View Presentation Slides

TOWN OF WEBSTER “DEBT MANAGEMENT POLICY”

Adopted by the Town Board on

INDEX

DESCRIPTION

PAGE

SECTION 1 - PURPOSE

2

2

3

3

3

4

5

7

7

8

9

9

10

11

12

12

12

Page | 1

Town of Webster Debt Management Policy I. PURPOSE The purpose of a debt management policy is to establish parameters and guidelines to improve the quality of decision-making on long-term capital planning and on the appropriateness of utilizing long-term debt to fund related capital expenditures. This policy is based on best practices recommended by the Government Finance Officers Association. The Town of Webster understands that the foundation of any well-managed debt program is a comprehensive debt management policy. In addition to the general parameters, this policy provides guidance to decision makers regarding the timing and purposes for which debt may be issued, types and amounts of permissible debt financing, methods of sale that may be used, and structural features that may be incorporated. Finally, this debt policy is the recognition of the Town of Webster’s binding commitment to fully and timely repay all debt as an intrinsic requirement for entry into the capital markets. The policy helps to ensure that the Town maintains a sound debt position and that the Town’s credit quality is protected and enhanced. In summary, the main advantages of a formal debt policy are as follows: a. Enhances the quality of decisions by imposing order, discipline, and promoting consistency and continuity in decision making. b. Rationalizes the decision-making process. c. Identifies objectives for staff and elected officials to implement. d. Demonstrates a commitment to long-term financial planning objectives. e. Is regarded positively by the rating agencies in reviewing credit quality.

II. RESPONSIBILITY It shall be the responsibility of the Director of Finance and the Town Board to ensure that debt is issued in compliance with the terms outlined in this policy.

Page | 2

Town of Webster Debt Management Policy III.

PROCEDURE:

A. OBJECTIVES OF ISSUING DEBT a. The Town will finance capital projects through the issuance of debt for the shortest period practical but, in any event, not in excess of the anticipated useful life of the financed asset or the maximum statutory amortization period, whichever is shorter. In conformity with Section 11 of the NYS Local Finance Law, all bond authorizations must be approved via permissive referendum unless otherwise provided by the NYS Local Finance Law, including but not limited to the authorization of refunding bonds. b. The Town will evaluate debt-funding scenarios as part of its annual Five-Year Capital Improvement Program process in order to prioritize future financing needs. The Town will attempt to minimize its reliance on long-term debt to the extent consistent with its overall budgetary policies.

B. PURPOSES FOR WHICH DEBT MAY BE ISSUED a. During emergency situations, the Town may issue debt to provide for emergency infrastructure repair or replacement if such repair or replacement is necessary for the immediate preservation of public peace, health and safety. For purposes of this policy, “dire emergency appropriation” means an appropriation to relieve or assist in the relieving of a situation certified to be an unusual and serious condition endangering public health and welfare. b. Generally, the Town will only consider financing major general purpose capital improvements with a total cost exceeding $250,000 through the issuance of long-term debt. Such costs may include the planning, design and land acquisition costs for such improvements. c. The Town generally will consider issuing debt to finance only those projects that have been included in the Five-Year Capital Improvement Program. It is recognized that certain projects for which debt financing should be considered may arise in such a manner that they cannot be incorporated in the Five-Year Capital Improvement Program prior to financing, e.g., the arrival on market of a specific property which the Town desires to acquire for open space purposes or unexpected equipment replacements because of accidents or equipment failures. d. The Town will not fund current operating expenditures through the issuance of debt except under extreme circumstances that have been approved by the town board (such as issuance of debt in connection with tax anticipation notes or revenue anticipation notes). Page | 3

Town of Webster Debt Management Policy C. LEGAL LIMITATIONS The New York State Constitution, Article VIII, limits the aggregate amount of indebtedness the Town may have outstanding and the amount of indebtedness outstanding for particular purposes to 7% of the five-year average of the assessed full value of the Town. Certain debt (i.e. tax anticipation notes, any water related debt, NYS Comptroller excluded sewer debt) are excluded by statute from this debt limitation. The Town shall not incur indebtedness through the issuance of debt which shall cause outstanding aggregate indebtedness, or outstanding aggregate indebtedness by purpose, of the Town to exceed the following (taking into account the statutory exclusion of certain outstanding debt and inclusion of certain authorized but unissued debt): a. Aggregate Debt:

8.00 times annual receipts from taxation

b. General Purposes:

4.00 times annual receipts from taxation

c. Water Pollution Control Purposes:

5.00 times annual receipts from taxation

In calculating the amount of indebtedness of the Town there shall be excluded: a. Tax Anticipation Notes (“TANs”) b. Statutorily-Specified Utilities Financings c. Revenue Anticipation Note Financings (“RANs”) d. Water Pollution Abatement Order Financings e. Refunded Obligations

Page | 4

Town of Webster Debt Management Policy D. TYPES OF DEBT PERMITTED TO BE ISSUED Types of debt obligations covered by this policy: a. Short Term Debt: 1. General Obligation (G.O.) Bond Anticipation Notes (BAN’s) The Town may choose to issue bond anticipation notes as a source of interim financing when deemed prudent. Bond anticipation notes may also be used as a form of shortterm permanent financing (generally up to five years under the current statutes) by renewing the notes over a number of years and reducing the principal amount of notes no later than 24 months from the original date of borrowing. Before issuing such notes, the Town will direct the Director of Finance to contact the Town’s Financial Advisor for consultation. Bond anticipation notes will generally be sold at a competitive sale; however, a negotiated sale or private placement may be allowed when in the best interest of the Town. 2. Lease Purchase Financing (Also known as capital lease financing or installment purchase contracting) Generally, lease purchase financing, in contrast to a true lease, provides for the acquisition of the leased item. Lease purchase financing is appropriate for procuring assets that are too expensive to fund with current receipts in any one year but less expensive than financing with long-term serial bonds. i.

Generally, lease purchase financing will be considered for assets that are “like items in the aggregate”, that will be needed for only short periods of time, or which are subject to rapid technological obsolescence.

ii.

Generally, lease purchase financing will not be considered for the purchase or construction of assets with a life expectancy of less than three years or a cost of less than $20,000.

iii. All lease purchase financing shall require approval by the Town Board and adoption of a lease financing resolution furnished by the Town’s bond counsel. Documentation that lease purchase financing is a more cost effective manner than issuing bonds for the procurement of the asset must be provided. iv. Principal and interest payments on a lease purchase financing shall be included in the operating budget of the Town based on the purpose of the lease purchase financing. Page | 5

Town of Webster Debt Management Policy * Note that the above policies do not address true or operating leases. Pursuant to such leases the leased item is returned to the lessor at the end of the lease term. Provision for lease payments with respect to such leases should be incorporated into the annual operating budgets for the Town as applicable. b. Long Term Debt: 1. General Obligation (G.O.) Bonds: General obligation bonds (and general obligation BANs) are backed by the Town’s pledge of its full faith and credit to pay interest and the principle of the obligations. Unless paid from other sources, the bonds are payable from general property tax revenues. The Town has the power under New York State Statutes to levy ad valorem taxes on all taxable property in the Town without limit as to rate or amount, except for a few minor exceptions allowed by state statutes. General obligation bonds should be used only to finance or refinance capital improvements and long-term assets, or other costs directly associated with financing of a project which has been determined to be beneficial to a significant proportion of the citizens of the Town and for which repayment sources, if any, have been identified. Bonding should be used only after considering alternative funding sources such as project revenues, Federal and State grants, and special assessments. Other types of debt obligations not covered by this policy:

Page | 6

•

Tax Anticipation Notes (TAN’s)

•

Revenue Anticipation Notes (RAN’s)

Town of Webster Debt Management Policy E. RESTRICTION/LIMITATIONS ON DEBT ISSUANCE a. Limitations on Issuance of G.O. Debt: This Policy prohibits issuing general obligation debt for current operations (other than in connection with the issuance of tax anticipation notes, revenue anticipation notes or other exceptions as approved by the town council). b. Derivatives Prohibited: Per New York State Law, this Policy prohibits the issuance of any securities which would commonly be understood to be a “derivative”. c. Bond Proceedings: Procedures for debt issuance must comply with New York State Local Finance Law and adoption of a bond resolution and related proceedings as prepared by a nationally recognized bond counsel.

F. STRUCTURAL FEATURES OF DEBT a. Overview: The Town plans long-term and short-term debt issuances to finance the Town’s capital program based on cash flow needs, sources of revenue, capital construction periods, budgetary impact, available financing instruments, and market conditions. Also, an analysis will be completed to attempt to schedule new debt payments to begin as previous debt matures in an attempt to smooth out the impact of debt service over time. At the time a bond issue is structured, the tax rate impact will be evaluated so as to minimize overall tax increases with a target annual debt service increase of no greater than 5%. b. Debt Repayment: Generally, borrowings by the Town should be of a duration that does not exceed the economic life of the improvement financed and where feasible should be shorter than the projected economic life, and, in all cases, not exceed the maximum amortization period permitted by state statute. Moreover, to the extent possible, the Town will design the repayment of the debt so as to recapture rapidly its credit capacity for future use. The Town will endeavor to structure new bond issues so as to provide that 50%, at a minimum, of the Town’s overall outstanding debt will be retired in the succeeding fifteen (15) fiscal years.

Page | 7

Town of Webster Debt Management Policy G. CREDIT OBJECTIVES Many analysts use debt ratios to analyze debt levels. However, the Town recognizes overemphasis on debt ratios should be avoided because debt ratios are but one of many factors which influence bond ratings. Commonly used debt ratios of comparably sized municipalities will provide one measure against which the Town can assess its debt burden. Another measure is to compare the Town against ratios developed by rating agencies. The analysis is not intended to review the Town’s total financial position or to make projections of future expenditures other than debt service. The following debt ratios will be considered when reviewing the Town’s capacity to issue debt: a. Debt Burden Indicators 1.

Debt as a percentage of Assessed Valuation.

2.

Debt per capita.

b. Debt Service Indicators 3. Annual general obligation debt service as a percentage of General Fund operating budget expenditures. The target range for this percentage is between 8%-10% of the budget each year. 4. Retirement of 50%, at a minimum, of the Town’s overall outstanding debt in the succeeding fifteen fiscal years. 5. Fixed Cost Burden will be kept below 25% of total expenditures (i.e. Debt Service + Pensions + OPEB = Total Fixed Costs/Operating Expenses = Fixed Cost as % of Expenditures) to the extent possible, recognizing that the Town is precluded from establishing a trust or reserve fund to help meet the OPEB liability under New York State law. 6. For Water and Sewer revenue producing debt – Net Debt to Operating Revenues, the Debt Service Coverage Ratio) that indicate the system’s overall revenues to debt service and fixed costs should range between 2.0x and 4.0x coverage: (DSCR=debt service requirements/net operating income.)

Page | 8

Town of Webster Debt Management Policy H. METHOD OF SALE a. Competitive Sale: The Town, as a matter of policy, shall seek to issue its debt obligations in a competitive sale unless it is determined that such a sale method will not produce the best results for the Town. In such instances where the Town, in the competitive sale of its debt securities, deems the bids received as unsatisfactory or does not receive bids, it may enter into negotiation for the sale of the securities. b. Negotiated Sale: When determined appropriate, the Town may decide to sell its debt obligations through a negotiated sale. Such determination may be made on an issue-byissue 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 under “Selection of Consultants and Service Providers” below. c. Private Placement/Limited Public Offering: When determined appropriate, the Town may elect to sell its debt obligations through a private placement or limited public offering. d. Participation in State and Federal Loan Programs: When determined appropriate, the Town may issue debt obligations in conjunction with loans made pursuant to State and Federal programs, e.g., the NYS Environmental Facilities Corporation programs for providing funding of eligible drinking water and wastewater projects.

I. SELECTION OF CONSULTANTS AND SERVICE PROVIDERS a. Solicitation: The Town shall establish a solicitation and selection process for securing professional services that are required to develop and implement the Town’s debt program. The goals of the solicitation and selection process shall include encouraging participation from qualified service providers and securing the highest quality services at competitive prices. b. Financing Team: The Town employs outside financial specialists to assist it in developing a bond issuance strategy, preparing bond documents (i.e. Offering Statement) and marketing bonds to investors. The key players in the Town’s financing transactions include its internal financial professionals (the Director of Finance and Finance Department staff, among others), its Bond Counsel, and its Financial Advisor.

Page | 9

Town of Webster Debt Management Policy c. Bond Counsel Involvement: The Town will work with a nationally recognized bond counsel (“Red Book” Bond Counsel). The Bond Counsel will issue an opinion as to the legality and the tax-exempt status of all obligations. The Town also may seek the advice of Bond Counsel on other types of financing and on any other questions involving Federal tax law applicable to tax-exempt bonds. Bond Counsel also is responsible for the preparation of the resolution authorizing issuance of obligations, various closing documents to complete their sale and issuance, review of the offering statement and performance of other services as defined by contract approved by the Town. d. Financial Advisor Involvement: The Town will work with a Financial Advisor properly registered with the SEC and MSRB, and those individuals possessing the required licenses to act on behalf of the firm. The Town will seek the advice of the Financial Advisor when appropriate. The Financial Advisor will advise on the structuring of obligations to be issued, inform the Town of various financing options, monitor outstanding debt for potential refunding bond opportunities, advise the Town as to how choices will impact the marketability of the Town’s obligations, and provide other services as defined by contract approved by the Town. To ensure independence, the Financial Advisor neither will bid on nor underwrite any Town debt issues for which it is serving as Financial Advisor. The Financial Advisor will inform the Director of Finance of significant issues that could affect the marketability of its debt or impact its credit rating.

J. REFUNDING OF LONG-TERM DEBT A refunding of long-term debt involves the refinancing of an outstanding bond issue by issuing new bonds. Most refunding is performed to take advantage of current interest rates that are lower than those rates on outstanding bonds. Such a refunding is for interest rate savings. Currently, refunding may be completed within 90 days of the issue date of the refunding bonds. a. To reduce interest costs. b. To restructure debt service, but generally only if the present value of debt service savings exceeds three (3%) percent of the debt service amount of the refunded bonds.

Page | 10

Town of Webster Debt Management Policy K. DISCLOSURE/ARBITRAGE COMPLIANCE a. Rating Agencies: Full disclosure of operations and open lines of communication shall be maintained with at least one rating agency. Town staff, with the assistance of financial advisors, shall prepare the necessary materials and presentation to the rating agency. A credit rating will be sought from one or more nationally recognized credit reporting agencies as recommended by the Town’s financial professionals in conjunction with the Town’s financial advisor. b. Arbitrage, Private Activity Use/Payment and Covenant/Representation Compliance: The Town shall establish a system of record keeping and reporting to ensure compliance with arbitrage limitation, arbitrage rebate, and private activity use and payment limitations applicable to its tax-exempt obligations under the Federal tax code. This effort shall include tracking expenditures of, and investment earnings on proceeds of bond and note issues and lease purchase transactions, calculating rebate payments in compliance with tax law, and remitting any rebate eligible earnings to the Federal government in a timely manner in order to preserve the tax-exempt status of the Town’s outstanding debt issues. Additionally, private activity use and payment, general financial reporting and certification requirements embodied in bond covenants, if any, or tax compliance or regulatory agreement covenants or representations in connection with the Town’s tax-exempt obligations shall be monitored to ensure compliance with all such covenants and representations. c. Continuing Disclosure: The Town, working together with its Financial Advisor and Bond Counsel, is committed to continuing disclosure of financial and pertinent credit information relevant to the Town’s outstanding securities and will abide by the provisions of Securities and Exchange Commission (SEC) Rule 15c2-12 concerning primary and secondary market disclosure, including requirements regarding annual financial information and material event filings (including the issuance of any installment purchase obligations or bank loans – if considered material) incorporated in the Town’s continuing disclosure agreements entered into in connection with the issuance of its debt obligations.

Page | 11

Town of Webster Debt Management Policy L. INTEGRATION WITH CAPITAL PLANNING The Town prepares a multi-year Capital Improvement Program for consideration and adoption as part of the Town’s budget process. Annually, the capital budget identifies revenue sources and expenditures for the current year and the next succeeding four fiscal years. As part of the capital project planning process, the financial impact of each proposed project will be evaluated and updated annually. To fund the Capital Improvement Program, the Town will use general revenues (pay-as-you-go), debt financing, State and Federal Aid, special assessments, or a combination thereof.

M. DEBT AUTHORIZATION The Town shall have the power to incur indebtedness subject to the provisions of the New York State Local Finance law and other pertinent State Statutes, as revised from time-totime.

N. INVESTMENT AND ACCOUNTING OF PROCEEDS The investment of proceeds of debt obligations (including investment earnings) must be in conformance with all applicable state and federal laws. All efforts must be made to defer permanent bonding until the money has already been spent or is close to being spent in order to avoid having excess cash on hand which may lead to violation of arbitrage rules, with due regard for the tax law limitations on the extended delay in reimbursing non-debt funding sources with the proceeds of tax-exempt bonds (see Section 12). For large projects spanning a period of time of three months or more, bonds and bond anticipation notes will be issued according to a cash flow statement developed for the project. Bond proceeds will be recorded in the Capital Projects Fund and specifically accounted for in the individual project to which they relate. Any net sale premium on bond issuance shall also be credited to the project in question and should be used to help reduce future borrowing needs for the project financed.

Page | 12