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Financial Management Policies Page 15 <br />2. Derivatives. The city will not use derivative based debt. <br />C. Debt Structuring Practices <br />1. Term: State law limits general obligation debt to 30 years in most circumstances and the city <br />shall not exceed 25 years in term of debt. <br />2. Term for Equipment: The city has a goal of paying for all capital equipment with a useful life of <br />five years or less from cash reserves or annual operating budgets. State allows cities to issue debt <br />(Equipment Certificates or Capital Notes) with a term of 10 years or the useful life of the <br />equipment if it is at least 10 years. The city would prefer, within the bounds of levy limits, to <br />fund capital equipment on a pay-as-you-go basis. Capital equipment with a useful life greater <br />than five years may be financed with debt, but the bond term should not exceed 10 years. <br />3. The city’s collective debt goal shall be to amortize at least 50% of its principal within 10 years. <br />4. The city shall usually issue debt with level principal and interest payments; or to align with a <br />specific revenue stream. <br />5. The city shall have a call date (pre-payment date) of no longer than 10 years on longer-term debt <br />and 6 to 8 years on shorter-term debt. <br />D. Debt Issuance Practices <br />1. Rating Agencies: The city utilizes a rating agency for all debt issuance of more than $1M or <br />longer than three years in term. <br />2. Method of Sale: The city shall use competitive bidding for all debt unless the debt is so <br />specialized in its nature that it will not attract more than two bids. <br />3. Refunding: <br />a. Advance refunding bonds shall not be utilized unless present value savings of 4% to 5% of <br />refunded principal is achieved and unless the call date is within four years. The state law <br />minimum is 3% of refunded principal. Bonds shall not be advance refunded if there is a <br />reasonable chance that revenues will be sufficient to pre-pay the debt at the call date. <br />b. Current refunding bonds shall be utilized when present value savings of 3% of refunded <br />principal is achieved or in concert with other bond issues to save costs of issuance. <br />c. Special Assessment or Revenue debt will not be refunded unless the finance manager <br />determines that special assessments or other sufficient revenues will not be collected soon <br />enough to pay off the debt fully at that call date. <br />4. Professional Services. The city shall use an outside bond attorney and an independent financial <br />advisor to structure the sale. <br />E. Debt Management Practices <br />1. Investment of bond proceeds. The city shall invest bond proceeds in a capital project fund. <br />2. Disclosure: The city shall comply with SEC rule 15(c)2(12) on primary and continuing <br />disclosure. Continuing disclosure reports shall be filed no later than 180 days after receipt of the <br />city’s annual financial report. <br />3. Arbitrage Rebate: The city shall complete an arbitrage rebate report for each issue no less than <br />every five years after its date of issuance. <br />4. Communication: The city will maintain frequent and regular communications with bond rating <br />agencies about its financial condition and will follow a policy of full disclosure in every financial <br />report and bond prospectus. The city will comply with Securities Exchange Commission (SEC) <br />reporting requirements. <br />F. Post issuance debt compliance policy <br />The city shall ensure that all obligations are in compliance with all applicable state and federal <br />regulations. This policy may be amended, as necessary, in the future. <br />Page 63 of 294