4.9. SR 06-17-2019 - Laserfiche WebLink

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b. Policy Limits: i. Debt will be used only for capital costs and will not utilize debt for cash flow borrowing, even though this is allowed by state statutes. ii. The CIP shall contain debt assumptions matching this policy and requiring a commitment to long-range financial planning of capital and debt needs. iii. The city shall use GO Tax Increment bonds only when the development merits special consideration. c. Financial Limits: i. The city limits the amount of the property tax levy dedicated to debt service (principal and interest plus 5% for GO bonds) to less than 20% of the total tax levy. Unlike rating abatements, or tax increments. ii. Pure revenue bond debt shall be used primarily as Lease Revenue Bonds supported by taxes. The city may use Revenue Bonds for enterprise, electric and water utility operations, but only if debt service coverage achieves investment grade rating from the 2. Use of Variable Rate Debt and Derivatives a. The city shall use variable rate debt only if total principal and interest constitute less than 20% of total debt payments, if circumstances dictate the need for a short call date, and will only be used for debt repaid from non-property tax sources (specific revenues). b. The city shall not use derivative based debt. 3. Debt Structuring Practices a. State law limits GO debt to 30 years in most circumstances. The city shall not exceed 25 years in term of debt. b. The city goal is to pay for all capital equipment with a useful life of five years or less from cash reserves or annual operating budgets. State law allows for the issuance of debt equipment certificates or capital notes with a term of 10 years or the useful life of the equipment if it is at least 10 years. The city prefers, within the bounds of levy limits, to fund capital equipment on a pay-as-you-go basis. Capital equipment with a useful life greater than five years may be financed with debt, but the bond term should not exceed 10 years. c. d. The city shall usually issue debt with level principal and interest payments; or to align with a specific revenue stream. e. The city shall have a call date (pre-payment date) of no longer than 10 years on longer-term debt and 6 to 8 years on shorter-term debt. 4. Debt Issuance Practices a. The city utilizes a rating agency for all debt issuance of more than $1 million or longer than three (3) years in term. b. The city shall use competitive bidding for all of its debt unless the debt is so specialized in its nature that it will not attract more than two (2) bids. c. Refunding: i. Advance refunding shall not be utilized unless a present value savings of 4-5% of refunded principal is achieved and the call date is within 4 years (state minimum is 3%). Bonds shall not be advance refunded with a reasonable chance revenues will be sufficient to pre-pay the debt at the call date. Financial Management Policies Page 8