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HomeMy WebLinkAboutAgenda - 01-20-1998 - 10bORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: January 20, 1998 Action Agenda Item No. ~p_ SUBJECT: Debt Management Policy DEPARTMENT: Finance PUBLIC HEARING: (Y/N) No' ` BUDGET AMENDMENT: (Y/N) No ATTACHMENT(S): Draft Policy INFORMATION CONTACT: Ken Chavious, Finance Director, ext 2450 TELEPHONE NUMBERS: Hillsborough 732-8181 Chapel Hill 968-4501 Durham 688-7331 Mebane 227-2031 PURPOSE: To review and comment on a draft debt management policy for Orange County. BACKGROUND: During the Commissioners' annual planning retreat on December 6, 1997, the Boazd and staff discussed the value of developing and adopting a formal policy covering management of the County's long-term debt. The Board indicated that it would like to consider such a policy, and staff have prepazed the attached draft as a beginning point for discussion. The Finance Director will present a brief overview of the draft policy and respond to Board questions about any specifics concerning proposed provisions. Staff will take any Board comments, incorporate those along with any new information gleaned from reviewing debt policies of other jurisdictions and recommendations from the Government Finance Officers Association, and bring back a revised policy proposal for the Board to consider adopting at a subsequent meeting. RECOMMENDATION(S): The Manager recommends that the Board review the proposed policy, and provide appropriate feedback and direction to the Manager and staff. 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. To articulate this commitment, the following policy statements are developed to provide certain guidance on the issuance of debt to assist in the assurance 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 policy will allow for an appropriate balance between the establishment of debt parameters and providing flexibility to respond to unforeseen circumstances and new opportunities. Policy Statements 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 and/or buildings) d. Purchase of major equipment 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 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. 3. The County will not issue tax or revenue anticipation notes. 4. The County will not issue bond anticipation notes with maturities in excess of one year. DRAFT 5. 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. 6. The County will strive to maximize the use of pay-as-you-go financing for capital improvements. 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 upfront project costs and reimburse these costs upon the sale of bonds or the Board may consider issuing bond anticipation notes. 8. 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. 9. 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. 10. 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. 11. To the extent that undesignated fund balance exceeds the budgeted goals the County should consider drawing upon the balance to fund major equipment purchases or one time expenses on a pay-as-you-go basis. 12. 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 cashflow needs of each project funded. 13. Investment earnings on capital funds, net of any required or potential arbitrage, will be used for project costs andJor debt service. 14. 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. 15. The County will avoid over-reliance on variable rate debt due to the potential volatility of such instruments. 16. 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. DRAFT 17. 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.