make a determination to utilize either a variable or fixed interest rate debt based on the market conditions. In general, in order to maintain a predictable debt service burden, the City shall give preference to debt that carries a fixed interest rate. However, the City may consider variable rate debt in certain instances, such as: a) during a high interest rate environment; b) if the source for repayment fluctuates, and is anticipated to move in the same direction as market -generated variable interest rates, or the dedication of revenues allows capacity for variability; and c) if financing structure and budgetary safeguards are in place to prevent adverse impacts from interest rate shifts Moreover and in accordance with rating agency guidelines, the percentage of variable rate debt outstanding shall not exceed 20% of the City's total outstanding debt. DEBT ISSUANCE Service Providers During the course of a debt issuance, the City must select several professional services providers. The Santa Ana Issuers will utilize the services of independent financial/municipal advisors, underwriters, and pertinent legal counsel on all debt financings as well as other parties depending on the type of financing. Additionally, the City will require that all providers have the highest ethical standards as it relates to 55D-16 Debt Management Policy Page 5 their performance with no existing material or egregious legal grievances against them or pending i investigations for the same OF be URdeF investigaVen fGF any penmen• violation-. The City will require full disclosure of any history ofsaid-grievances or legal proceedings against providers iavestigatiens#rem The Santa Ana Issuers will strive to select service providers as necessary through a competitive bidding process. However, when appropriate, a sole -source selection may be allowed (i.e., timing of issuance, product & financing packaging). The overall goal is to achieve an appropriate balance between service and cost. Methods of Sale The Director of Finance shall also be responsible for determining the appropriate manner in which to offer any debt to investors, these include: competitive bid, negotiated sale and/or private placement, which will be considered on a case-by-case basis. The preference will be given to competitive sale method. In a competitive sale, the securities shall be awarded to the bidder providing the lowest interest cost as long as the bid adheres to the requirements set forth in the governing bond documents. In a negotiated sale, the City shall assess the following circumstances: a) size of the issue which may limit the number of potential bidders b) if market volatility is such that flexibility in timing the sale in changing interest rate environments is most beneficial for the City Debt Refunding The Finance Department shall also have the responsibility to analyze outstanding bond issues for refunding opportunities that may be presented by underwriting and/or f nancial/municipal advisory firms. In general, the City hereby establishes a net present value threshold of a minimum of three percent (3%) of the refunded bond principal amount. The net present value savings shall be net of all costs related to refinancing. Refunding debt that produce a net present value savings of less than three percent (3%) will be considered on a case-by-case basis. Refunding debt with negative savings will not be considered unless there is a compelling public policy objective that is accomplished by retiring the debt. In conjunction with the required net present value threshold, any savings from a refunding debt shall be significantly greater than the cost of issuance. DEBT MANAGEMENT The Finance Department, in collaboration with the requesting department, will be responsible for managing and coordinating all activities related to the issuance and administration of debt, including, but not limited to: a) investment of bond proceeds I. Investments of all bond proceeds or other forms of debt shall be consistent with federal tax requirements, any applicable state law requirements, the governing bond documents, and the City's Investment Polity as modified from time to time. b) monitoring compliance with bond covenants; -- 55D-17 Debt Management Policy Page 6 c) implementing internal control procedures to ensure the use of bond proceeds will be directed to the intended use; I d) monitoring use of facilities financed with the issued debt; e) continuing disclosure requirements; f) monitoring arbitrage compliance; and g) ongoing interactions with credit rating agencies i Continuing Disclosure I As a critical component to the debt management aspect, on June 21, 2016, the City Council adopted the "Municipal Securities Disclosure Policy & Procedures", which governs and outlines the initial and annual continuing disclosure process & requirements. i Records Retention The Finance Department and other applicable departments, as may be necessary, will be responsible for maintaining the following documents for the term of debt issuance (including debt issued to refinance existing debt, if any): a) a copy of the closing transcript (s) and other relevant documentation delivered to the City at or in connection with closing of the Issuance; b) a copy of all material documents relating to capital expenditures financed or refinanced by debt proceeds, including but not limited to: draw down requests and evidence as to the amount and date for each draw down, trustee requisitions, payment records, as well as documents relating to costs paid or reimbursed with the said proceeds I c) a copy of all contracts involving the use of debt-financed or refinanced assets 1, dj_a copy of all records of investments, investment agreements, arbitrage reports, and underlying documents, including trustee statements and copies of all bidding documents, if any. Formatted: List Paagmph, left, No bullets or numbering, Tab Stops: Nag 1.29' ger EMT Comments: ' Formatted: Highlight �dldioj the Houslmz Authority AganEy as an agency that can issue debt and as such is covered Formatted: Bulleted + Level: 1+Aligned at: 0.25'+Indent While the Housing Authority will abide by the basic Provisions within this Debt , Formatted: Fortmla: Acentl Management Policy, the Housing Authority is sublect to stricter guidelines that are Formatted: Bulleted + Leyel: 2+Aligned at: 0.]5'+Indent established by the federal government that are mores specific than what is re uired within this narticu Formatted: Font cola: Agent 1 lar Poli ar adding guidance on what can be offered as collateral during a private placemeni Formatted: Font cobr:Aaentl tion Formatted: Hyhlight The determination of what can be offered as collateral will be made during a privat Formatted: Bulleted + Level: I+Aligned at: 0.25'+bdent at: 0.5" Placement transaction and will be reviewed on a case-by-case basis Assets that are iFormatted: Font cola:Aaentl deemed subject to collateralization will be offered, when applicable during a transaction Formatted: Bulletel+Level: 2+aigned at 0.75'+bdem at: 1" 55D-18