CR 2012-119 Establish Legislative Policy 6-H (Debt Management Policy)October 16, 2012 Council Report 2012-119
City of Hopkins
ESTABLISH LEGISLATIVE POLICY 6-H
DEBT MANAGEMENT POLICY
Proposed Action
Staff recommends adoption of the following motion: Move to Adopt Resolution 2012-075 establishing
Legislative Policy 6-H Debt Management Policy.
Adoption of this motion will create Policy 6-H Debt Management Policy.
Overview
The City of Hopkins does not currently have a Debt Management Policy. Bond rating firms when reviewing
cities financial condition have been focusing on certain financial policies that are recommended for cities to
have in place. One of the policies they inquire about is a Debt Management policy.
A Debt Management Policy sets forth guidelines for issuing long-term debt, how the funds are to be used,
the decisions when to sell bonds, the communications needed during the process and what projects can and
should be included in the City's bonding.
The attached policy was drafted using examples from other cities and was reviewed by our Financial
Advisor, Ehlers who made suggestions to strengthen the policy. Their suggestions were incorporated into
the final version.
Primary Issues to Consider
• Formalizing policy as it relates to establishing guidelines for issuing long-term debt.
Supporting Information
• Resolution 2012-075
• Legislative Policy 6-H
Christine M Harkess, CPA, CGFM
Finance Director
Financial Impact: $ none Budgeted: Y/N n/a N Source:
Related Documents (CIP, ERP, etc.): Notes:
CITY OF HOPKIN S
Hennepin County, Minnesota
RESOLUTION NO. 2012-07-5
A RESOLUTION AMENDING LEGISLATIVE POLICY MANUAL,
ESTABLISHING CHAPTER 6-H DEBT MANAGEMENT POLICY
WHEREAS, The City Staff has determined that establishing a policy for incurring long-term debt
on behalf of the City would provide appropriate guidelines in the issuance of long-term
debt; and
WHEREAS, no formal policy currently exists defining long-term debt issuance or providing
guidance on the issuance of long-term debt for the City of Hopkins;
NOW THEREFORE BE IT RESOLVED, that the City Council of the City of Hopkins hereby
establishes Legislative Policy 6-H, Debt Management Policy.
EFFECTIVE DATE: This amendment will go into effect on October 16, 2012.
Adopted by the City Council of the City of Hopkins this 16th day of October, 2012.
UZ
ATTEST:
Kristine A. Luedke, City Clerk
Eugene Maxwell, Mayor
POLICY 6-11
DEBT MANAGEMENT POLICY
The following debt management policy should be used to provide the general framework for
planning and reviewing debt proposals. City Council recognizes there are no absolute rules or
easy formulas that can substitute for a thorough review of all information affecting the City's
debt position. Debt decisions should be the result of deliberative consideration of all factors
involved.
1. General Debt Policy
1.01 The City shall seek to maintain and improve its current bond rating so borrowing costs
are minimized and access to credit is preserved. It is imperative that the City
demonstrate to rating agencies, investment bankers, creditors and taxpayers that City
officials are following a prescribed financial plan. The City will follow a policy of full
disclosure by communicating with bond rating agencies to inform them of the City's
financial condition.
1.02 Every bond issue proposal will be accompanied by an analysis of the sources and uses of
funds for the project to be financed with the bond proceeds and sources of funding for
the repayment of the bonds. The analysis will reflect how the new bond will fit with the
City's existing debt structure.
1.03 The City will confine long-term borrowing to capital improvements or projects that
cannot be funded from operating revenues and/or a reasonable amount of other
resources.
1.04 Bonds will be sold on a competitive basis unless it is in the best interest of the City to
conduct a negotiated sale. Competitive sales will be the preferred method. Negotiated
sales may occur when selling bonds for a defeasance of existing debt, for current or
advanced refunding of debt or for other appropriate reasons.
2. Taxpayer Equity
2.01 Hopkins' property taxpayers and citizens who benefit from projects financed by bonds
should be the source of the related debt service funding. This principle of taxpayer
equity should be a primary consideration in determining the type of projects selected for
financing through bonds. Furthermore, the principle of taxpayer equity shall be applied
for setting rates in determining net revenues for bond coverage ratios.
3. Uses
3.01 Acceptable uses of bond proceeds can be viewed as items which may be capitalized,
according to financial reporting standards and practices. Non -capital furnishings and
supplies will not be financed from bond proceeds.
3.02 Bond proceeds should be limited to financing the costs of project planning and design,
land acquisition, buildings and other permanent structures, attached fixtures, equipment
and/or other costs as permitted by law. Utility revenue bond proceeds may be used to
Legislative Policy Manual — Chapter 6-H 1
establish a debt service reserve as allowed by State law. Refunding bond issues
designed to restructure currently outstanding debt are an acceptable use of bond
proceeds
3.03 The City will not use short term borrowing to finance operating needs except in the case
of an extreme financial emergency which is beyond its control or reasonable ability to
forecast.
4. Decision Analysis
4.01 Whenever the City is contemplating a possible bond issue, information will be
developed concerning the following categories commonly used by rating agencies
assessing the City's creditworthiness.
4.02 The City may use the services of qualified internal staff and outside advisors to assist in
the analysis, evaluation and decision process, including bond counsel and financial
advisors. This policy is intended to insure that potential debt complies with all laws and
regulations, as well as sound financial principles.
5. Debt Planning
5.01 General obligation bond borrowing should be planned and the details of the plan will be
incorporated in the City's Five Year Capital Improvement Plan.
6. Communication and Disclosure
6.01 Financial reporting and disclosure requirements will be fulfilled annually according to
the disclosure guidelines of the Government Finance Officers Association of the U.S.
and Canada.
7. General Obligation Bonds
7.01 Capital projects proposed for financing through general obligation debt should be
accompanied by a full analysis of the future operating and maintenance costs associated
with the project.
7.02 Bonds cannot be issued for a longer maturity schedule than a conservative estimate of
the useful life of the asset to be financed. The City will attempt to keep the average
maturity of general obligation bonds at or below 20 years.
7.03 The city will comply with N4N Statues 475.53 limits debt of municipalities at 3% of the
market value of taxable property in the municipality.
8. Revenue Bonded Debt
8.01 It will be a long term goal that each utility or enterprise will ensure future capital
financing needs are met by using a combination of current operating revenues and
revenue bond financing.
Legislative Policy Manual — Chapter 6-H 2
8.02 Each utility or enterprise should provide adequate debt service coverage. A specific
factor established by the City Council that the net of enterprise revenues and
expenditures (exclusive of depreciation/amortization) shall be a minimum of 1.20 times
the annual debt service costs.
Established 10/16/2012
City of Hopkins
Legislative Policy Manual — Chapter 6-H