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HomeMy WebLinkAboutPolicy - Debt Management Policy~G 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 theyarise without experiencing dramatic impacts on operational cost and debt service. The following policy .statements will provide guidance on the issuance of dept to help insure that the County maintains a sound debt position and that its credit quality is protected. {n 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 established debt parameters and providing flexibility to respond to unforeseen circumstances and new opportunities. POLICY STATEMENTS Purpose and Type of Debt Incurrence of debt orlong-term borrowing will only be used for fhe purpose of providing financing for capital projects to include, but not 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. Construction or expansion of Public Utilities. e. Providing funds for Affordable Housing Projects f. Construction, acquisition and development of Parks g. 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 Bands (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 fife of the improvements or equipment. financed by the debt. 4. The County will not issue tax or revenue anticipation notes. Purpose and Type of Debt (continued) 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. 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. In these situations the Board will adopt Reimbursement Resolutions prior to the expenditure of project funds. 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. Variable rate debt will only be considered when market conditions favor this type of issuance. When variable rate debt is considered, careful analysis will be performed and techniques applied that will ensure that the County's sound debt position will be maintained. At no time will variable rate debt exceed 20% of the County's total outstanding debt: 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. 11. In the planning process for debt issuance the County will assess the need to maintain its "Bank Qualification" if installment purchase financing is being considered. 8 Level of Debt 12. The County will maintain its net bonded debt at a level not to exceed three percent of the assessed valuation of taxable property within the County. 13. The County will strive to maintain its annua{ debt service costs at a level no greater than ffteen percent of general fund revenues, including installment purchase debt. This is a recommended "best practice" from the Government Finance Officers Association. Advance Refunding of Debt 14. The County will make every effort to issue advance refunding bonds to achieve cost savings of at least 3% percent net of the refunding bonds. Net savings includes gross savings less issuance costs and any cash contributions to the refunding. The 3% savings is the minimum savings permissible before the North Carolina- Local Government. Commission will consider advance refunding. bands. These. decisions will be based upon the maturity date of the refunded bonds, the call date and premium on the refunded bonds and the interest rates at which the refunding bonds can be issued. Undesignated Fund Balance 15.The County will strive to maintain an Undesignated balance in the general fund of 17% percent of budgeted general fund operating expenditures each fiscal year. The amount of Undesignated fund balance maintained during each fiscal year should not fall below 8% percent of budgeted general fund operating expenditures as recommended by the North Carolina Local Government Commission. 16.To the extent that general fund Undesignated fund balance exceeds 17% percent the. balances may be utilized to fund capital expenditures or pay down outstanding County debt. [nvestment of Capital Funds 17. [nvestment 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. 9 18. Investment earnings on capital funds, after subtracting required or potential arbitrage, will be used for project costs and/or debt service. Bond Ratings 19. The County will maintain good communications with bond rating agencies regarding its financial condition and will follow a policy of full disclosure on every financial report and offering statement. 20. The County will strive to maintain bond ratings at or better than AAA (Fitch), Aa2 (Moody's Investor Services) and AA+ (Standard & Poor's). Arbitrage Rebate and Secondary Market Disclosure Requirements 21. The County will comply with all arbitrage rebate requirements as established by the Internal Revenue Service and. a(I secondary market disclosure requirements established by the Securities and Exchange Commission. 22. Arbitrage will be calculated at the end of each fiscal year and interest earned on investment of bond or installment purchase proceeds will be reserved to pay any penalties due. Enterprise Funds 23. For any Enterprise Fund that is supporting debt, an annual rate study will be performed to ensure that fees or rates are sufficient to meet the debt service requirements. Capital Reserve Funds 24. The County will create and maintain capital reserve funds as appropriate, such as for school and county projects. 25. The Capital Reserves will be funded from property tax revenues, sales tax revenues and/or any other revenue source that the County Commissioners may choose. 26. Funds accumulated in the Capital Reserve Funds will be used on a pay-as- you-go"basis to finance renovations and repairs to existing buildings and the purchase of major equipment. The Board may also choose to fund other pay- as-you-go initiatives from Reserve Funds. 10 5-Year Capital Investment Plan (CIP) 27. The County will review and adopt afive-year CIP annually. 28. This Debt Management Policy wi(I be incorporated into the CIP. 29. The County will strive to include plans for debt issuance within the CIP. Rescission This policy supersedes any policy in place prior to this~date.