Ordinance 037-19RECORD OF ORDINANCES
BARRETT BROTHERS - DAYTON, OHIO Form 6220S
Ordinance No. 37.19 Passed
AN ORDINANCE AUTHORIZING THE MODIFICATION OF THE CITY'S
DEBT POLICY
WHEREAS, the City of Dublin ("Dublin's has a Debt Policy that has been adopted by
City Council; and
WHEREAS, the Debt Policy establishes the policies and guidelines to be followed
regarding the use of debt to finance capital projects; and
WHEREAS, it is recommended that the Debt Policy be modified to update language
and tE�rms which are consistent with today's market and reflect current practices of
the City.
NOW, THEREFORE, BE IT ORDAINED by the Council of the City of Dublin, State
of Ohio, of the elected members concurring that:
Section 1. The attached Debt Policy is hereby adopted and replaces and previous
Debt 'Policies approved by City Council.
Secticm2. 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. That this Ord' nyte shall take effect and be in force upon the earliest date
proviyf�d by law. /
Patid this26-ay of 2019.�A / �Z� J,
010
yor —Presiding OfA'cer
TTEST:
MO
11,4
Clerk of Council
To:, Members of Dublin City Council
Dana L. McDaniel, City Mana
19
Date: August 6, 2019
Initiated By: Angel L. Mumma, Director of Finance
Re: Ordinance 37-19 — An Ordinance Authorizing the Modification of the
City's Debt Policy
Summary
At the July 29, 2019 City Council meeting., Staff presented proposed modifications to the City"s
Debt Policy,
A summarization of the changes is as follows:
Language has been modified in Section IV, Refunding Debt, reflecting the elimination of
tax-exempt advance refundings as part of the 2017 Tax Cut and Jobs Act.
SEC Rule 15c2-12 requires that entities disclose specific information to current and
potential bond holders. The modifications to Section VIII, Compliance with Annual
Continuing Disclosure Requirements, reflect the four additional events under SEC Rule
15c2-12 that now require disclosure to the Municipal Securities Rulemaking Board (MSRB).
Section IXI
bI , Debt Limitations, has een updated to include language reflecting the City's
current practice of including funding out of the income tax allocation for debt service paid
from TIF revenue when the revenue to debt service coverage is less than 110%.
Fill" 11!1
Metrics
Staff presented to Council four metrics that could be utilized in conjunction with the City's Debt
Policy to determine whether the capital financing plan proposed as part of the annual CIP process
is at an appropriate level. The four metrics and their respective guidelines are as follows:
Metric 1.-, General Fund balance as a percent of expenditures
Guideline,,- General Fund Balance > 50% of operating expenditures
Metric 2,,- General Fund balance as a percent of debt service requirements
0
Guideline.- General Fund Balance in excess of 5096 reserve requIrement > 50% of debt
selvIce payments for upcomIng year
Metric 3: General Fund balance as a percent of revenue — Five -Year Trend
Guideline,-, %0' change in General Fund balance over f1ve years > 0%
Memo re. Ordinance 37-19 — An Ordinance Authorizing the Modification of the City's Debt Policy
August 6, 2019
Page 2 of 2
Metric 4: Income Tax Supported Debt to Operating Revenue
Guideline,,, Income Tax Supported Debt to Operating Revenue < 10961
Finally,, Vice -Mayor Amorose Groomes requested that Staff include a placeholder in the annual CIP,
particularly in the later years, for the possible issuance of new bonds, even if a project hasn't been
identified. Staff will begin doing so with the 2021-2025 CIP, utilizing either an average amount
based on previous issuances, or based on capital projects that are currently shown "beyond"' the
five years covered by the CIP,
Given that these four metrics are based on annual information (General Fund Balance, operating
revenues) and debt schedules that are known immediately after the sale of bonds for the entire
duration of the bonds, there is little reason to review these more frequently than during the annu
update of the CIP and when Council is considering the sale of bonds. I
Recommendati*on
Staff is recommending two actions:
City Council approve Ordinance 37-19 — An Ordinance Authorizing Modifications to the
City's Investment Policy at the second reading/public hearing on August 26, 2019; and
City Council affirm, by motion, the four metrics listed within this memo along with th
proposed frequency of Council's review of the metrics. I
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 F_p-___nt ::-".".-
the ma;;a market and sell the bonds to investors. The underwriting team seleeted tq
negotiates the rates and other financial terms of -eR 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, financial position 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. Tax -
Exempt aAdvance refundings were eliminated as part of the 2017 -Tax Cut and Jobs
Act. Previously, federalFedeFa4 regulations pe n4tepermitted issuers to advance refund an
issue of bonds only once during the life of the issue. The Gity intends te be pFudent On using
this ene 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 evaluate refunding proposals and financing structures
that create savings or other financial benefits on a case by case basis. 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
-_p__`-a_oreliminary and final official , u ,,, .... 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:
o Principal and interest payment delinquencies;
o Non-payment related defaults;
o Unscheduled draws on debt service reserves reflecting financial
difficulties;
o Unscheduled draws on credit enhancements reflecting financial
difficulties;
o Substitution of credit or liquidity providers, or their failure to perform;
o Adverse tax opinions or events affecting the tax-exempt status of the
security;
o Modifications to rights of security holders;
o Bond calls;
o Defeasances;
o Release, substitution, or sale of property security repayment of the
securities;
o Rating changes; and
o Bankruptcy, insolvency, receivership or similar event of the obligated
person;
o Mercier, acquisition or sale of all issuer assets
o Appointment of successor trustee
o Financial Obligation — Incurrence or Agreement (as of February 27, 2019)
o Financial Obligation — Event Reflecting Financial Difficulties (as of
February 27, 2019)
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.
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.
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.
• Debt service supported by TIF Service Pavments will have a 110% revenue to
debt service coverage requirement.
o Revenues will include annual proiected TIF Service Payments and
uncommitted TIF fund balances.
o In the event the revenue to debt service coverage is less than 110%,
then the shortfall will be reserved for from the income tax allocation
described above.
The maximum amount of debt service (beth—including existing, TIF supported
,.,heFe 119% _,..,,.__Eie osm! .._,..,:ded f,._ On the _,._eeet:.,, TTC f.....,_, 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 (TIF) 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, as noted above.
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
o 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.
o 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
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.