R-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
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(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:
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Peter G. Smith/CITY ATTORNEY
(Pcs90 02-02-1¢41521)
APPROVED:
Stephen Terrell, MAYOR
ATTEST:
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Shelley B. Geortr4 CITY SEC ARY -
Resolution No. 2892-2-10(R), Page 5