Ordinance 031-16S
RECORD OF ORDINANCES
Wn uxd awk � Form No_ LXH'
Ordinance No. 31 -16 pavvd ,,p
AN ORDINANCE AUTHORIZING THE ADOPTION
OF A DEBT POLICY
WHEREAS, the City of Dublin (the "Cityl has a legacy of financial stability built
upon a conservative approach to spending and a long -term commitment to full
and timely repayment of debt; and
WHEREAS, the City wishes to adopt a formal Debt Policy; and
WHEREAS, a formal debt policy will demonstrate strong financial management;
and
WHEREAS, in creating the policy, the City considered the Government Finance
Officers Association's recommend best practices with regard to establishing a debt
policy; and
WHEREAS, in creating the policy, the City considered the recommendations of
the City's Advisory firm, Umbaugh, based on the Citys financial position and
experience with the rating agencies and other public entities; and
WHEREAS, the City wishes to maintain the highest possible credit rating for all
categories of its debt without compromising the delivery of its basic services; and
WHEREAS, the City will maintain an ongoing dialogue with rating analysts and
communicate the City's Debt Policy to the rating agencies in an effort to ensure
they understand the City's capital program, operations, and decision making
process; and
WHEREAS, the purpose of the Debt Policy is to provide guidelines to Council and
the Administration regarding the use of debt to finance capital projects.
NOW THEREtQRE, BE IT ORDAINED by the Council of the City of Dublin,
State of Ohio, fit — of the elected members concurring, that:
Section 1. City Council hereby adopts the attached Debt Policy.
Section 2. The City may deviate from the Debt Policy requirements when the
Administration recommends and Council concurs that it is in the best interest of
the City to do so.
Section 3. The Administration will identify any area of a financial proposal
presented to Council that is not compliant with the Debt Policy and the reasons for
recommending a waiver of any provisions of the Policy.
Section 4. This Ordinance shall take effect and be in force upon the earliest
date pr ide�d by law.
Pas a this {p �n da f�CJ� '2016.
Attest: /
(2-J
Clerk of Council
In
Office of the City Manager
�, 5200 Emerald Parkway � Dublin, 61H 4017 -1090
Q Dubllfl Phone, 614410.4400 s Fax: 614,4104490
Toe Members of Dublin Ciry Counci( ✓'
i
game Dana L, McDaniel, Ciry Mana
Date. August 18, ZOt6
Initiated Bye Angel k,a Mumma, Director of Finance
Re: Ordinance No. 31 -16 — An Ordinance Authorizing the Adoption of a Debt Policy
Summary
During the Finance Committee of the Whole meeting held Wednesday, August tti, ?Ot6, staff
presented to Ciry Council a formal Debt Policy for consideration and requested adoption at a future
Council meeting.
The proposed Debt Policy articulates the City "s practice of allocating 60 °l° of the City "s 2a% in
income tax revenue that is dedicated to the Capital Improvements Tax Fund to retire debt issued
far capital projects. The policy also addresses the following areas:
v Authorized methods of sale;
Credit objectives;
Refunding debt;
investment of bond proceeds;
Compliance with federal regulations, including arbitrage requirements;
a Compliance wikh Annual Continuing t�isclosure requirements;
The hiring of t)nderwriters;
® Debt limitations;
Sources of revenue to retire debt;
Structural features of debt; and
N Waiver of the Debt Policy
The Government Finance Officers Association (GFOA) has recommended best practices with regard
to establishing a debt policy, which were considered when creating this policy, Additionally,
advisors from the City's Financial Advisory frm, Umbaugh, provided recommendationsbased on
the Ciry "s financial position as well as experience with the rating agencies and other public entities
Recammendatioo
Staff recommends adoption of Ordinance 31�t6 at the second reading jpublic hearing to be held
September l�, �(It6
At�.achmend;s
CITY OF DUBLIN, OHIO
DEBT POLICY
I. Purpose
The purpose of this debt policy is to provide guidelines to City Council and the Administration
regarding the use of debt to finance capital projects. The City's legacy of financial stability is
built upon a conservative approach to spending as well as a long -term commitment to full and
timely repayment of debt.
For a debt management policy to be an effective tool, the provisions of the policy must be
compatible with the City's goals pertaining to the Five -Year Capital Improvement Program
(CIP). Multi -year forecasts of debt service requirements will be included in the City's annual
update of the Five -Year CIP.
II. Authorized methods of sale
There are two basic types of debt sales: Competitive Sale and Negotiated Sale. In a
competitive sale, the City (along with its financial advisors and bond counsel) structures a bond
or note sale internally and offers the securities for sale through a competitive bidding process.
In a negotiated sale, the City selects an underwriter or team of underwriters to represent it in
the market. The underwriting team selected sets the rates on the bonds in consultation with
the City and its advisors.
The City will maintain a bias toward the competitive sale format under the following conditions:
• On general obligation sales: The City is a highly rated entity and has a high level
of market acceptance for its general obligation bonds and notes. These
attributes are conducive to accessing the market via competitive bid.
• Stable market conditions: During periods of low volatility, market timing is less
critical than when conditions are rapidly changing. The advantages of a
negotiated sale are reduced during periods of stable market conditions.
• Traditional structure: Debt structured with level annual debt service payments or
level annual principal payments are easily accommodated through a competitive
sale.
The City will maintain a bias toward the negotiated sale format under the following conditions:
• On revenue bond issues or project backed financing: The City will consider
issues supported only by a specific revenue stream or the revenues of a
particular project from time to time. Market acceptance may be lower on these
types of financings and investor education will be beneficial on such sales. This
is more easily achieved through a negotiated sale.
• Volatile market conditions: The City may want to access the market quickly when
market conditions are volatile in order to take advantage of brief "windows of
opportunity ". Negotiated sales are advantageous when these conditions exist.
Refinancing: When considering a refinancing opportunity, the City will generally
establish a "target" level of savings. The City will want to know that its target
can be met prior to offering the bonds for sale. A negotiated sale provides a
higher degree of certainty with regard to timing and pricing of the bonds.
• "Non- traditional" structures: Whenever the debt must be structured in a tailored
manner, the desired structure is best achieved through a negotiated sale. When
zero coupons or variable rate securities are anticipated, the negotiated format is
preferred.
III. Credit objectives
The City seeks to maintain the highest possible credit rating for all categories of its debt without
compromising the delivery of its basic services. The Administration and City Council will
attempt to take prudent steps to maintain the highest ratings possible, but recognizes that
external factors impact the rating decision making process. The City will maintain an ongoing
dialogue with rating analysts in an effort to ensure that the analysts fully understand its capital
program, operations, and decision making processes. The City's debt policy will be
communicated to the rating agencies, and deviations from the stated policy will be fully
disclosed.
Use of credit enhancements: The City will use bond insurance and /or letters of
credit when it is economically or administratively advantageous to do so, or when
required for the marketing of the bonds.
IV. Refunding debt
There are two types of refundings, as defined by Federal Tax Laws; a current refunding in
which a refunding takes place within 90 days of the optional call date; and an advance
refunding in which refunding bonds are sold more than 90 days prior to the first call date.
Federal regulations permit issuers to advance refund an issue of bonds only once during the life
of the issue. The City intends to be prudent in using this one opportunity. Regulations do not
restrict the number of times that debt can be refinanced on a current basis, and the City will
consider reducing its minimum savings threshold for current refunding issues. The City will
consider refunding its debt obligations when it can be clearly demonstrated that such refunding
will result in present value savings of 3 -5% of the debt being refinanced. However, in certain
circumstances, lower savings thresholds may be justified.
V. Investment of bond proceeds
The City will invest bond proceeds in investments that are consistent with the adopted
Investment Policy. Any fees charged in relation to the investment of bond proceeds will be paid
from interest earnings on the bond proceeds.
VI. Compliance with federal regulations, including arbitrage requirements
The City will comply with Internal Revenue Code Section 148, Arbitrage Rebate regulations by
monitoring bond proceed expenditures against deposits and investment earnings on each of
their respective bond funds. The City will make the necessary rebate filings and, if necessary,
rebate payments to the Internal Revenue Service and will continue to take all actions required
and recommended by bond counsel and or the municipal advisor to assure that any bonds
issued as tax - exempt securities shall remain as such throughout the life of the issue.
The City will follow a policy of full disclosure on every financial report and bond prospectus and
will adhere to SEC Rule 10b -5 which establishes a two- pronged standard for disclosure: what
the disclosure statement says must be accurate and it must not suffer from any "material
omission." This includes, but is not limited to, providing accurate financial information,
especially audited financial statements, and disclosing information about pending or threatened
litigation that would be considered material to the bond issue or the City. SEC Rule 10b -5
provides that it is unlawful for any person, directly or indirectly, in connection with the purchase
or sale of any security "to make any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made, in the light of the circumstances
under which they were made, not misleading."
VII. Compliance with Annual Continuing Disclosure Requirements.
As part of the bond issuance process, the City is required to provide or cause to be provided to
the Municipal Securities Rulemaking Board such annual financial information and operating
data, audited financial statements and notices of the occurrences of certain events in such
manner as may be required to fully disclose certain information that may be beneficial to
current and potential bond holders in making investment decisions. The requirements are fully
detailed in the Continuing Disclosure Agreement that is undertaken with each bond issue. The
City will endeavor to keep the terms and requirements of each Continuing Disclosure
Agreement consistent with respect to each category of debt being offered. The City will cause
all such disclosure to occur in a timely and thorough manner consistent with the terms of each
agreement.
• SEC Rule 15c2 -12 requires that entities disclose any of the following events, if
material, that relate to the bonds in question:
• Principal and interest payment delinquencies;
• Non - payment related defaults;
• Unscheduled draws on debt service reserves reflecting financial
difficulties;
• Unscheduled draws on credit enhancements reflecting financial
difficulties;
• Substitution of credit or liquidity providers, or their failure to perform;
• Adverse tax opinions or events affecting the tax - exempt status of the
security;
• Modifications to rights of security holders;
• Bond calls;
• Defeasances;
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• Release, substitution, or sale of property security repayment of the
securities;
• Rating changes; and
• Bankruptcy, insolvency, receivership or similar event of the obligated
person;
VIII. Hiring of Underwriters
The City will, from time to time, issue requests for qualifications or requests for proposals for
Underwriters. It is Dublin's position that it benefits from having a team of professionals pre -
approved. Those Underwriters become familiar with the needs and programs of the City which
enables them to provide a higher quality of service. Such firms are also motivated to present
innovative ideas to the City, because they have a reasonable expectation of being rewarded for
their efforts. It is important to have the members of the underwriting team that have access to
the retail as well as the institutional market and that bring different but complementary banking
skills to the table on behalf of the City. On a deal -by -deal basis, the City will select its
underwriting team from the pool or pre- approved firms with the assistance of its financial
advisor. The City intends to initiate the RFQ or RFP process every three to five years.
IX. Debt limitations
Ohio Revised Code provides two debt limitations on general obligation debt that are directly
based on tax (assessed) valuation, applicable to all municipal corporations, including the City.
• Direct debt limitations:
o The net principal amount of both voted and unvoted debt of the City,
excluding "exempt debt ", may not exceed 101 /2% of the total tax
(assessed) valuation of all property in the City as listed and assessed for
taxation.
o The net principal amount of unvoted debt of the City, excluding exempt
debt, may not exceed 51 /2% of that valuation.
Additionally, provisions of the Ohio Constitution and the Ohio Revised code impose an indirect
debt limitation.
• Indirect debt limitation:
o The City's ability to incur unvoted debt (whether or not exempt from the
direct debt limitations) is limited in that all outstanding unvoted general
obligation bonds of the combination of overlapping taxing subdivisions
including the City resulting in the highest tax required for such debt
charges in any year is 10 mills or less per $1.00 of assessed valuation.
The City will ensure that prior to any new debt issuance, the total existing general obligation
debt as well as the projected new general obligation debt are within the direct and indirect debt
limitations.
M
Given that certain debt that the City issues is considered exempt from the direct and /or indirect
debt limitations, a more conservative debt limitation guideline will be followed. That guideline,
applied to income tax supported debt, provides the following:
• Of the 25% of income tax revenue that is dedicated to the Capital Improvement
Tax Fund, the City will allocate 60% of the revenue to pay the debt service on
capital improvements.
• Each year, as part of the annual update of the five -year CIP, the Administration
will account for existing debt service as well as anticipated debt service on
proposed projects.
o Anticipated debt service will be calculated using conservative interest rate
assumptions.
The maximum amount of debt (both existing and proposed new debt) shall not
exceed 90% of the allocation of income tax revenue allocated to pay debt
service.
X. Sources of revenue to retire debt
The City has several sources of revenue that are available or may become available for the
repayment of debt, including but not limited to, income tax revenue, enterprise fund revenue,
or tax increment revenue. The City will identify a specific stream of revenue intended to
support each issuance of debt.
• Income Tax Revenue
The primary source of revenue to repay debt is income tax revenue. Pursuant to
Ordinance No. 17 -87, approved by Dublin City Council on July 20, 1987, (and the
subsequent approval by the voters of Dublin to increase the income tax from 1%
to 2 %), 25% of the income tax revenue collected will be allocated to the Capital
Improvements Tax Fund. Of that amount, the City will allocate 40% to cash
fund capital projects. The projects funded by cash will generally be recurring in
nature or not have a useful life that meets the criteria of projects to be financed
by debt. The remaining 60% will be allocated to retire debt issued for capital
projects (See Debt Limitation Section). Any excess income tax revenues
remaining after funding the annual debt service may be used to 'buy down' other
capital project costs in order to issue less debt, cash fund capital projects, or
accelerate the repayment of outstanding debt, when appropriate.
Examples of projects that may be funded using income tax revenue: roadway
improvements; park improvements; public facilities.
• Enterprise Fund Revenue
Revenues generated from user fees and other charges within the City's water
and sewer systems will be used to pay the debt service on improvements made
to the respective systems.
Examples of projects that may be funded using enterprise fund revenue: water
and sewer projects; projects in which a dedicated enterprise fund has been
established.
• Tax Increment Revenue
The City utilizes tax increment financing MF) to fund improvements that benefit
the property owners within the respective TIF districts. TIF revenues received
within these TIF areas may be used to pay the debt service on the
improvements. However, until a stable TIF revenue stream is available, the City
will consider the debt service on these projects to be income tax funded, and will
be included in the analysis of existing and proposed debt, in terms of
determining additional debt capacity.
Examples of projects that may be funded using tax increment revenue: roadway
improvements; park improvements; improvements benefiting the TIF district.
• (Unlimited) Property Tax Revenue
Certain capital projects may lend themselves to financing through voter
supported bond issues. A key benefit to this financing method is the fact that
such debt is not counted against the 10 -mill bond limit for "unvoted debt ". This
financing approach may be used for specific voter approved purposes and may
be a desirable option for certain projects if debt capacity limits are constraining
or for projects that are outside the scope of general operations of the City.
Revenue from a voter approved levy is segregated from all other revenue and
available only for the voter approved project and related debt repayment.
To the extent that money is available from the income tax allocation for debt
service for payment of the debt charges on voted debt, the amount of the
property tax levied to pay the debt service may be reduced or not collected at
all. This does not diminish the pledge of the full faith and credit and property
taxing powers of the City to the prompt payment of the debt charges on voter
approved debt.
Examples of projects that may be funded using (unlimited) property tax revenue:
roadway improvements; park improvements; public facilities.
XI. Structural features of debt
• Use of General Obligation Debt:
o The City intends to use general obligation debt for non - enterprise capital
improvements which it considers to be part of its core mission. To the
extent that the City has ample general obligation capacity under the ten
mill limitation and direct and indirect statutory debt limits, it will consider
issuing general obligation bonds for its various enterprises (water and
sewer).
• Use of Revenue Bonds
• The City may issue revenue bonds for projects that have a definable user
or revenue base. Revenue bonds are secured only by a specific source of
funds, either from the operations of the project being financed or from a
dedicated revenue stream, rather than the general taxing power of the
City.
• If there is capacity, it may be in the best interest of the City to issue
"double- barreled" bonds which are secured both by a dedicated revenue
stream as well as by the City's general taxing powers (general obligation
bonds)
• Duration:
o Ohio Revised Code provides guidelines on the maximum period of time
for which capital improvements may be financed. However, the duration
permitted by law may often exceed the City's expectations of the practical
economic life of an asset. The City intends to have debt fully retired
during the expected useful life of the asset being financed. However,
generally the City of Dublin does not expect to issue debt with a final
maturity more than 20 years from the date of issuance.
• Bond Anticipation Notes:
o Bond anticipation notes are an interim means of financing and, by their
very nature, expose the City to interest rate and market risk upon
renewal. Notes may be used to:
• Finance small projects until such time as the project or projects
can be rolled into a larger bond sale;
• During times of high interest rates and when the expectation that
interest rates are stable or trending downward; and
• On an interim basis during the construction period for a revenue
producing project until such time as the project is placed into
service.
XII. Waiver of debt policy
The City may deviate from the requirements of this Debt Policy when the Administration
recommends and City Council concurs that it is in the best interest of the City to do so.
Whenever the Administration presents a financing proposal to City Council, it will identify any
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areas that are not compliant with the Debt Policy and the reasons for recommending a waiver
of any provisions of the Policy.
XIII. Conclusion
Adherence to a debt management policy signals to rating agencies and the capital markets that
the City is well managed and should meet its obligations in a timely manner. Debt levels and
their related annual costs are important long -term obligations that must be managed within
available resources. This policy provides guidelines for the City to manage its debt program
within those available resources and provides a foundation for prudent long -term financial
management.
E