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HomeMy WebLinkAboutAgenda Report - November 1, 2017 C-15CITY OF LODI COUNCIL COMMUNICATION AGENDA ITEM C-15 TM AGENDA TITLE: Adopt Resolutions of the Lodi City Council and the Public Financing Authority Adopting the City of Lodi Debt Management Policy MEETING DATE: PREPARED BY: November 1, 2017 Deputy City Manager and City Attorney RECOMMENDED ACTION: BACKGROUND INFORMATION: standing debt, as well as adopt debt (A) (B) (C) (D) (E) Adopt Resolutions of the Lodi City Council and the Lodi Public Financing Authority adopting the City of Lodi Debt Management Policy. Senate Bill 1029, which was signed by Governor Brown on September 12, 2016, requires state and local government debt issuers to report specified information about proposed and out - management policies that include all of the following: The purposes for which the debt proceeds may be used; The types of debt that may be issued; The relationship of the debt to, and integration with, the issuer's capital improvement program or budget, if applicable; Policy goals related to the issuer's planning goals and objectives; and The internal control procedures that the issuer has implemented, or will implement, to ensure that the proceeds of the proposed debt issuance will be directed to the intended use. Staff plans to present to Council a refunding opportunity for existing wastewater debt before the end of the calendar year. A second refunding opportunity for outstanding electric utility debt is expected in calendar year 2018. In order for Council to approve those transactions, an SB 1029 -compliant debt policy must be approved. The recommended policy complies with SB 1029 and would allow the City to move forward on those cost savings opportunities. SUMMARY OF DOCUMENTS: In order to adopt the debt management policy, the City and the Lodi Public Financing Authority (PFA) are required to approve and execute several key legal documents. The key documents are summarized below. Resolutions: Resolutions of the Lodi City Council and the PFA adopting the City of Lodi and Lodi Public Financing Authority Debt Management Policy. While the Debt Management Policy is in near -to -final form, the resolutions authorize certain officers of the City and the PFA to make amendments, as may be necessary. APPROVED: er, City Manager Debt Management Policy: Because the City and the PFA regularly incur debt to finance the City's capital improvement programs, the City and the PFA must adopt a debt management policy that complies with SB 1029. Staff has worked with the City's bond counsel, Jones Hall, to develop a debt management policy in the form provided to the City Council and the PFA Board of Directors. The policy has also been reviewed by the City's municipal financial advisor. FISCAL IMPACT: None. FUNDING AVAILABLE: Not applicable. CILL&A;)6-9 Andrew Keys \ Janice D. Magdich Deputy City Manager City Attorney Attachments: City Council Resolution and Exhibits Lodi Public Financing Authority Resolution and Exhibits Management Policy 2 RESOLUTION NO. 2017-205 A RESOLUTION OF THE LODI CITY COUNCIL APPROVING A DEBT MANAGEMENT POLICY WHEREAS, Senate Bill 1029 ("SB 1029"), which was signed by Governor Brown on September 12, 2016, requires California public agencies that issue debt to adopt debt management policies that meet certain criteria; and WHEREAS, in response to SB 1029 and in order to adhere to sound financial management practices, the City of Lodi finds it desirable to adopt and maintain a debt management policy; and WHEREAS, there has been presented to the Council a proposed form of debt management policy, attached hereto as Exhibit A and incorporated herein by this reference (the "Policy"). NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Lodi as follows: Section 1. Approval of Policy. The City Council hereby approves and adopts the Policy as the Debt Management Policy for the City of Lodi. Section 2. Effective Date. This Resolution shall take effect immediately upon its passage and adoption. Dated: November 1, 2017 I hereby certify that Resolution No 2017-205 was passed and adopted by the City Council of the City of Lodi in a regular joint meeting held November 1, 2017, by the following vote: AYES: COUNCIL MEMBERS — Chandler, Nakanishi, and Mayor Kuehne NOES: COUNCIL MEMBERS — None ABSENT: COUNCIL MEMBERS — Johnson and Mounce ABSTAIN: COUNCIL MEMBERS — None 2017-205 NNIFE FERRAIOLO ity Clerk EXHIBIT A CITY OF LODI AND LODI PUBLIC FINANCING AUTHORITY DEBT MANAGEMENT POLICY This Debt Management Policy (this "Debt Policy") of the City of Lodi (the "City") and the Lodi Public Financing Authority (the "Authority", and together with the City, each an "Issuer") was approved by the City's City Council on November 1, 2017, pursuant to Resolution No. 2017-205 and the Authority's Board of Directors on November 1, 2017, pursuant to Resolution No. LPFA2017-01. The Debt Policy may be amended by the City Council or the Board of Directors, as applicable, as it deems appropriate from time to time in the prudent management of the debt of the Issuer. Any approval of debt by the City Council or Board of Directors that is not consistent with this Debt Policy shall constitute a waiver of this Debt Policy. 1. Findings This Debt Policy is intended to comply with Government Code Section 8855(i), effective on January 1, 2017, and shall govern all debt undertaken by the Issuer. The Issuer hereby recognizes that a fiscally prudent debt policy is required in order to: • Maintain the Issuer's sound financial position; • Ensure the Issuer has the flexibility to respond to changes in future service priorities, revenue levels, and operating expenses; • Protect the Issuer's credit -worthiness; • Ensure that all debt is structured in order to protect both current and future taxpayers, ratepayers and constituents of the Issuer; and • Ensure that the Issuer's debt is consistent with the Issuer's planning goals and objectives and capital improvement program or budget, as applicable. 2. Policies A. Purposes For Which Debt May Be Issued (i) Long -Term Debt. Long-term debt may be issued to finance the construction, acquisition, and rehabilitation of capital improvements and facilities, equipment, and land to be owned and operated by the Issuer. (a) Long-term debt financings are appropriate when the following conditions exist: • When the project to be financed is necessary to provide basic services. When the project to be financed will provide benefit to constituents over multiple years. When total debt does not constitute an unreasonable burden to the 1 Issuer and its taxpayers and ratepayers. • When the debt is used to refinance outstanding debt in order to produce debt service savings or to realize the benefits of a debt restructuring. • When adequate pay as you go resources are not available to fund the project. (b) Long-term debt financings will not generally be considered appropriate for current operating expenses and routine maintenance expenses. (c) The Issuer may use long-term debt financings subject to the following conditions: The project to be financed must be approved by the City Council or Board of Directors, as applicable; The weighted average maturity of the debt (or the portion of the debt allocated to the project) will not exceed the average useful life of the project to be financed by more than 20%; The Issuer estimates that sufficient revenues will be available to service the debt through its maturity; and The Issuer determines that the issuance of the debt will comply with the applicable state and federal law. (ii) Short-term debt. Short-term debt may be issued to provide financing for the Issuer's operational cash flows in order to maintain a steady and even cash flow balance. Short-term debt may also be used to finance short-lived capital projects; for example, the Issuer may undertake lease -purchase financing for equipment. (iii) Financings on Behalf of Other Entities. The Issuer may also find it beneficial to issue debt on behalf of other governmental agencies or private third parties in order to further the public purposes of Issuer. In such cases, the Issuer shall take reasonable steps to confirm the financial feasibility of the project to be financed and the financial solvency of any borrower and that the issuance of such debt is consistent with the policies set forth herein. B. Types of Debt For purposes of this Debt Policy, "debt" shall be interpreted broadly to mean bonds, notes, certificates of participation, financing leases, or other financing obligations, but the use of such term in this Debt Policy shall be solely for convenience and shall not be interpreted to characterize any such obligation as an indebtedness or debt within the meaning of any statutory or constitutional debt limitation where the substance and terms of the obligation comport with exceptions thereto. The following types of debt are allowable under this Debt Policy: • general obligation bonds; • bond or grant anticipation notes; 2 • lease revenue bonds, certificates of participation and lease -purchase transactions; • other revenue bonds and certificates of participation; • tax and revenue anticipation notes; • land -secured financings, such as special tax revenue bonds issued under the Mello -Roos Community Facilities Act of 1982, as amended, and limited obligation bonds issued under applicable assessment statutes; • tax increment financing to the extent permitted under state law; • conduit financings, such as financings for affordable rental housing and qualified 501c3 organizations; or • private placement loans directly with a bank or other financial institution. The Issuer may from time to time find that other forms of debt would be beneficial to further its public purposes and may approve such debt by majority vote of the City Council or Board of Directors, as applicable, without an amendment of this Debt Policy. Debt shall be issued as fixed rate debt unless the Issuer makes a specific determination as to why a variable rate issue would be beneficial to the Issuer in a specific circumstance. C. Relationship of Debt to Capital Improvement Program and Budget The Issuer is committed to long-term capital planning. The Issuer intends to issue debt for the purposes stated in this Debt Policy and to implement policy decisions incorporated in the Issuer's capital budget and the capital improvement plan. The Issuer shall strive to fund the upkeep and maintenance of its infrastructure and facilities due to normal wear and tear through the expenditure of available operating revenues. The Issuer shall seek to avoid the use of debt to fund infrastructure and facilities improvements that are the result of normal wear and tear. The Issuer shall integrate its debt issuances with the goals of its capital improvement program by timing the issuance of debt to ensure that projects are available when needed in furtherance of the Issuer's public purposes. The Issuer shall seek to avoid the use of debt to fund infrastructure and facilities improvements in circumstances when the sole purpose of such debt financing is to reduce annual budgetary expenditures. The Issuer shall seek to issue debt in a timely manner to avoid having to make unplanned expenditures for capital improvements or equipment from its general fund. D. Policy Goals Related to Planning Goals and Objectives The Issuer is committed to Tong -term financial planning, maintaining appropriate reserves levels, and employing prudent practices in governance, management and budget administration. The Issuer intends to issue debt for the purposes stated in this Debt Policy and to implement policy decisions incorporated in the Issuer's annual operations budget. 3 It is a policy goal of the Issuer to protect taxpayers, ratepayers and constituents by utilizing conservative financing methods and techniques so as to obtain the highest practical credit ratings (if applicable) and the lowest practical borrowing costs. The Issuer will comply with applicable state and federal law as it pertains to the maximum term of debt and the procedures for levying and imposing any related taxes, assessments, rates, and charges. When refinancing debt, it shall be the policy goal of the Issuer to realize, whenever possible, and subject to any overriding non-financial policy considerations, (i) minimum net present value debt service savings equal to or greater than 3.0% of the refunded principal amount, and (ii) present value debt service savings equal to or greater than 100% of any escrow fund negative arbitrage. E. Internal Control Procedures When issuing debt, in addition to complying with the terms of this Debt Policy, the Issuer shall comply with any other applicable policies regarding initial bond disclosure, continuing disclosure, post -issuance compliance, and investment of bond proceeds. The Issuer will periodically review the requirements of and will remain in compliance with the following: any continuing disclosure undertakings under SEC Rule 15c2-12; any federal tax compliance requirements, including without limitation arbitrage and rebate compliance, related to any prior bond issues; and the Issuer's investment policies as they relate to the investment of bond proceeds. It is the policy of the Issuer to ensure that proceeds of debt are spent only on lawful and intended uses. Whenever reasonably possible, proceeds of debt will be held by a third -party trustee and the Issuer will submit written requisitions for such proceeds. The Issuer will submit a requisition only after obtaining the signature of the Treasurer. In those cases where it is not reasonably possible for the proceeds of debt to be held by a third -party trustee, the Treasurer shall retain records of all expenditures of proceeds through the final payment date for the debt. APPROVED AS TO FORM: JANICE D. MAGDICH City Attorney 4 RESOLUTION NO. LPFA2017-01 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE LODI PUBLIC FINANCING AUTHORITY APPROVING A DEBT MANAGEMENT POLICY WHEREAS, Senate Bill 1029 ("SB 1029"), which was signed by Governor Brown on September 12, 2016, requires California public agencies that issue debt to adopt debt management policies that meet certain criteria; and WHEREAS, in response to SB 1029 and in order to adhere to sound financial management practices, the Lodi Public Financing Authority finds it desirable to adopt and maintain a debt management policy; and WHEREAS, there has been presented to the Board of Directors of the Lodi Public Financing Authority, a debt management policy, a copy of which is attached hereto as Exhibit A and incorporated herein by this reference (the "Policy"). NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Lodi Public Financing Authority as follows: Section 1. Approval of Policy. The Board of Directors hereby approves and adopts the Policy as the Debt Management Policy for the Lodi Public Financing Authority. Section 2. Effective Date. This Resolution shall take effect immediately upon its passage and adoption. Dated: November 1, 2017 I hereby certify that Resolution No LPFA2017-01 was passed and adopted by the Board of Directors of the Lodi Public Financing Authority in a regular joint meeting held November 1, 2017, by the following vote: AYES: BOARD MEMBERS — Chandler, Nakanishi, and Chairperson Kuehne NOES: BOARD MEMBERS — None ABSENT: BOARD MEMBERS — Johnson and Mounce ABSTAIN: BOARD MEMBERS — None 1 NIFEFERRAIOLO ecretary EXHIBIT A CITY OF LODI AND LODI PUBLIC FINANCING AUTHORITY DEBT MANAGEMENT POLICY This Debt Management Policy (this "Debt Policy") of the City of Lodi (the "City") and the Lodi Public Financing Authority (the "Authority", and together with the City, each an "Issuer") was approved by the City's City Council on November 1, 2017, pursuant to Resolution No. 2017-205 and the Authority's Board of Directors on November 1, 2017, pursuant to Resolution No. LPFA2017-01. The Debt Policy may be amended by the City Council or the Board of Directors, as applicable, as it deems appropriate from time to time in the prudent management of the debt of the Issuer. Any approval of debt by the City Council or Board of Directors that is not consistent with this Debt Policy shall constitute a waiver of this Debt Policy. 1. Findings This Debt Policy is intended to comply with Government Code Section 8855(i), effective on January 1, 2017, and shall govern all debt undertaken by the Issuer. The Issuer hereby recognizes that a fiscally prudent debt policy is required in order to: • Maintain the Issuer's sound financial position; • Ensure the Issuer has the flexibility to respond to changes in future service priorities, revenue levels, and operating expenses; • Protect the Issuer's credit -worthiness; • Ensure that all debt is structured in order to protect both current and future taxpayers, ratepayers and constituents of the Issuer; and • Ensure that the Issuer's debt is consistent with the Issuer's planning goals and objectives and capital improvement program or budget, as applicable. 2. Policies A. Purposes For Which Debt May Be Issued (i) Long -Term Debt. Long-term debt may be issued to finance the construction, acquisition, and rehabilitation of capital improvements and facilities, equipment, and land to be owned and operated by the Issuer. (a) Long-term debt financings are appropriate when the following conditions exist: • When the project to be financed is necessary to provide basic services. When the project to be financed will provide benefit to constituents over multiple years. When total debt does not constitute an unreasonable burden to the 1 Issuer and its taxpayers and ratepayers. • When the debt is used to refinance outstanding debt in order to produce debt service savings or to realize the benefits of a debt restructuring. • When adequate pay as you go resources are not available to fund the project. (b) Long-term debt financings will not generally be considered appropriate for current operating expenses and routine maintenance expenses. (c) The Issuer may use long-term debt financings subject to the following conditions: • The project to be financed must be approved by the City Council or Board of Directors, as applicable; • The weighted average maturity of the debt (or the portion of the debt allocated to the project) will not exceed the average useful life of the project to be financed by more than 20%; • The Issuer estimates that sufficient revenues will be available to service the debt through its maturity; and • The Issuer determines that the issuance of the debt will comply with the applicable state and federal law. (ii) Short-term debt. Short-term debt may be issued to provide financing for the Issuer's operational cash flows in order to maintain a steady and even cash flow balance. Short-term debt may also be used to finance short-lived capital projects; for example, the Issuer may undertake lease -purchase financing for equipment. (iii) Financings on Behalf of Other Entities. The Issuer may also find it beneficial to issue debt on behalf of other governmental agencies or private third parties in order to further the public purposes of Issuer. In such cases, the Issuer shall take reasonable steps to confirm the financial feasibility of the project to be financed and the financial solvency of any borrower and that the issuance of such debt is consistent with the policies set forth herein. B. Types of Debt For purposes of this Debt Policy, "debt" shall be interpreted broadly to mean bonds, notes, certificates of participation, financing leases, or other financing obligations, but the use of such term in this Debt Policy shall be solely for convenience and shall not be interpreted to characterize any such obligation as an indebtedness or debt within the meaning of any statutory or constitutional debt limitation where the substance and terms of the obligation comport with exceptions thereto. The following types of debt are allowable under this Debt Policy: • general obligation bonds; • bond or grant anticipation notes; 2 • lease revenue bonds, certificates of participation and lease -purchase transactions; • other revenue bonds and certificates of participation; • tax and revenue anticipation notes; • land -secured financings, such as special tax revenue bonds issued under the Mello -Roos Community Facilities Act of 1982, as amended, and limited obligation bonds issued under applicable assessment statutes; • tax increment financing to the extent permitted under state law; • conduit financings, such as financings for affordable rental housing and qualified 501c3 organizations; or • private placement loans directly with a bank or other financial institution. The Issuer may from time to time find that other forms of debt would be beneficial to further its public purposes and may approve such debt by majority vote of the City Council or Board of Directors, as applicable, without an amendment of this Debt Policy. Debt shall be issued as fixed rate debt unless the Issuer makes a specific determination as to why a variable rate issue would be beneficial to the Issuer in a specific circumstance. C. Relationship of Debt to Capital Improvement Program and Budget The Issuer is committed to long-term capital planning. The Issuer intends to issue debt for the purposes stated in this Debt Policy and to implement policy decisions incorporated in the Issuer's capital budget and the capital improvement plan. The Issuer shall strive to fund the upkeep and maintenance of its infrastructure and facilities due to normal wear and tear through the expenditure of available operating revenues. The Issuer shall seek to avoid the use of debt to fund infrastructure and facilities improvements that are the result of normal wear and tear. The Issuer shall integrate its debt issuances with the goals of its capital improvement program by timing the issuance of debt to ensure that projects are available when needed in furtherance of the Issuer's public purposes. The Issuer shall seek to avoid the use of debt to fund infrastructure and facilities improvements in circumstances when the sole purpose of such debt financing is to reduce annual budgetary expenditures. The Issuer shall seek to issue debt in a timely manner to avoid having to make unplanned expenditures for capital improvements or equipment from its general fund. D. Policy Goals Related to Planning Goals and Objectives The Issuer is committed to long-term financial planning, maintaining appropriate reserves levels, and employing prudent practices in governance, management and budget administration. The Issuer intends to issue debt for the purposes stated in this Debt Policy and to implement policy decisions incorporated in the Issuer's annual operations budget. 3 It is a policy goal of the Issuer to protect taxpayers, ratepayers and constituents by utilizing conservative financing methods and techniques so as to obtain the highest practical credit ratings (if applicable) and the lowest practical borrowing costs. The Issuer will comply with applicable state and federal law as it pertains to the maximum term of debt and the procedures for levying and imposing any related taxes, assessments, rates, and charges. When refinancing debt, it shall be the policy goal of the Issuer to realize, whenever possible, and subject to any overriding non-financial policy considerations, (i) minimum net present value debt service savings equal to or greater than 3.0% of the refunded principal amount, and (ii) present value debt service savings equal to or greater than 100% of any escrow fund negative arbitrage. E. Internal Control Procedures When issuing debt, in addition to complying with the terms of this Debt Policy, the Issuer shall comply with any other applicable policies regarding initial bond disclosure, continuing disclosure, post -issuance compliance, and investment of bond proceeds. The Issuer will periodically review the requirements of and will remain in compliance with the following: • any continuing disclosure undertakings under SEC Rule 15c2-12; • any federal tax compliance requirements, including without limitation arbitrage and rebate compliance, related to any prior bond issues; and • the Issuer's investment policies as they relate to the investment of bond proceeds. It is the policy of the Issuer to ensure that proceeds of debt are spent only on lawful and intended uses. Whenever reasonably possible, proceeds of debt will be held by a third -party trustee and the Issuer will submit written requisitions for such proceeds. The Issuer will submit a requisition only after obtaining the signature of the Treasurer. In those cases where it is not reasonably possible for the proceeds of debt to be held by a third -party trustee, the Treasurer shall retain records of all expenditures of proceeds through the final payment date for the debt. APPROVED AS TO FORM JANICE D. MAGDICH City Attorney 4