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Financial Management Policies Page 15 10 <br />against the limit. G.O. tTax Iincrement, G.O. aAbatement G.O. sSpecial aAssessment, <br />G.O. uUtility rRevenue, and most HRA or EDA-issued debt is considered to have a <br />separate revenue source other than just taxes and so are excluded from the legal debt limit <br />calculation. HRA and EDA pPublic pProject rRevenue bBonds or lLease rRevenue bBonds <br />with fFinancing lLease aAgreement with a city or county do count against the statutory debt <br />limit. <br />b. Local ordinances do not limit the city’s ability to issue debt. <br />2. Policy Limits: <br />a.Uses of Debt: Debt will only be used only for capital costs. The city will not utilize debt for <br />cash flow borrowing, even though this it is allowed by state statutes. <br />b. CIP and Financial Planning: The city’s cCapital iImprovement pPlan shall contain debt <br />assumptions which match this policy and requires a commitment to long- range financial <br />planning which looks at multiple years of capital and debt needs. <br />c. Tax Increment Bonds: The city shall use G.O. tTax iIncrement bBonds only when the <br />development merits special consideration. <br />3. Financial Limits: <br />a. Bond issues may require a special debt levy. The city hereby adopts a policy to shall limit <br />the amount of the city’s property tax levy dedicated to debt service (principal and interest <br />plus 5% for G.O. bBonds ) to less than 20% of the total tax levy. Unlike rating agencies, <br />the city’s definition of tax levy does not include special assessments, tax abatements, or tax <br />increments. <br />b. Pure revenue bond debt for the city shall be used primarily as lease revenue bonds, <br />supported by taxes. The city may use revenue bonds for enterprise, electric and water utility <br />operations, but only if debt service coverage achieves investment grade rating from the city’s <br />rating agencies. <br />B. Use of Variable Rate Debt and Derivatives <br />1. Variable Rate Debt. The city shall use variable rate debt only if total principal and interest of <br />the debt constitutes less than 20% of the city’s total debt payments and only if circumstances <br />dictate the need for a short call date and will only be used for debt repaid from non-property tax <br />sources (specific revenues). <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 . Tthe 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 law does allows cities to <br />issue debt (known as eEquipment cCertificates or cCapital nNotes) with a term of ten 10 years <br />or the useful life of the equipment if it is at least 10 years. The city would prefer, within the <br />bounds of levy limits, to fund capital equipment on a pay-as-you-go basis. Capital equipment <br />with a useful life greater than five years may be financed with debt, but the bond term should <br />not exceed ten 10 years. <br />3. The city’s collective debt goal shall be to amortize at least 50% of its principal within 10 years. <br />Page 90 of 294