HomeMy WebLinkAboutR-2021-188 Debt Management PolicyRESOLUTION NO.2021-188
A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF DANIA
BEACH, FLORIDA, ADOPTING A CITY "DEBT MANAGEMENT POLICY";
PROVIDING FOR CONFLICTS; FURTHER, PROVIDING FOR AN
EFFECTIVE DATE.
WHEREAS, pursuant to Section 2-12, entitled "Debt Management Policy", of Article I,
entitled "In General", of Chapter 2, entitled "Administration", of the City Code of Ordinances, the
City Commission shall, from time to time adopt a City Debt Management Policy; and
WHEREAS, the City Finance Department previously prepared and adopted a Debt
Management Policy on July 12, 2011 and submits a revised policy to the City Commission for
approval and adoption;
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COMMISSION OF THE
CITY OF DANIA BEACH, FLORIDA:
Section 1. That pursuant to this Resolution, the City Commission adopts a revised City
Debt Management Policy, a copy of which Policy is attached, marked as Exhibit "A", and it is
made a part of and incorporated into this Resolution by this reference.
Section 2. That all resolutions or parts of resolutions in conflict with this Resolution
are repealed to the extent of such conflict.
Section 3. That this Resolution shall be in full force and take effect immediately upon
its passage and adoption.
PASSED AND ADOPTED on December 14, 2021.
ATTEST:
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THOMAS SCHNEIDER, CMC
CITY CLERK <e►
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APPROVED AST FORM AND CORRECTNESS:
THOMAS J. 4NIB
CITY ATT Y
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TAMARA JAME
MAYOR
EXHIBIT A
CITY OF DANIA BEACH
DEBT MANAGEMENT POLICY
I. PURPOSE
The purpose of the City of Dania Beach Debt Management Policy (the "Policy") is to establish
guidelines and a framework for the issuance and management of the City's debt. The City is
committed to strong financial management practices, including maintaining the financial viability
of the City, and the full and timely repayment of all borrowings.
This policy provides the framework for direct debt origination and issuance activities of the City.
The Policy includes debt obligations originated ONLY by the City and does not cover indirect
debt, such as debt originated by any other overlapping jurisdiction or governmental agency.
The policy will be reviewed as necessary by the Finance Director. Any modifications made to the
policy must be approved by the City Commission.
II. OBJECTIVE
Under the governance and guidance of federal and state laws, the City's charter, ordinances, and
resolutions, the City may periodically enter into debt obligations to finance the construction or
acquisition of infrastructure and other assets, or to refinance existing debt. It is intended that such
infrastructure improvements add value to the residents and businesses of the City, while spreading
the cost of such improvements over the life of the asset, allocating those costs to those who will
benefit from the asset over its useful life. The City's goal is to obtain a rate of interest that results
in the lowest total cost of issuance for taxpayers, residents, and businesses.
This Policy establishes specific guidelines to ensure that the City adheres to sound financial
practices whenever it incurs debt. The City Administration shall refer to this Policy when
recommending the issuance of debt. This Policy may be amended from time to time by the City
Commission to reflect innovative, but prudent financial and business practices.
This Policy was developed in accordance with generally accepted practices as outlined by the
Government Finance Officers Association (GFOA) and national rating agencies.
III. IMPLEMENTATION AND WAIVER
The City Administration shall be responsible for implementation of the policies set forth in this
Policy. To the extent permitted by law, the City Commission may waive all or any part of this
Policy with respect to a particular debt issuance provided that it can be demonstrated that such
waiver would result in a benefit to the City.
IV. PRUDENCE
Debt will be issued with judgment and care, the same which persons of prudence, discretion, and
intelligence exercise in the management of their own affairs. The standard of prudence to be used
by debt issuance officials will be the "prudent person" standard and will be applied in the context
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of managing the City's portfolio of debt. The "prudent person" is expected to be a reasonably well-
informed person, not an investment banker or market maker, who is obligated to act responsibly.
V. GUIDELINES FOR THE USE OF DEBT
The primary use of debt by the City is to fund capital projects and purchases. As mentioned,
because the use of public facilities will occur over many years, it is appropriate to allocate the cost
of the facilities over the useful life of the financed projects. The City shall follow guidelines in its
endeavors to finance public facility and infrastructure improvements, including but not limited to:
A. The use of "pay as you go" or cash funding whenever prudent.
B. Debt shall only be issued for capital improvements including infrastructure and equipment
with a useful life exceeding three years.
C. The term of any debt issuance shall not exceed the useful life of the expenditure being
financed and should not exceed 30 years from the date of issuance unless there are
extenuating circumstances that justify the longer term.
D. The City shall not issue debt to subsidize or finance current operations; however, in the event
of an emergency such as a natural or man-made disaster, the City may use debt to meet short-
term operating needs, after it has exhausted accumulated disaster reserves or the use of which
is not practical.
A. The City shall publish and distribute an official statement for each publicly traded bond issue.
B. The City should consider the purchase of private bond insurance at the time of issuance if it
is financially beneficial to the transaction.
C. The City shall not issue General Obligation debt without a referendum.
D. General Obligation debt shall only be used to finance or refinance capital expenditures.
E. The City shall monitor existing debt issues for refunding opportunities.
F. The City shall seek to maintain the highest bond rating possible to ensure that borrowing
costs are minimized and access to credit is preserved.
G. All debt issued by the City shall be approved (minimally) by resolution of the City
Commission of the City of Dania Beach, at a duly noticed public meeting.
The City's General Fund reserve balance should be sufficient to provide the City with adequate
working capital and enable it to finance unforeseen emergencies without borrowing. In order to
conserve the General Fund equity balance and avoid reliance on this balance, the City will avoid
financing long term projects using the General Fund reserve balance, unless it is deemed favorable
to do so by the City Administration and approved by the City Commission.
VI. DEBT LIMIT
General Obligation Bonds shall have debt ratios necessary to maintain sound credit ratings. Ratios
to be considered may include net direct debt to just (market) value of property and net direct debt
to total governmental fund revenue. Revenue Bonds shall maintain debt service coverage ratios
structured to maintain or improve credit ratings.
VII. FINANCING STRUCTURE AND CONSIDERATIONS
The City shall utilize various debt structures to accomplish its financing goals. The structure of
each debt issuance (not including lease -purchase finance) shall be developed with input from a
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Financial Advisor and will include consideration of the capital projects to be financed, the security
being pledged, debt service coverage requirements, and market conditions. The goal is to provide
the lowest effective financing cost while providing the greatest flexibility to realize added value
as market conditions change over time. Some factors that may influence the size, amount, and
structure of any debt issuance are as follows:
Cash Funding
City policy encourages funding capital projects with cash, on a pay as you go basis, to the
extent prudent. As part of the cash funding strategy, the City will seek grant funding for capital
projects where applicable. Cash funding is recommended under the following circumstances:
To finance purchases of assets with short lives (less than three years)
To finance recurring maintenance expenditures (paving, stormwater pipe lining, etc.)
When market conditions are unstable or present difficulties in achieving acceptable
interest rates
Long -Term Debt Financing
It is prudent policy to use long-term notes and bonds for capital asset funding under the
parameters set forth below. No single parameter stands alone; they must all be considered
under the then current circumstances and in relation to the others. The parameters are as
follows:
■ Long term debt may be used to finance essential capital projects and certain equipment
where it is cost effective and prudent.
■ Long term debt, which includes lease financings, will not be used to fund the City's
operations.
■ The useful life of a financed asset or project shall meet or exceed the payout schedule
of any debt issued by the City.
■ The maximum amortization on any debt issue should not exceed 30 years from the date
of issuance unless there are extenuating circumstances that justify the longer term.
Short -Term Debt Financing
In certain circumstances, it may be more appropriate or necessary to issue short-term debt
financing. This may come in the form of a note payable, such as an anticipation note, or a line
of credit from a bank. There are benefits to short-term debt financing, most notably faster
access to funds, in anticipation of a bond issue or some other future revenue source.
Fixed and Variable Rate Debt
The City may issue debt with fixed or variable interest rates, with fixed rate being the preferred
method in nearly all cases. Variable rate debt may be issued (except for the issuance of General
Obligation bonds), but at no time shall outstanding variable rate debt be greater than 20 percent
of the City's outstanding debt. Given the possibility that the need for project financing may
not coincide with attractive market interest rates, a variable rate program can be a prudent way
to provide for the timely initiation of certain projects. Variable rate debt can also be used as an
efficient way to fund new construction requirements, and as a permanent component of a long-
term funding strategy, since a mix of fixed and variable rate debt may lower the overall cost of
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capital. In addition, this policy does not preclude the use of interest rate swaps to synthetically
fix a variable interest rate. The decision to issue debt must be reviewed and approved by the
City Administration, in consultation with the Financial Advisor, prior to approval by the City
Commission.
Tax -Exempt and Taxable Debt
The City may issue tax-exempt or taxable debt. Taxable debt shall only be approved by the
Commission upon a favorable recommendation from the City Administration, the Financial
Advisor, and a demonstration that there is an economic benefit to the City from issuing taxable
debt, or that there is no other economically feasible alternative.
Debt Service Payments
Generally, borrowings by the City should be of a duration that does not exceed the economic
life of the improvement that it finances, and at times be shorter than the projected economic
life. The City shall structure its long-term debt with level debt service payments, either on a
series or aggregate basis, unless the Financial Advisor recommends an alternative structure.
An alternative structure may be a preferred course of action due to factors such as the projected
growth in revenues pledged to service the debt, the nature of the capital projects being financed,
and current cash flow positions. The City may also consider the shape of the yield curve as the
overall interest rate environment may influence the term selected by the City.
Maturity
The City's obligations on long term debt shall mature no later than the limitation set forth in
Florida law, or the useful life of the capital projects being financed as required by City policy
and related regulations.
Premium and Discount Bonds
The City may sell both Premium and Discount Bonds depending on market conditions and the
City's needs. These bonds shall only be issued upon recommendation of the Financial Advisor,
and upon a determination by the City Administration that such sale shall not negatively impact
the amount of bond proceeds available to fund the capital projects approved for funding.
Call Provisions
Call provisions for the City's bond issues shall be made as short as possible, consistent with
the lowest interest cost to the City. When possible, bonds shall be callable only at par.
VIII. TYPES OF PERMITTED DEBT
The City is authorized to issue various types of debt, depending on market conditions, the City's
cash flow needs, and the proposed use of the debt proceeds.
General Obligation Bonds
For investors, General Obligation (G.O.) bonds are the most secure City transaction, as they
are backed by the full faith and credit of the City, a good faith commitment to use its legal
powers to raise revenues to pay the bonds. A commitment of the City's full faith and credit
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shall be used when financing projects that benefit the City as a whole. Principal and interest
will be paid from the City's debt service millage levy assessed on all taxable real and personal
property. The amount of outstanding G.O. debt is limited by the City's debt limit as established
by policy but must also conform to limitations on the general credit of the City.
Revenue Bonds
Revenue bonds are payable from a specific source of revenue. Pledged revenues may be
derived from operation of the financed project, grants, or legally available non -ad valorem
revenues. A referendum is not required for the issuance of such obligations and the bonds may
be secured by a covenant to budget and appropriate by the City Commission. Only the revenue
specified in the documentation for the bond issuance is required to be used for repayment of
interest and principal. Unlike G.O. bonds, revenue bonds are not backed by the full faith and
credit of the issuing municipality.
Special Assessment Bonds
Special assessment bonds provide for capital improvements and are paid in whole or in part by
levying and collecting special assessments on the abutting, adjoining, contiguous, or other
specially benefited property. A special assessment is a charge imposed against a property in a
particular area because that property receives a special benefit by virtue of some public
improvement, separate and apart from the general benefit accruing to the public at large.
Although special assessment bonds are repaid from amounts levied against affected property
owners, in the unlikely event collections are not sufficient to make debt payments, the
responsibility rests with the City to meet that obligation.
Bond Pools
A bond pool offers governmental units an opportunity to participate in a joint venture with
other entities to borrow funds for capital improvements, renovations, fixed asset additions or
refinance of existing debt. Advantages of bond pools may include improved marketability and
reduction in issuance costs through economies of scale. Bond pools may provide either long-
term fixed-rate or variable rate debt products and may be secured by general obligation (full
faith and credit pledge), revenue, or special assessments.
Due to the nature of a bond pool transaction, the City may have little or no control over the
issuance process. The City would not technically issue the bonds; rather, the City would
receive a loan from the bond pool sponsoring organization. As the bond issuer, the pool
sponsor develops a program to facilitate the transaction, whereby vendors, including the
underwriter, financial advisor, and bond counsel, have been pre -selected and costs have been
negotiated. Additionally, the method of sale may be determined by the pool sponsor,
depending on factors such as the size of the financing and market conditions. The credit rating
of other participants in the pool should be considered as it may affect the overall borrowing
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costs for the City. Ultimately, a bond pool provides a turnkey financing solution, structured to
meet the City's needs, in a cost-effective manner.
Lease Purchase Financing
Lease -purchase financing agreements are commonly used by municipal entities to finance
equipment purchases. Such arrangements are subject to annual appropriations of funds by the
Lessee, so the Lessee's general obligation is not pledged to the Lessor. The Lessor's security
in a lease -purchase agreement is a lien on the financed equipment. The term is agreed upon
by the Lessee and Lessor and is usually based on the useful life of the equipment but could be
shorter based on the financing needs and objectives of the Lessee. Maximum permissible terms
under IRS requirements apply if the transaction is tax-exempt.
Bank Loans
The City may issue bank loans (also referred to as promissory notes or notes payable), which
are agreements with banks to borrow an amount of funds for a specified purpose, to be repaid
over a pre -determined period of time. Execution of bank loans generally is simpler than a bond
issue that is marketed to the public. Bank loans also have fewer issuance costs and less ongoing
compliance requirements. Additionally, bank loans can often be structured in a manner that
more closely conforms to specific project or repayment considerations than is the case with
bond issues. However, bank loans are typically not executed in an environment that is as
transparent as the bond market and public disclosure of bank loans currently is not required
beyond the reporting requirements in the City's financial statements.
Anticipation Notes
Bond anticipation notes are issued to finance projects or portions of projects. This form of
short-term debt is appropriate as a source of permanent financing for projects with useful lives
of less than five years, or as a temporary funding source prior to and in anticipation of the
completion of a bond sale. Additionally, anticipation notes can also be issued in expectation
of tax or grant revenues to satisfy operating cash needs. Anticipation notes may be sold in
either a competitive or negotiated sale, subject to authorization and approval by the City
Commission.
Lines/Letters of Credit
As an alternative to anticipation notes, the City may enter into agreements with commercial
banks or other financial entities for purposes of acquiring lines or letters of credit that shall
provide the City with access to credit under terms and conditions as specified in such
agreements. Any agreements with financial institutions for the acquisition of lines or letters of
credit shall be approved by the City Commission, only upon recommendation of the City
Administration. The amount of outstanding principal drawn against a line of credit counts
against the debt limits.
IX. METHOD OF SALE
A. Competitive Sale. When determined appropriate by the City Administration, in consultation
with the Financial Advisor, the City may elect to sell its debt obligations through a
competitive sale. In such instances where the City, in a competitive bidding for its debt
6 RESOLUTION #2021-188
securities (whether general obligation or non -general obligation debt), deems the bids
received as unsatisfactory or does not receive bids, it may, under the authority of the City
Commission, enter into negotiation for sale of the securities.
B. Negotiated Sale. When determined appropriate by the City Administration, in consultation
with the Financial Advisor, the City may elect to sell its debt obligations through a negotiated
sale. Such determination may be made on an issue -by -issue basis, for a series of issues, or
for part or all of a specific financing program. Selection of the underwriting team shall be
made pursuant to selection procedures set forth in this Debt Policy, consistent with City
Code.
C. Private Placement. When determined appropriate by the City Administration, in
consultation with the Financial Advisor, the City may elect to sell its debt obligations through
a private placement or limited public offering. Selection of a placement agent shall be made
pursuant to selection procedures developed by the Finance Director, consistent with City
policy.
D. Bond Pools. The City may elect to issue its debt obligations through a bond pool, when
determined appropriate by the City Administration. In this arrangement, the City will enter
into a loan agreement with a bond pool sponsoring organization, who will issue bonds on
behalf of the City. These bonds may be issued using one of the methods above, depending
on factors such as the size of the financing and market conditions.
X. INVESTMENT OF DEBT PROCEEDS AND DEBT FUNDS AND ACCOUNTS
The City Administration, in consultation with the Financial Advisor and applicable Investment
Advisor, shall adhere to the written City Investment Policy, Debt Agreements, and Section
218.415, Florida Statues when investing the proceeds from issued debt, and when managing
moneys on deposit in funds and accounts set aside to pay debt service on City debt.
XI. CREDIT CONSIDERATIONS
The City shall obtain a rating from one or more of the national credit rating agencies each time the
City issues publicly traded bonds. The City shall not issue bonds with a rating of less than
investment grade. Accordingly, the City shall exercise prudence and diligence in preparing its
budget and managing its finances to maintain satisfactory credit ratings. The City shall seek to
maintain the highest bond ratings that are practical.
Bond Insurance/Credit Enhancement
Bond insurance will be used when it provides an economic savings for the City and does not limit
the City's financing flexibility. The City may purchase bond insurance and/or reserve fund surety
policies which guarantee timely debt service payments on debt to be issued, to enhance the
attractiveness of the debt to the financial markets. Such credit enhancement shall only be used if
at the time the debt is priced, there is a demonstrable economic benefit to the City which exceeds
the cost of the credit enhancement.
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XII. PROFESSIONAL CONSULTANTS
The City shall work with financial consultants to advise the City, and to structure, price and sell
City debt. The City shall employ the following financial professionals to assist with debt
management:
■ Financial Advisors - The City shall utilize qualified firms, selected from time to time
through a qualification process that may include competitive bidding, to serve as Financial
Advisor to the City. The City shall select all other ancillary services (paying agents,
registrars, escrow agents, printers, etc.) in accordance with the City's policies for each debt
issuance. All professional services are paid from debt proceeds.
■ Bond Counsel and Disclosure Counsel - The City shall utilize law firms as Bond Counsel
and Disclosure Counsel to represent the City.
■ Underwriters - In all negotiated sales, the City shall utilize Underwriters selected pursuant
to a qualification process.
XIII. CONTINUING DISCLOSURE
The Finance Director shall be responsible for providing ongoing disclosure information to
established national information repositories and for maintaining compliance with disclosure
standards promulgated by state and national regulatory bodies.
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