4.8 SR 10-21-2024 - Laserfiche WebLink

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Financial Management Policies Page 15 The city will periodically review updates to rating agency methodologies and medians to make sure that the reserve policy is consistent to ensure maintaining its existing rating or that it positions itself for an upgrade. Debt The city has chosen, by policy, to guide its issuance of debt by following the guidelines listed below. These practices were identified through examination of materials from state statutes, bond rating agencies, and the Government Finance Officers Association (GFOA). This policy can be amended in the future by the City Council but is consistent with general municipal practices at the time of its adoption. In accordance with the authorities cited in the background section, the city will use the following policies in determining when and how to use debt for financing capital and equipment needs. A. Debt Limits 1. Legal Limits a. Minnesota Statutes, Section 475 prescribes the statutory debt limit that outstanding principal of debt cannot exceed 3% of taxable market value. This limitation applies only to debt that is wholly tax-supported. The type of debt included is either general obligation debt of any size bond issue (G.O.) or Lease Revenue Bond Issues that were over $1,000,000 at the time of issuance. However, several debt types do not count against the limit. G.O. Tax Increment, G.O. Abatement G.O. Special Assessment, G.O. Utility Revenue, and most HRA or EDA-issued debt is considered to have a separate revenue source other than taxes and so are excluded from the legal debt limit calculation. HRA and EDA Public Project Revenue Bonds or Lease Revenue Bonds with Financing Lease Agreement with a city or county do count against the statutory debt limit. b. Local ordinances do not limit the city’s ability to issue debt. 2. Policy Limits a. Debt will only be used for capital costs. The city will not utilize debt for cash flow borrowing, even though it is allowed by state statutes. b. CIP and Financial Planning: The city’s Capital Improvement Plan shall contain debt assumptions which match this policy and requires a commitment to long-range financial planning which looks at multiple years of capital and debt needs. c. Tax Increment Bonds: The city shall use G.O. Tax Increment Bonds only when the development merits special consideration. 3. Financial Limits a. Bond issues may require a special debt levy. The city shall limit the amount of the city’s property tax levy dedicated to debt service (principal and interest plus 5% for G.O. Bonds) to less than 20% of the total tax levy. Unlike rating agencies, the city’s definition of tax levy does not include special assessments, tax abatements, or tax increments. b. Pure revenue bond debt for the city 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 city’s rating agencies. B. Use of Variable Rate Debt and Derivatives 1. Variable Rate Debt. The city shall use variable rate debt only if total principal and interest of the debt constitutes less than 20% of the city’s total debt payments and only 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). Page 62 of 294