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HomeMy WebLinkAboutR-2892-2-10RESOLUTION NO. 2892-2-IO(R) ' A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ALLEN, COLLIN COUNTY, TEXAS, ADOPTING A DEBT MANAGEMENT AND A FUND BALANCE RESERVE POLICY FOR THE CITY; PROVIDING FOR A REPEALING CLAUSE; AND PROVIDING FOR AN EFFECTIVE DATE. WHEREAS, the City government has an important responsibility to its citizens to carefully account for public funds, to manage municipal finances wisely and to plan the adequate funding of services and improvements; and, WHEREAS, the City of Allen has had and continues to experience residential and commercial growth with a commensurate demand for services and the financing of major capital improvements; and, WHEREAS, the capital improvements must be structured by ability to pay in order to maintain fiscal stability and provide for continued City operations and services; and, WHEREAS, there is a necessity to establish a debt management and fund balance reserve policy and guidelines to provide the structure of continuing fiscal stability, reduce financial risk and maintain adequate contingency assets for present and future requirements. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ALLEN, COLLIN COUNTY, TEXAS, THAT: SECTION 1. The Governing Body of the City hereby adopts the debt management and fund balance reserve ' policy as set forth. "DEBT MANAGEMENT AND FUND BALANCE RESERVE POLICIES A. General Debt Management Policies I. The City will conduct its debt management functions in a manner designed to maintain or enhance its existing credit ratings. 2. Debt issuance will be utilized by the City only in those cases where public policy, equity and efficient use of limited resources favor debt over other funding methods. Decision criteria considered shall include the following: (a) Debt shall be self-supporting whenever possible. Self-supporting debt in this context will either be revenue bonds secured by a specific revenue pledge (i.e., water and sewer revenues) or general obligation debt including certificates of obligation where the debt service will be paid from user fees or other specific revenues even though legally there is an ad valorem tax pledge. (b) Debt shall be primarily used to finance capital projects with a relatively long life expectancy, i.e., generally ten (10) years or greater unless technology related. (c) Short term debt may be issued as authorized by the City Council when circumstances or ' opportunities are present and such issuance will not adversely affect the operating funds, the ability to make debt payments, or jeopardize the financial integrity of the City or the component units. (d) Debt shall be issued or structured in such a way so that the tern of the financing does not exceed the useful life of the asset. ' (e) The method of the debt sale shall be determined based upon the current market conditions. (f) Debt refunding opportunities shall be monitored for potential savings or modifications to certain covenants. (g) Credit ratings shall be requested for long term debt except when long term debt is issued as a private placement. Bond insurance for long term debt shall be reviewed for its financial feasibility. (h) Investment of bond proceeds shall be in compliance with the City's investment policy. (i) The City shall have a program to comply with arbitrage rebate monitoring and filing. Q) The City shall follow all mandated bond disclosure requirements. (k) The City shall follow all bond covenants. B. Capital Improvements Program 1. A capital improvements program shall be prepared, submitted to, and approved by the Council annually pursuant to the City Charter, Article IV. 2. The capital improvements program shall consist of at least a 5 -year priority listing of long term capital projects, accompanied by a financing plan which reflects potential financing options for all projects in the plan, and is supported by the appropriate sources of revenue. The financing plan shall be in accordance with the debt management policies contained herein. 3. It is the intent of these policies that authorized projects and associated financings be part of an adopted capital improvements program. C. Management 1. It shall be the responsibility of the City Manager and his staff to maintain all necessary files associated with the issuance of City debt. 2. The City Manager shall submit to the City Council a debt service fiscal impact statement as part of the annual budget process involving the planned issuance of debt in the capital improvements program. The fiscal impact statement shall contain, at a minimum, an estimate of the debt service levy to be required at the time of long term debt issuance and a calculation showing the impact of this additional levy on the existing debt service levy at that time. The fiscal impact statement shall provide information on any projected user fee rate increases in the case of revenue bond or self-supporting debt financing. D. Debt Issuance Purposes and Revenue Sources 1. General capital improvements shall be financed in accordance with the capital improvements ' program or as authorized by Article V of the City Charter, by City Council or the City Manager. Funds shall be available for the financing of general improvements in accordance with the following: Resolution No. 2892-2-10(R), Page 2 (a) Current property tax revenues and future property tax revenues generated by increases in valuation shall have priority allocation to the repayment of existing and future general ' obligation tax supported debt. Remaining property tax revenues, together with sales tax and other general fund revenues shall be used to fund the City's operating budget. (b) To the extent funds described above are in excess of that required by the City's general fund operating budget, all or a portion of the excess amount shall be used for pay-as-you-go financing of general capital improvements or assets. (c) It shall be a goal, but not a requirement, of the City to finance a portion of the city -at -large capital improvement budget with pay-as-you-go financing with current resources remaining from year-end savings. (d) Debt service payments on general obligation bonds, not abated by other revenues, shall be paid from the debt service property tax levy. (e) Outstanding bonds will be retired according to the debt repayment schedules. (f) Refunding of debt is desired when the net present value savings will exceed 3% of the existing debt service or when the net dollar savings will exceed $150,000. Negative arbitrage and opportunity costs will be considered for advance refundings. Bond refundings may also be considered in order to modify prior bond covenants or accomplish other specific objectives. A negative net present value savings may be incurred in these cases. (g) Long term debt will not be issued by the City to finance projects for other govemmental entities that have the authority to issue tax-free or taxable bonds on their own behalf for those ' purposes. If the other governmental entities and the City are partners in a project requiring debt issuance, then long term debt issuance by the City may be considered. (h) Assumptions for taxable assessed valuation increases and revenue growth shall be conservative and justifiable. 2. Debt issued for water, sewer and other purposes for which operating and capital needs are supported by user fees, shall first be considered for issuance in the form of revenue bonds, certificates of obligation, or other debt instruments secured by the appropriate user fees. User fees shall be adequate to support operating requirements and revenue bond covenants for each purpose. Certificates of Obligation secured by operating revenues may also need to be secured with property taxes. E. Debt Issuance Limits and Repayment Schedules 1. The City shall use the following limits to guide issuance of debt: (a) The City should not allocate more than forty percent (40%) of its tax rate towards debt. (b) it is the goal of the City that the outstanding debt consisting of general obligation bonds, certificates of obligations, and capital leases that are supported by property taxes should not exceed a direct debt burden ratio (tax debt to taxable assessed value) of two percent (2.0%). ' (c) It is a goal of the City that property tax supported debt service, consisting of certificates of obligation and general obligation debt payments should not exceed twenty-five percent (25%) of expenditures for the general fund and debt service combined. Resolution No. 2892-2-10(R), Page 3 (d) If the City debt status is not at the levels stipulated by these policies at the time of their adoption, a transition period in years will be set for each policy individually. ' 2. Repayment schedules shall be designed to relate to the useful life of the asset and generally be in accordance with the following: (a) Twenty (20) years for most general obligation public improvement debt. Debt will generally be structured with even payments over the life of the issue although principal reductions in early years may be used to accomplish specific in rate objectives. (b) Ten (10) years or less for debt related to assets that have a life expectancy of 10 years or less. Debt will generally be structured with even payments over the life of the issue or matched against associated projected revenues. (c) Twenty years or more (20+) years for capital projects of citywide significance and where justified by the magnitude of the project and asset life. Debt will generally be structured with even payments over the life of the issue although principal reductions in early years may be used to accomplish specific tax rate objectives. (d) On an overall basis, the City's general obligation debt portfolio will generally be structured to retire at least fifty percent (50%) of the City's indebtedness within ten (10) years if the debt repayment is planned for twenty (20) years. (e) On an overall basis, the City's water and sewer revenue debt will generally be structured to retire at least forty-five percent to fifty percent (45%-50%) of the system's indebtedness within ten (10) years if the debt repayment is planned for twenty (20) years. ' (f) If debt is issued that exceeds twenty (20) years, then it shall be a goal to structure the debt repayment with level debt service payments or, in the case of revenue bonds, with an amortization schedule that allows for the fastest debt repayment schedule while maintaining appropriate debt service coverage ratios. F. Oneratina Fund Balances or Workina Caoital Reserves I. The maintenance of adequate unrestricted operating reserves is essential to the financial strength and flexibility of the City as a whole. They are an integral part of the financial structure of the City and help make it possible for the City to provide continuous operational services to the public and to issue future debt. Unrestricted operating fund balances or working capital reserves are a significant factor considered in evaluating and assigning credit ratings by the bond rating agencies. 2. The City shall maintain the following reserves: (a) Pursuant to City Charter, Section 4.07, an annual unallocated reserve of the total budget equal to three percent (3%) may be recommended in the annual budget to be used for unexpected items of expense which were not contained as original items of expenditure. (b) A general fand unrestricted fund balance shall be maintained in an amount that is within a range of 60 to 90 days of annual expenditures. Given the varying and less stable nature of ' sales tax to changes in the economy, investment earnings impacted by changes in investment rates, weather affecting franchise fees, general economic changes, and permit revenue affected by the economy, a range for the unrestricted fund balance allows for flexibility and guidance. Resolution No. 2892-2-10(R), Page 4 I 1 (c) An unrestricted working capital reserve shall be maintained in an amount that is within a range of 90 to 120 days of annual expenditures in the enterprise funds in order to provide for potential unanticipated needs or the impact of weather. (d) If applicable, all fund balances, including debt service reserve funds, or working capital reserves shall remain in complete compliance with bond issue covenants. (e) An annual cash basis fund balance reserve in the debt service fund shall be maintained in an amount that is within a range of five percent to ten percent (5%-10%) of the annual principal and interest payments. For purposes of long term financial stability, a reserve in excess of ten percent (10%) may be prudent in order to reduce volatility of the tax rates between the general and debt service funds. (f) If the City's fund balance or working capital reserve status is not at the levels stipulated by these policies at the time of their adoption, a transition period in years will be set for each policy individually. (g) Nothing in this policy shall restrict the reserves from exceeding the stated ranges or goals. It is understood that it is essential that the City maintain adequate levels of unrestricted reserves to mitigate current or future risks from revenue shortfalls, economic downturns, unanticipated expenditures, impacts from weather, and to ensure stable tax rates. Furthermore, anticipated cash financing of projects may result in the fund balances exceeding the ranges while funds are accumulated." SECTION 2. All provisions of any resolution of the City of Allen, Texas, in conflict with the provisions of this resolution be, and the same is hereby, repealed and all other provisions not in conflict with the provisions of this resolution shall remain in full force and effect. SECTION 3. This Resolution shall become effective immediately from and after its passage. DULY PASSED AND APPROVED BY THE CITY COUNCIL OF THE CITY OF ALLEN, COLLIN COUNTY, TEXAS, ON THIS THE 23RD DAY OF FEBRUARY, 2010. APPROVED AS TO FORM: \/7z& Peter G. Smith/CITY ATTORNEY (Pcs90 02-02-1¢41521) APPROVED: Stephen Terrell, MAYOR ATTEST: � Shelley B. Geortr4 CITY SEC ARY - Resolution No. 2892-2-10(R), Page 5