R-3032-9-11RESOLUTION NO. 3032-9-11(R)
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ALLEN, COLLIN
COUNTY, TEXAS, AMENDING THE DEBT MANAGEMENT AND FUND
BALANCE RESERVE POLICY FOR THE CITY TO REFLECT NEW
ACCOUNTING REQUIREMENTS AND CHANGE THE MAXIMUM ALLOCATION
OF TAX RATE FOR DEBT SERVICE; PROVIDING FOR A REPEALING CLAUSE;
AND PROVIDING FOR AN EFFECTIVE DATE.
WHEREAS, the City government has recognized the need 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 adopted a debt management and fund balance reserve policy to provide the
structure of continuing fiscal smbility, reduce financial risk and maintain adequate contingency assets for
present and future requirements; and,
WHEREAS, the Governmental Accounting Standards Board has issued Statement No. 54 to establish
accounting and financial standards for all governments that report governmental funds and to establish criteria
for classifying fund balances into specifically defined classifications and clarifies definitions for
governmental fund types; and,
WHEREAS, implementation of Statement No. 54 requires the City to amend its debt management and fund
balance reserve policy; and,
' WHEREAS, to further reduce financial risk and maintain continuing fiscal stability the City will adopt and
establish a working capital policy for enterprise funds which do not report "fund balances," and will
accordingly amend the time of the policy; and,
WHEREAS, the City Council finds that it is in the best interest of the City to change the maximum
percentage of tax rate allocated for debt service; and,
WHEREAS, the City Council desires to amend its "Debt Management and Fund Balance Reserve Policy",
through the adoption of the amended "Fund Balance, Working Capital Reserve and Debt Management Policy,"
attached hereto as Exhibit "A."
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ALLEN,
COLLIN COUNTY, TEXAS, THAT:
SECTION 1. The "Debt Management and Fund Balance Reserve Policy" is hereby amended by the adoption of
the amended "Fund Balance, Working Capital Reserve and Debt Management Policy," as set forth in Exhibit "A"
attached hereto and made a part hereof for all purposes.
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this Resolution be, and the same is hereby, repealed, and all other provisions not in conflict with the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
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DULY PASSED AND APPROVED BY THE CITY COUNCIL OF THE CITY OF ALLEN, COLLIN
COUNTY, TEXAS, ON THIS THE 27'rr DAY OF SEPTEMBER, 2011.
APPROVED:
Stephen emll, MAYOR
ATTEST:
Shelley B. Georg , CITY SECRETARY
Resolution No. 3032-9-11(R), Page 2
EXHIBIT A
CITY OF ALLEN, TEXAS
FUND BALANCE,
WORKING CAPITAL RESERVE
AND
DEBT MANAGEMENT
POLICY
revised
September 27, 2011
PURPOSE
' The purpose of this document is to establish key elements for the financial stability of the City by setting
guidelines for fund balance, working capital reserves and debt management Adherence to a debt
management policy signals to rating agencies and capital markets that a government is well managed and
should meet its obligations in a timely manner. Debt levels and their related annual costs are important long-
term obligations that must be managed within available resources.
It is essential that the City maintain adequate reserves to mitigate financial risk that can occur from
unforeseen revenue fluctuations and unanticipated expenditures. To allow for flexibility and guidance, this
policy establishes ranges of reserves to make it possible for the City to provide continuous operational
services to the public and to issue future debt.
Nothing in this policy shall restrict the reserves from exceeding the stated ranges or goals. To ensure stable
tax rates, 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 and impacts from
weather. Furthermore, anticipated cash financing of projects may result in the fund balances and/or working
capital reserves to exceed the ranges while funds are accumulated.
DEFINITIONS
Enterprise Funds — are used to account for operations that are financed and operated in a manner similar to
private business enterprises where the intent is that the costs of providing goods and services to the general
public on a continuing basis be financed or recovered primarily through user charges (i.e. Water and Sewer,
Solid Waste).
' Fund Equity — A fund's equity is generally the difference between its assets and its liabilities.
Fund Balance — An accounting distinction is made between the portions of fund equity that are spendable and
nonspendable. In accordance with Governmental Accounting Standards Board Statement 54, Fund Balance
Reporting and Governmental Fund Type Definitions, the City classifies eovemmental fund balance into five
categories:
(1) Nonspendable fund balance — includes amounts that are not in a spendable form or are
required to be maintained intact. Examples are inventory or permanent funds.
(2) Restricted fund balance — includes amounts that can be used only for the specific purposes
stipulated by external resource providers either constitutionally or through enabling
legislation. Examples include federal grants and general obligation bonds.
(3) Committed fund balance — includes amounts that can be used only for the specific purposes
determined by a formal action of the government's highest level of decision-making
authority. Commitments may be changed or lifted only by the government taking the same
formal action that imposed the constraint originally.
(4) Assigned fund balance — comprises amounts intended to be used by the government for
specific purposes. Intent can be expressed by the governing body or by an official or body to
which the governing body delegates the authority. In governmental funds other than the
general fund, assigned fund balance represents the amount that is not restricted or committed.
This indicates that resources in other govemmental funds are, at a minimum, intended to be
used for the purpose of that fund.
' (5) Unassigned fund balance — is the residual classification of the General Fund and includes all
amounts not contained in other classifications. Unassigned amounts are technically available
for any purpose.
Governmental Funds — are typically used to account for tax -supported activities (i.e. General Fund, Debt
Service Fund).
' Working Capital Reserve — is the excess of current assets over current liabilities. It is the amount of liquid
capital needed in the enterprise funds to maintain the flow of capital from cash to inventories to receivables
then back again to cash.
A. FUND BALANCE POLICY
1) Committed Fund Balance:
a) The City Council is the City's highest level of decision-making authority and the formal action
that is required to be taken to establish, modify, or rescind a Pond balance commitment is a
resolution approved by the Council at the City's Council meeting.
b) The resolution must either be approved or rescinded, as applicable, prior to the last day of the
fiscal year for which the commitment is made. The amount subject to the constraint may be
determined in the subsequent period.
2) Assigned Fund Balance
a) The City Council authorizes the City Manager and/or Finance Director as the official authorized
to assign Pond balance to a specific purpose as approved by this fund balance policy.
3) Minimum Fund Balance
' a) General Fund
i) It is the goal of the City to achieve and maintain an unassigned General Fund balance that is
within a range of 60 to 90 days of annual expenditures.
:ii) If unassigned General Fund balance falls below the goal or has a deficiency, the City will
establish a timeframe and work plan to replenish the fund balance. The work plan may
include tax increases, fee increases, reduction of services, and/or reduction of expenditures
(i.e. hiving freeze, salary freeze, or reduction of travel/training).
b) Debt Service Fund
i) On an annual basis, the Debt Service Restricted Fund balance shall be maintained in an
amount that is within a range of 5% to 10% of the required annual principal and interest
payments.
ii) For purposes of long term financial stability, a reserve in excess of 10% may be prudent in
order to reduce volatility of the tax rates between the General and Debt Service Funds.
iii) The Pond shall remain in complete compliance with bond issue covenants.
4) Order of Expenditure of Funds
a) When multiple category of fund balance are available for expenditure (for example, a
' construction project is being funded partly by a state gran[, bonded debt, funds set aside by the
City Council, and unassigned fund balance), the City will start with the most restricted category
and spend those funds first before moving down to the next category with available funds.
5) Minimum Enterprise Fund Working Capital Reserves
t a) If applicable, all funds shall remain in complete compliance with bond issue covenants.
b) Working capital reserve shall be maintained in an amount that is within a range of 90 to 120 days
of annual expenditures in order to provide for potential unanticipated needs or the impact of
weather.
B.
c) If unassigned working capital falls below the goal or has a deficiency, the utility rate plan study
will be utilized to determine the appropriate course of action when determining rates and
establishing a timeframe to replenish working capital reserves.
The City's Charter (Article V, Section 5.1) states that the City of Allen has the power to borrow money
against the credit of the City for any public purpose that is not prohibited by the constitution and laws of
the State of Texas. Article XI, Section 5 of the Texas Constitution, applicable to cities of mom than 5,000
population states that the maximum tax rate shall not exceed $2.50 per $100 of assessed valuation of
taxable property. This policy improves the quality of decisions, provides justification for the structure of
debt issuance, identifies policy goals, and demonstrates a commitment to long-term financial planning,
including a multi -yew capital plan.
1) Capital Improvement Program
a) A capital improvement program shall be prepared, submitted to, and approved by the Council
annually pursuant to the City Charter, Article IV.
b) The capital improvement 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.
c) It is the intent of these policies that authorized projects and associated financings be included as
part of an adopted capital improvement program.
2) Debt Issuance Guidelines
a) 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:
i) 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.
ii) 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.
' iii) 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.
iv) Debt shall be issued or structured in such a way so that the term of the financing does not
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v)
exceed the useful life of the asset.
The method of the debt sale shall be determined based the market conditions.
upon current
vi)
Debt refunding opportunities shall be monitored for potential savings or modifications to
certain covenants.
vii)
The City will conduct its debt management functions in a manner designed to maintain or
enhance its existing credit ratings.
viii)
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.
ix)
Investment of bond proceeds shall be in compliance with the City's investment policy.
x)
The City shall have a program to comply with arbitrage rebate monitoring and filing.
xi)
The City shall follow all mandated bond disclosure requirements.
xii)
The City shall follow all bond covenants.
3) Debt Issuance
Purposes and Revenue Sources
a) General capital improvements shall be financed in accordance with the capital improvements
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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:
i)
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.
ii)
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.
iii)
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 yearend savings.
iv)
Debt service payments on general obligation bonds, not abated by other revenues, shall be
paid from the debt service property tax levy.
v)
Outstanding bonds will be retired according to the debt repayment schedules.
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vi)
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.
vii) Long term debt will not be issued by the City to finance projects for other governmental
' 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.
viii) Assumptions for taxable assessed valuation increases and revenue growth shall be
conservative and justifiable.
b) 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.
4) Debt Issuance Limits and Repayment Schedules
a) The City shall use the following limits to guide issuance of debt:
i) The City should not allocate more than thirty five percent (35%) of its tax rate towards debt.
ii) 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%).
' iii) 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.
iv) 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.
b) Repayment schedules shall be designed to relate to the useful life of the asset and generally be in
accordance with the following:
i) 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 tax rate objectives.
ii) 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.
iii) 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.
' iv) 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.
v) 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.
vi) 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.
5) Management
a) It shall be the responsibility of the City Manager and his staff to maintain all necessary files
associated with the issuance of City debt.
b) 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.
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