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HomeMy WebLinkAbout10 Attachment 3, DC Title 3 Chapters 3.07 and 3.01.01.03• Review facilities fees every budget cycle and after the completion of a master plan 3.01.01.03 Debt Goals • Separate debt that is serving development (facilities fees), debt serving current customers (rates), debt serving a special assessment district (assessments) and debt financed by billing surcharges. These categories of debt should be separately identified in the budget • One-half the debt service for all long-term debt in the aggregate is due in the first ten years • No more than one half the projected annual facilities fee revenue committed to debt service • No more than twenty-five percent of general fund revenues committed to debt service • No debt more than 30 year maturity • No debt longer than useful life of the project • Debt issued by the District, either directly or indirectly, shall be subject to these provisions and section 3.07, Debt Issuance and Management Policy: 3.01.01.04 Cash Reserve Goals - Operations • Water general fund should have a cash reserve equal to one half of the annual budgeted operating expenses, excluding depreciation. • Electric general fund should have a cash reserve equal to one half of the annual budgeted operating expenses, excluding depreciation • Electric rate stabilization fund (aka Electric Rate Reserve) should maintain a minimum cash reserve equal to six months of the budgeted cost of purchased power. • Both the Electric and Water Utilities shall maintain a Board restricted operating reserve fund titled Deferred Liability. The intent of the fund is to provide reserves for unfunded liabilities such as pension costs and the reserve goal shall be determined by the Board on an annual basis. 3.01.01.05 Capital Reserve Goals • There should be a revolving water capital reserve equal to the average annual budget for capital replacement to permit projects to be initiated and funded prior to arrangement of long-term debt or other financing. • There should be a revolving electric capital reserve fund equal to the average annual budget for capital replacement. 3.01.01.06 Debt Reserve Goals • There should be a reserve fund for each debt instrument in an amount required by each lender. • A reserve fund should be established and maintained to pay for vehicle and equipment purchases as needed. Long term financing should be used when necessary and the life of the asset purchased is greater than 15 years. (Rev 8/1/2012) Title 3 Page 2 interest, unless the District Board of Directors are duly informed and it elects to waive such conflicts. All personnel in procuring or selecting counterparties for contracting or transacting are required to complete, on an annual basis, the Form 700 Disclosure forms and submit these forms to the District Clerk. The General Manager is responsible for routinely reviewing the Form 700 of each personnel engaged in the supply resource decision -making process for the purpose of identifying potential conflicts of interest. District Counsel will assist the General Manager in reviewing these forms and providing legal advice in connection with such reviews. CHAPTER 3.07 DEBT ISSUANCE AND MANAGEMENT POLICY 3.07.00 Debt Issuance and Management Policy 3.07.01 Purpose 3.07.02 Objectives 3.07.03 Policy 3.07.04 Authorization and Types of Debt Authorized for Issuance 3.07.05 Land -Based Financings 3.07.06 Structure of Debt Issues 3.07.07 Sale of Securities 3.07.08 Credit Rating Agencies 3.07.09 Refunding and Restructuring Outstanding Debt 3.07.10 Internal Controls 3.07.11 Senate Bill 1029 Compliance CHAPTER 3.07 FINANCIAL GOALS 3.07.00 Introduction The Debt Issuance and Management Policy (the "Policy") provides written guidelines for issuing debt and managing outstanding debt and is intended to g u i d e policy makers regarding the timing and purposes for which debt may be issued, types and amounts of permissible debt, and method of sale that may be used in satisfaction of the requirements of California Senate Bill 1029, codified as part of Government Code Section 8855. This debt policy is intended to guide the District in managing and issuing debt in order to protect the District's financial position and credit ratings. 3.07.01 Purpose The purpose of this Policy is to provide functional tools for debt management, capital planning, and cash flow management in a conservative and prudent manner. The District's most appropriate use of debt financing is for the purchase or construction of major capital facilities that will serve as a long-term community asset. The policies outlined below are not intended to serve as a list of rules for the District's debt issuance process, but rather to serve as a set of guidelines to promote sound financial management. 1. The Policy as described herein is in accordance with current legislation and incorporates industry best practices. It has been devised to serve as a public representation of District objectives in relation to its use of any debt obligation. The Policy is further intended to memorialize guiding directives from the Board of Title 3 Page 8 Attachment 3 -DC 3.07- Page 1 of 9 Directors ("Board") to management and staff for decisions and recommendations related to the financial goals of the District. 2. The Policy may be applied to any related entities to the District to the extent that entity does not have a separate policy. 3. The Policy was drafted with the intent of providing Board approved guiding directives to management and staff for decisions and recommendations related to the financial profile of the District, and is intended to support the District's debt obligations to present and future generations of customers. The Policy is intended to be revisited and updated periodically if there is a material change in the risk exposures or conditions. 4. The District acknowledges that the capital marketplace fluctuates, financial products change from time to time, and that issuer and investor supply and demand vary. These fluctuations may produce situations that are not anticipated or covered by this policy. As such, the Board may make exceptions or modifications to this policy to achieve the debt m a n a g e m e n t goals outlined below. Management flexibility is appropriate and necessary in such situations, provided specific authorization is granted by the Board. 5. Waiver. The Board may waive any provision of the Policy if it determines that the waiver is appropriate for a particular issue or in the public interest. 3.07.02 Objectives The Board intends that the District establish and maintain a framework for public finance borrowings such as general obligation bonds ("GO Bonds"), certificates of participation ("COPs"), community facilities districts bonds ("CFDs"), assessment districts bonds ("ADs"), and other forms of indebtedness issued by or on behalf of the District. Legal District debt or obligations will be incurred primarily for major capital projects, not for any recurring purpose such as current operating and maintenance expenditures. For repair and replacement projects, debt financing may be used to better match the anticipated need and costs with available funds on hand. Smaller projects should be funded on a "pay-as-you-go" basis from current revenues. The District shall not construct or acquire a facility if it is unable to adequately provide for the subsequent annual operation and maintenance costs of the facility throughout its expected life. Debt incurred for capital projects shall not exceed the useful life of the project assets. 2. This policy applies to debt financing for the payment of facilities and special tax financing for facilities and services, as guidelines to assist concerned parties in following the District's approach to community facilities district and assessment district financing. It is the District's goal to support projects which address a public need and provide a public benefit. 3. Proposed projects requesting debt financing will be evaluated to determine if such financing is financially viable and in the best interest of the District and current and Title 3 Page 9 Attachment 3 -DC 3.07- Page 2 of 9 future District and project residents. 4. The District will consider applications requesting financing available under the laws of the State of California. The District reserves the right to request any additional reports, information or studies reasonably necessary in evaluating these applications. 5. All District and any consultant costs incurred in evaluating applications requesting financing will be paid by the applicant(s) by advance deposit increments or as otherwise agreed in writing by the District. The District shall not incur any non - reimbursable expense for processing such applications. Expenses not eligible for reimbursement in a financing shall be borne by the applicant. 3.07.03 Policy The District shall pursue its debt management goals by following this policy: 1. The District will review all funding sources and determine the best source based on need and use of items being financed when funding capital improvements. The District will review its capital improvement program and budget to determine if debt issuance is the best source of funding. 2. The District shall consider an optimal credit strategy for each debt issue (with or without credit enhancement) in order to reduce interest costs and to preserve financial flexibility and meet capital funding requirements. 3. The District shall consider debt limits in relation to assessed value changes and the tax burden needed to meet long-term capital requirements 4. The District shall consider market conditions and District cash flows when timing the issuance of debt. 5. The District shall determine the amortization (maturity) schedule which will best fit with the overall debt structure of the District at the time new debt is issued. 6. The District shall give consideration to matching the term of the debt issue to the useful lives of related assets whenever practical, while considering repair and replacement costs of those assets to be incurred in future years as an offset to the useful lives, and the related length of time in the payout structure. 3.07.04 Types of Debt Authorized to be Issued The District is organized as a community services special district, duly organized and validly existing under the laws of the State of California. The laws of the State of California authorize the issuance of debt of the District, and/or confer upon it the power and authority to make lease payments, contract debt, borrow money, and issue bonds for public improvement projects. The District may, under these provisions, contract debt to pay for the cost of acquiring, constructing, reconstructing, improving, extending, enlarging and equipping District projects and or facilities, or to refund existing debt of the District. Debt issues may be used to finance capital facilities, projects and certain capital equipment where it is appropriate to spread the cost of the projects over more than one fiscal year. Title 3 Page 10 Attachment 3 -DC 3.07- Page 3 of 9 2. Projects which are not appropriate for spreading costs over future years shall not be debt financed. 3. Long-term debt shall, under no circumstances, be used to fund District operations. 4. The District may issue long-term debt which may include, but is not limited to, General Obligation Bonds, Lease Revenue Bonds, Certificates of Participation, Community Facilities Districts, Assessment Districts and/or other capital lease purchase structures for capital facilities and projects, including fees which fund capital facilities. 3.07.05 Land -Based Financings 1. Public Purpose. There will be a clearly articulated public purpose in forming an assessment or special tax district in financing public infrastructure improvements. Board approval must be obtained to use this form of financing. 2. The District shall have final determination as to any facility's eligibility for financing, as well as the prioritization of facilities to be included within a community facilities or assessment district. 3. The District shall evaluate the priority of such items on a project by project basis. The District may also require applicants to commit significant equity to projects for which public financing assistance is requested. 4. Eligible Improvements. Except as otherwise determined by the District when proceedings for district formation are commenced, preference in financing public improvements through a special tax district will be given for those public improvements that help achieve clearly identified community facility and infrastructure goals in accordance with adopted facility and infrastructure plans as set forth in key policy documents such as the Water and Electric Master Plans, Finance Master Plan, or Capital Improvement Plan. 5. Such improvements include study, design, construction and/or acquisition of: a. Electric facilities; b. Water facilities; c. Special district facilities and improvements such as offices, information technology systems and telecommunication systems; and d. Otherfacilities authorized pursuant to the Mello -Roos orAssessment District Acts as may be amended from time to time. 6. District's Role. The District shall evaluate land -based financing requests on a case by case basis and will determine the best form of financing. Any costs incurred by the District in retaining services or participating in land -based financing shall be the responsibility of the property owners or developer, and will be advanced via a deposit when an application is filed; or will be paid on a contingency fee basis from bond proceeds. 7. Credit Quality. When a developer requests land -based financing, the District will Title 3 Page 11 Attachment 3 -DC 3.07- Page 4 of 9 carefully evaluate the applicant's financial plan and ability to carry the project, including the payment of assessments and special taxes during build -out. This may include detailed background, credit and lender checks, and the preparation of independent appraisal reports and market absorption studies. For districts where one property owner accounts for more than 25% of the annual debt service obligation, a letter of credit further securing the financing may be required. The District's independent financial advisor/consultant must review the proposed issuance of the bonds for viability. A letter of credit is an arrangement with a bank that provides additional security that money will be available to pay debt service on an issue. A letter of credit can provide the District with access to credit under terms and conditions as specified in such agreements. 8. Equity Requirements. Land -based financing shall be subject to additional requirements. Commercial and mixed use projects shall require 50% of rentable space be pre -leased. Residential only projects shall require pre -sale of 50% of the units. 9. Reserve Fund. A reserve fund shall be established in the lesser amount of: the maximum annual debt service; 125% of the annual average debt service; or 10% of the bond proceeds. 10. Value -to -Debt Ratios. The minimum value- to -debt ratio should generally be 4:1. This means the value of the property in the district, with the public improvements, should be at least four times the amount of the assessment or special tax debt. In special circumstances, after conferring and receiving the concurrence of the District's financial advisor and bond counsel that a lower value -to -debt ratio is financially prudent under the circumstances; the District may consider allowing a value -to -debt ratio of 3:1. 11.Appraisal Methodology. Determination of value of property in the District will be based upon the full cash value as shown on the ad valorem assessment roll or upon an appraisal by an independent, impartial, and qualified appraiser. The definitions, standards and assumptions to be used for appraisals will be determined by the District on a case -by -case basis, with input from District consultants and district applicants, and by reference to relevant materials and information promulgated by the State of California, including the Appraisal Standards for Land Secured Financings prepared by the California Debt and Investment Advisory Commission (CDIAC). 12. Capitalized Interest During Construction. Decisions to capitalize interest will be made on case -by -case basis, with the intent that if allowed, it should improve the credit quality of the bonds and reduce borrowing costs, benefiting both current and future property owners. 13. Maximum Burden. Annual assessments (or special taxes in the case of Mello -Roos Title 3 Page 12 Attachment 3 -DC 3.07- Page 5 of 9 or similar districts) should generally not exceed 1 % of the sales price of the property; and total property taxes, special assessments and special taxes payments collected on the tax roll (all "overlapping" debt burden) should generally not exceed 2%. 14. Benefit Apportionment. Assessments and special taxes will be apportioned according to a formula that is clear, understandable, equitable and reasonably related to the benefit received by, or burden attributed to, each parcel with respect to its financed improvement. No annual escalation factor will be permitted. 15. Special Tax District Administration. In the case of Mello -Roos or similar special tax districts, the total maximum annual tax should not exceed 110% of annual debt service. The rate and method of apportionment should include a back-up tax in the event of significant changes from the initial development plan, and should include procedures for prepayments. Neither the District nor the Community Facilities District shall be obligated to pay for the cost of determining the prepayment amount, which shall be paid by the applicant. 16. Foreclosure Covenants. In managing administrative costs, the District will establish minimum delinquency amounts per owner, and for the district as a whole, on a case -by -case basis before initiating foreclosure proceedings. 17. Disclosure to Bondholders. In general, each property owner who accounts for more than 20% of the annual debt service or bonded indebtedness must provide ongoing disclosure information annually as described under SEC Rule 15(c)-12. 18. Disclosure to Prospective Purchasers. Full disclosure about outstanding balances and annual payments should be made by the seller to prospective buyers at the time that the buyer bids on the property. It should not be deferred to after the buyer has made the decision to purchase. When appropriate, applicants or property owners may be required to provide the District with a disclosure plan. Such plan may include home buyer notifications requiring signature prior to home purchases, as well as methods to notify subsequent home purchasers. The District may require that Developers offer residential buyers the option of having all special taxes prepaid upon close of escrow, with a corresponding increase in the purchase price of the residence. 19.The District shall use all reasonable means to ensure compliance with applicable federal securities laws in connection with the issuance of debt. 3.07.06 Structure of Debt Issues The District will determine on a case -by -case basis whether to sell its bonds through a public sale or a private placement. Public Sale. There are two methods of public sale of debt, competitive and negotiated. Preference shall be given to competitive sales. However, both methods of sale shall be considered for all issuance of debt to the extent allowed by law, as Title 3 Page 13 Attachment 3 -DC 3.07- Page 6 of 9 each method has the potential to achieve the lowest financing cost given the right conditions. a. Competitive Sale. When a competitive bidding process is deemed the most advantageous method of sale for the District, award shall be based upon, among other factors, the lowest offered true interest cost, as long as the bid adheres to requirements set forth in the official notice of sale. 0 Negotiated Sale. The District best sold through negotiation. deemed the most advantageous selection shall be based upon, a recognizes When a n m that some securities are egotiated sale process is method of sale for the District, ong other factors, qualifications, experience, pricing ability, and fees. 2. Private Placement. At its election the District may issue debt on a private placement basis. While not used as frequently as negotiated or competitive public sale methods, a private placement sale may be appropriate when the financing can or must be structured for a single or limited number of purchasers. Such method of sale shall be considered if it is demonstrated to result in cost savings or provide other advantages relative to other methods of debt issuance, or if it is determined that access to the public market in unavailable and timing considerations require that a financing be completed. 3.07.08 Credit Rating Agencies In public issuance of debt, the District will strive to achieve the best possible credit rating for each debt issue (with or without credit enhancement). 2. In private placement, the District will consider the debt issuance on its overall credit rating. 3.07.09 Refunding and Restructuring Outstanding Debt Whenever deemed to be in the best interest of the District, the District may consider refunding or restructuring outstanding debt. 2. The financial advantages of refunding outstanding debt shall be based upon a review of a net present value analysis of any proposed refunding in order to make a determination regarding the cost-effectiveness of the proposed refunding. a. Generally, the District may initiate a refunding when three (3.00%) percent net present value or greater savings as a percentage of the refunded aggregate principal amount can be achieved. 0 The target net present valu refunded aggregate principal (3.00%) percent at the time of sale e savings amount s as a percentage of the hall be no less than three This figure should serve only as a Title 3 Page 14 Attachment 3 -DC 3.07- Page 7 of 9 guideline; the District must evaluate each refunding opportunity on a case -by -case basis and must take into consideration: time to maturity; size of the issues; current interest rate environment; annual cash flow savings; and the value of the call option. The General Manager or his designee shall have the discretion to designate a lower percentage savings if applicable. 3.07.10 Internal Controls The District shall be vigilant in using bond proceeds in accordance with the stated purposes at the time such debt was incurred. a. All debt transactions must be approved by the applicable governing board. The proceeds of bond sales will be invested until used forthe intended project(s) in order to maximize utilization of the public funds. The investments will be made to obtain the highest level of 1) safety, 2) liquidity, and 3) yield, and may be held as cash. The General Manager or designate will oversee the investment of bond proceeds. b. Bond proceeds will be deposited and recorded in separate accounts to ensure funds are not comingled with other forms of District funds. The District's Trustee or Fiscal Agent will administer the disbursement of bond proceeds pursuant to each certain Indenture of Trust or Fiscal Agent Agreement, respectively. To ensure proceeds from bond sales are used in accordance with legal requirements, invoices submitted need to be approved by the General Manager or designated alternate for payment. Requisition for the disbursement of bond funds will be approved by the General Manager or designated alternate. Responsibility for general ledger reconciliations and records is segregated from the invoice processing, cash receipting, and cash disbursement functions. c. The General Manager or designate will be tasked with monitoring the expenditure of bond proceeds to ensure they are used only for the purpose and authority for which the bonds were issued. 3.07.11 Senate Bill 1029 COMPLIANCE Senate Bill 1029 ("SB 1029"), signed on September 12, 2016, requires issuers to adopt debt policies addressing each of the five items below. The District believes this Policy is in compliance with SB 1029. a. The purposes for which the debt proceeds may be used. i. Section 3.07.04 (Authorization and Types of Debt Authorized to Be Issued) of this Policy provides information regarding the purposes for which the District may spend debt proceeds. b. The types of debt that may be issued. Title 3 Page 15 Attachment 3 -DC 3.07- Page 8 of 9 i. Section 3.07.04 (Authorization and Types of Debt Authorized to Be Issued) of this Policy provides information regarding the types of debt the District may issue. c. The relationship of the debt to, and integration with, the issuer's capital improvement program or budget, if applicable. i. Section 3.07.03 (Policy) and Section 3.07.06 (Structure of Debt Issues) of this Policy provide information regarding the relationship between the District's debt and Capital Improvement Program. d. Policy goals related to the issuer's planning goals and objectives. i. Section 3.07.03 (Policy) of this Policy describes the District's planning goals and objectives. e. The internal control procedures that the issuer has implemented, or will implement, to ensure that the proceeds of the proposed debt issuance will be directed to the intended use. i. Section 3.07.10 (Internal Controls) of this Policy provides information regarding the District's internal control procedures designed to ensure that the proceeds of a debt issuance are spent as intended. CHAPTER 3.08 (3/4/09, Res 2009-10) PURCHASING Sections: 3.08.000 Notification to Board of Directors 3.08.005 Local Preference Procurement Policy 3.08.010 Bid Procedure for Purchase of Commodities or Equipment Over $15,000 3.08.020 Procedure for Purchase of Commodities or Equipment Under $15,000 3.08.030 Bid Procedure for Issuance of Service Contracts Over $15,000 3.08.040 Procedure of Issuance of Service Contracts Under $15,000 3.08.050 Procedure for Entering into an Agreement for Special Services 3.08.060 Joint Purchasing with the State and Other Public Title 3 Page 16 Attachment 3 -DC 3.07- Page 9 of 9