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HomeMy WebLinkAboutAgenda - 03-11-1998 - 2r,..~... ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: March 11, 1998 Action Agenda Item No. 2 SUBJECT: County Capital and Debt Management Policies DEPARTMENT: County Manager/Finance PUBLIC HEARING: (Y/N) Na BUDGET AMENDMENT: (Y/N) Nv ATTACHMENT(S): County Capital Policy Draft Debt Management Policy INFORMATION CONTACT: Rod Visser, ext 2300 Ken Chavious, ext 2453 TELEPHONE NUMBERS: Hillsborough 732-8181 Chapel Hill 968-4501 Durham 688-7331 Mebane 227-2031 PURPOSE: To review the County's revised capital policy and proposed debt management policy. BACKGROUND: In February 1998, the Board of Commissioners updated the County's capital funding policy. The most significant change is an increase in the level of project detail required in County and school capital project ordinances and ordinance amendments. The Board also reviewed and edited a proposed debt management policy that will help ensure that the County maintains a sound debt position, that its credit quality is protected, and that demonstrates a commitment to long term financial planning objectives. County staff will provide brief overviews of both policies and respond to questions that the Boards may have. RECOMMENDATION(S): The Manager recommends that the Boards receive the reports as information. (Adopted 12/7/96) (Revised 2/3/98) Orange County Board of Commissioners Capital Funding Policy A. Sources of Funds The following sources of funds will be allocated for Capital Projects and Debt Service: 1. All proceeds from the Article 40 and Article 42 one half sales tax The North Carolina General Statutes require that 30 percent of the Article 40 and 60 percent of the Article 42 sales tax revenue be earmarked for school capital projects or debt service on debt issued for school capital projects. 2. Revenue from the property tax as follows: • $800,000 • The equivalent of 2.7 cents on the tax rate based on valuation as of 1996-97. This earmarking will be adjusted each revaluation cycle. • The amount necessary to retire the 1992 School Bonds. (In 1997-98 this amount is $4.7 million.) • The amount of the reduction in the Human Services function of the County budget (equivalent of one half of one percent of the budget or $50,000) in 1994- 95 for automation projects in Human Services. • Utilities Extension Fund -This amount may vary in that it based on the increase in property tax base as a result of expenditures in the Utilities Extension Capital project. The amount currently planned is $35,000 for 1997-98 and $25,000 for each year thereafter. 3. Impact Fees for each school system. 4. Public School Building Fund 5. Other revenues that are restricted including, payment-in-lieu, grant funds, rental revenue and inmate fees as a result of the new jail addition. B. Debt Service Prior to funds being allocated for specific projects, all debt service, including private placement financing will be subtracted from the unrestricted funding sources. As an exception, the Orange County Schools are responsible for funding directly from their pay-as you-go capital allocations, that portion of the cost of a new high school in the Orange County School system beyond the $12.5 million bonds approved by voters for that school in November 1997. C. Allocation All sources of unrestricted revenue, less debt service, is then allocated between County and School projects based on 50 percent of the net amount for School projects and 50 percent of the net amount for County projects. Funding between the two school systems will be allocated based on the 20`" day enrollment adjusted each year. For example, the 20`" day enrollment as of September 1998 will be the basis of the 1999-2009 Capital Improvements Plan. These percentages will be rounded to one decimal place. Impact fees will be projected and allocated to each school system, although these fees may be used to pay debt service. When impact fees are used to pay debt service, the equivalent amount of the projected impact fee will be allocated to each school system. For the first three years of the planning period (1997-98, 1998-99 and 1999-2000) impact fees are dedicated to the cost of the new schools. All funds allocated to capital projects are to be accounted for in a Capital Project Fund under a Project Ordinance adopted by the Board of Commissioners. The Project Ordinance will include a detailed break down of each cost category related to the project, as outlined in the Sample Capital Project Ordinance at Attachment 1, which is incorporated by reference into this policy. Whenever County or School project bids exceed budget or come in lower than projected, or any other factor affecting the project budget occurs, County departments or the school systems would be expected to present revised capital project ordinances for adoption by the Board of Commissioners. D. Funding Levels It is the intent of the Board of Commissioners to "hold harmless" School projects and County projects as identified by the amount of funding projected in the 1996-2006 Capital Improvements Plan. To achieve this intention, the following funding options will be used: • The difference between the amount of general obligation debt service payments at the peak year of the debt schedule and the actual debt service payment will be earmarked for the Orange County Schools until the time that any shortfall that would have been realized by that system is made up. • For County projects, beginning in 1998-99 the equivalent of one cent on the general fund property tax rate will be necessary. The Board of Commissioners in adopting this policy instructed staff to identify other funding options rather than a tax increase to make up this shortfall. The Board of Commissioners may consider shifting the one cent capital reserve fund to be dedicated to County projects (see Capital Reserve section below). E. SchooUParks Capital Reserve The schooUparks capital reserve fund, established by the Board of Commissioners in 1995- 96, receives annual allocations equivalent to one cent on the General Fund Property Tax Rate (not adjusted for the 1997 revaluation of property but adjusted for revaluation of real property beyond the 1997 revaluation.) This reserve will accumulate during 1996-97 and 1997-98 with these funds used for site acquisition for schools and or recreation, or the combination of both. The Board of Commissioners will evaluate this reserve fund during 1998-99 to determine if this one cent reserve should continue. F. School/Parks/Recreation It is the intent of the Board of County Commissioners to evaluate each new proposed school in both School Districts for joint use to include park and recreation use. . G. Recurring Capital Recurring capital for each School System will be based on the equivalent of three cents on the General Fund Property Tax Rate (not adjusted for the 1997 revaluation of real property but adjusted each revaluation thereafter.) Funds will be allocated to each school system based on the State Department of Public Instruction planning allocation which is the same method used to allocate current expense appropriation. H. Planning Period During each fiscal year, the Board of Commissioners shall adopt a ten year Capital Improvements Plan. The ten year plan shall include anticipated County capital expenditures costing $30,000 or more (excluding equipment) and anticipated school capital expenditures costing $50,000 or more (excluding equipment). Equipment costing $1,000 or more can be considered as part of the Capital Improvements Plan. The first year of the adopted Ten Year Capital Improvements Plan shall be incorporated into the next annual operating budget recommended by the County Manager. Project Name School System (if a School project) Capital Project Ordinance Project Number 6X-XXX-~~XXX Be it ordained by the Orange County Board of County Commissioners that pursuant to Section 13.2 of Chapter 159 of the General Statutes of North Carolina, the following capital project is hereby adopted. Section 1. The project authorized provides funds to This project will be financed with proceeds from Section 2. The officers of the County are hereby directed to proceed with the project within the budget contained herein. Section 3. The following revenue is anticipated to complete this project: Transfer from Other Funds $Q Bond Proceeds $p Impact Fees $ p Other Revenues as Appropriate $0 Total Revenue $p Section 4. The following amount is appropriated for this project: Planning & Design Fees $p Land and Associated Fees $p Construction $ p Equipment and Furnishings $p Technology $ p Other Line Items as Appropriate $0 Contingency $p Total Project Costs $p Section 5. This ordinance shall remain in effect from July 1, 199X until June 30, 199X. Adopted this XXst day of , 199X. DRAFT ORANGE COUNTY BOARD OF COMMISSIONERS DEBT MANAGEMENT POLICY The County has long recognized the importance of proper long-range planning in order to meet capital improvement needs as they arise without experiencing dramatic impacts on operational costs and debt service. The following policy statements will provide guidance on the issuance of debt to help ensure that the County maintains a sound debt position and that its credit quality is protected. In conjunction with the County's Capital Policies, these policy statements rationalize the decision making process, identify objectives for staff to implement, and demonstrate a commitment to long term financial planning objectives. In addition, this debt management policy will allow for an appropriate balance between the establishing debt parameters and providing flexibility to respond to unforeseen circumstances and new opportunities. POLICY STATEMENTS Purpose and Type of Debt 1. Incurrence of debt or long-term borrowing will only be used for the purpose of providing financing for capital projects to include, but not be limited to: a. Construction of new School and County facilities b. Renovation and repair of existing School and County facilities c. Acquisition of real property (land andlor buildings) d. Purchase of major equipment e. To address adverse public health conditions Debt issuance will not be used to finance current operations or normal maintenance. 2. The types of debt instruments to be used by the County include: a. General Obligation Bonds b. Bond Anticipation Notes c. Installment Purchase Agreements (private placement) d. Special Obligation Bonds (landfill only) e. Certificates of Participation, when feasible f. Revenue Bonds 3. All debt issued, including installment purchase methods, will be repaid within a period not to exceed the expected useful life of the improvements or equipment financed by the debt. 4. The County will not issue tax or revenue anticipation notes. 5. The County will not issue bond anticipation notes with maturities in excess of one year. 6. The County will strive to maximize the use of pay-as-you-go financing for capital improvements. ®R~-~T Issuance of Debt 7. The County will strive to issue bonds no more frequently than once in any fiscal year. The scheduling of bond sales and installment purchase decisions and the amount of bonds to be sold and installment financing to be sought will be determined each year by the County Commissioners. These decisions will be based upon the identified cash flow requirements for each project financed, market conditions, and other relevant factors. These factors will be ascertained from the school systems and County departments. If cash needs for bond projects are insignificant in any given year, the Board may choose not to issue bonds. Instead, the Board may fund up front project costs and reimburse these costs when bonds are sold. 8. The County will seek level or declining debt repayment schedules and will avoid issuing debt that provides for balloon principal payments reserved at the end of the term of the issue. 9. The County will avoid over-reliance on variable rate debt due to the potential volatility of such instruments. 10. The County is required by Statute to issue general obligation debt through a competitive process. The competitive process will also be used for other debt issuance unless time factors, interest rates or other factors make it more favorable to the County to use a negotiated process. Level of Debt 11. The County will strive to maintain its net bonded debt at a level not to exceed three percent of the assessed valuation of taxable property within the County. 12. The County will strive to maintain its annual debt service costs at a level no greater than fifteen percent of general fund expenditures. This applies to debt service costs paid by general fund revenues, including installment purchase debt. Undesignated Fund Balance 13. The County will strive to maintain undesignated fund balance in the general fund at a level sufficient to meet its budgeted goals, to be determined annually. The amount of undesignated fund balance maintained during each fiscal year should not be less than eight percent of budgeted general fund operating expenditures that fiscal year. 14. To the extent that undesignated fund balance exceeds the budgeted goals the County could consider drawing upon the balance to fund major equipment purchases or one time expenses on a pay- as-you-go basis. Investment of Capital Funds 15. Investment of capital funds will be performed in accordance with the North Carolina General Statutes (159-30). Funds will be invested in instruments that will provide the liquidity required to meet the cash flow needs of each project funded. M Z~ ~~ 16. Investment earnings on capital funds, after subtracting required or potential arbitrage, will be used for project costs and/or debt service. Bond Ratings 17. The County will maintain good communications with bond rating agencies about its financial condition and will follow a policy of full disclosure on every financial report and offering statement. 18. The County will strive to maintain bond ratings at or better than Aal (Moody's) and AA+ (Standard & Poor's). Enterprise Funds 19. For any Enterprise Fund that is supporting debt, an annual rate study will be performed to ensure that the fees or rates are sufficient to meet the debt service requirements.