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R-69-11 Res Adopting Debt Management PolicyVillage of Lemont, Illinois Debt Management Policy Adopted September 26, 2011 TABLE OF CONTENTS A. Purpose and Goals 1 B. Debt Issuances 2 1. Authority and Purposes of the Issuance of Debt 2 2. Types of Debt Issuances 2 3. Structure of Debt Issuances 2 4. Sale of Securities 2 5. Markets 2 6. Credit Enhancements 3 C. Legal Constraints 3 1. State Law 3 2. Authority for Debt 3 3. Debt Limitation 3 4. Methods of Sale 4 5. Credit Implications 4 D. Debt Administration 5 1. Financial Disclosures 5 2. Review of Financing Proposals 5 3. Investment of Bond Proceeds 56 4. Establishing Financing Priorities 6 5. Ratings Agency Relations 6 6. Investment Community Relations 6 7. Refunding Policy 6 8. Investment of Borrowed Proceeds 7 9. Federal Arbitrage Rebate Requirement 7 E. Governmental Obligation Alternate Revenue Source Bonds 7 F. Conduit Financing 8 A. Purpose and Goals Village of Lemont, Illinois Debt Management Policy Adopted August xx, 2011 This Debt Management Policy sets forth comprehensive guidelines for the financing of capital projects and infrastructure. It is the objective of the policy that the Village obtain financing only when necessary; the process for identifying the timing and amount of debt or other financing be as efficient as possible; and the most favorable interest and other costs be obtained. In following this policy, the Village shall pursue the following goals when issuing debt: 1. Maintain at least an Aal credit rating for each general obligation debt issue, and an Aa credit rating for each revenue bond debt issue. 2. Take all practical precautions to avoid any financial decision which will negatively impact current credit ratings on existing or future debt issues. 3. Effectively utilize debt capacity in relation to Village growth and the tax base, or utility rate base to meet long -term capital requirements. 4. Consider market timing. 5. Determine the amortization (maturity) schedule which will best fit with the overall debt structure of the Village's general obligation debt and related tax levy at the time the new debt is issued. For issuance of revenue bonds, the amortization schedule which will best fit with the overall debt structure of the enterprise fund and its related rate structure will be considered. Consideration will be given to coordinating the length of the issue with the lives of assets, whenever practical, while considering repair and replacement costs of those assets to be incurred in future years as an offset to the useful lives, and the related length of time in the payout structure. 6. Consider the impact of such new debt on overlapping debt and the fmancing plans of local governments which overlap, or underlie the Village. 7. Assess financial alternatives to include new and _ innovative fmancing approaches, including, whenever feasible, categorical grants, revolving loans or other state /federal aid. 8. Minimize debt interest costs. B. Debt Issuances Village of Lemont, Illinois Debt Management Policy Adopted August xx, 2011. 1 • Authori and P oses of the Issuance of Debt The laws of the State of Illinois authorize the issuance of debt by Bond Law confers upon municipalities the power and authority debt, borrow money, Y the Village. The Y, and issue bonds for public improvement projects to as defined therein. Under these provisions, the Village may contract debt to a for acquiring, constructing, reconstructing, im rovin to p ay the cost of equipping such projects or to refund bonds. p g' extending, enlarging; and 2. Types of Debt Issuances a. Short Term Debt (three years of less): The Village may issue short -term debt which may include, but not be limited to, bond anticipation notes or variable rate demand notes, those instruments which allow the Village to meet cash flow requirements or provide increased flexibility in financing g b. Long Term Debt (more than three years): The Village may issue long- term debt which may include, but not limited to, general obligation bonds, certificates of participation, capital appreciation bonds, special assessment bonds, self - liquidating bonds and double barreled bonds. The Villa e may also enter into long -term leases for public facilities ro y ay property, and equipment with a useful life greater than one year. p 3. Structure of Debt Issuances The duration of a debt issue shall not exceed the economic improvement or asset that the issue is financing. or useful life of the financing schedule and repayment g The Village shall design the p yment of debt so as to take best advantage of market conditions and, as practical, to recapture or maximize its credit capaci fo use, and moderate the impact to the taxpayer. tY for future 4. Sale of Securities All debt issues shall be sold through a competitive bidding process based offered True Interest Cost TIC d upon the sale the most advantageous to the Village. unless the Village Board deems a negotiated 5. Markets The Village shall make use of domestic capital markets when the conditions the Village's financing needs. ons best fit Village of Lemont, Illinois Debt Management Policy Adopted August xx, 2011 6. Credit Enhancements The Village may enter into agreements with commercial banks or other entities for the purpose of acquiring letters of credit, municipal bond incur financial other credit enhancements that will provide the Village with access to credit and conditions as specified in such agreements when their ante, cost effective or otherwise advantageous. dit under e f cti Board. g Any such agreements shall be approved by the C. Leal Constraints 1. State Law 30 ILCS 305/0.01, et. seq.: the short title is "The Bond Authorization Act." 2. Authori for Debt The Village may, by bond ordinance, incur indebtedness or borrow money, the issue of negotiable obligations, including refunding bonds capital improvement of property, land acquisition, or any oney, and except current expenses, unless approved by the Village Board. other lawful purpose for any oard. 3. Debt Limitation Under Illinois Compiled Statutes the Village's general obli gation bonded debt issuances are subject to a legal limitation based on 8.625% of the total value of real estate property. assessed The Village is subject to debt limitations by Illinois Property Tax Limitation Law ( PTELL). PTELL allows the issuance of an amount of general obligation debt .equal to the aggregate extension for principal and interest eneral payments for non - referendum bonds that the Village issued prior to January 1, Limited bonds are general obligation bonds that are issued without referendum. These bonds must be identified as limited bonds at ' issuance. The following bonds are not subject to PTELL limitations: of - Alternate revenue bonds - Refunding obligations issued to refund or to continue to refund o eratio initially issued pursuant to referendum P ns 4. Methods of Sale Village of Lemont, Illinois Debt Management Policy Adopted August xx, 2011 All bonds shall be sold at a public sale via sealed proposal or live auction, except that bonds may be sold at a private sale in accordance with 30 ILCS 350/10. The Village may issue temporary notes by negotiated sale if the bond ordinance or subsequent resolution so provides. a. Bonds: All bonds will mature within the period or average period of usefulness of the assets financed; and the bonds will mature in installments, the first of which is payable not more than five years from the dated date of the bonds. Term bonds may be allowable if recommended by the Village's financial advisor, in lieu of a fixed maturity schedule, and approved by the Village Board. b. Financial Advisor: As a matter of independence, the Financial Advisor will not bid on nor underwrite any Village debt issues on which it is advising. 5. Credit Implications When issuing new debt, the Village should not exceed credit industry benchmarks where applicable. Therefore, the following factors should be considered in developing debt issuance plans: a. Ratio of Net Bonded Debt to Estimated Full Value: The formula for this computation is Net Bonded Debt, which is the total outstanding debt divided by the current Estimated Full Value as determined by the Township Assessors. Current Ceiling Median 1.18 4.00 2.42 b. Net Bonded Debt Per Capita: The formula for this computation is Net Bonded Debt divided by the current population as determined by the most recent census information available. Current Ceiling Median $1,142 $2,000 N/A c. Income Per Capita: The formula for this computation is income for all households (the number obtained from the most current census data) divided by the current population as determined by the most recent census information available. Village of Lemont, Illinois Debt Management Policy Adopted August xx, 2011 d. Ratio of Net Bonded Debt to Equalized Value: The formula for this computation is Net Bonded Debt, which is the total outstanding debt divided by the current Assessed Value as determined by the Township Assessors. Current Ceiling Median 3.54 6.00 N/A e. Ratio of Annual Debt Service to General Government Expenditures: The formula for this computation is annual debt service expenditures divided by General Government (i.e., General, Special, and Debt Service Funds) expenditures (excluding certain interfund transfers). Current Ceiling Median 10.41 16.00 8.14 f. Rapidity of Debt Service Repayment: Exclusive of refunding and mini- bond issues, the Village's general obligation bond issues shall be so structured whereby at least twenty percent of the principal and interest for each issue is repaid in five years, and fifty in ten years. * *Current ratio based on latest audited financials (4/30/10). Median values obtained from Moody's 2009 US Local Government Medians. N/A indicates ratio was not included as part of this data source. D. Debt Administration 1. Financial Disclosures The Village shall prepare appropriate disclosures as required by the Securities and Exchange Commission, the federal government, the State of Illinois, rating agencies, underwriters, investors, agencies, taxpayers, and other appropriate entities and persons to ensure compliance with applicable laws and regulations. 2. Review of Financing Proposals All capital financing proposals that involve a pledge of the Village's credit through the sale of securities, execution of loans or lease agreements and/or otherwise directly involve the lending or pledging of the Village's credit shall be referred to the Assistant Village Administrator who shall determine the financial feasibility, and the impact on existing debt of such proposal, and shall make recommendations accordingly to the Village Administrator. Village of Lemont, Illinois Debt Management Policy Adopted August xx, 2011 3. Investment of Bond Proceeds The Village will invest bond proceeds in accordance with the Village's adopted investment policy. 4. Establishing Financing Priorities The Assistant Village Administrator shall administer and coordinate the Village's debt issuance program and activities, including timing of issuance, method of sale, structuring the issue, and marketing strategies. The Assistant Village Administrator along with the Village's financial advisor shall meet, as appropriate, with the Village Administrator and the Village Board regarding the status of the current year's program and to make specific recommendations. 5. Ratings Agency Relations The Village shall endeavor to maintain effective relations with the rating agencies. The Village Administrator, Assistant Village Administrator, the Village Treasurer and the Village's financial advisors shall meet with, make presentations to, or otherwise communicate with the rating agencies on a consistent and regular basis in order to keep the agencies informed concerning the Village's capital plans, debt issuance program, and other appropriate financial information. 6. Investment Community Relations The Village shall endeavor to maintain a positive relationship with the investment community. The Assistant Village Administrator and the Village's financial advisor shall, as necessary, prepare reports and other forms of communications regarding the Village's indebtedness, as well as its future financing plans. This includes information presented to the press and other media. 7. Refunding Policy The Village shall consider refunding outstanding debt when legally permissible and financially advantageous. A net present value debt service savings of at least three percent or greater must be achieved. 6 Village of Lemont, Illinois Debt Management Policy 8. Investment of Borrowed Proce dsgust xx, 2011 The Village acknowledges its ongoing fiduciary the proceeds of debt issued for public pit/poses responsibilities to actively statutes that govern the investment f public m Y manage permitted securities covenants of related bond funds, that is consistent the P funds, and consistent with the The management of public funds shall enable the executed by the Village. markets or changes in payment or construction schedules sosp as to to (changes in returns, (ii) insure liquidity, and (iii) minimize risk. so as to (i) optimize 9. Federal Arbitra e Rebate Re uirement The Village shall maintain or cause to be accounting to calculate bond investment arbitrage maintained an appropriate Tax Reform Act lc l to os _ n system of amended or supplemented, and am accordance with the Treasury regulations related thereto. Such Treasury transferred from the Bond Construction Fund United ytand amounts shall be computed annually and account) to the Debt Service Fund escrow account, or (i.e., other appropriate interest e eventual payment to the United States Treasury. ngs revenue accounts, for In order to avoid arbitrage earnings arnings on bond proceeds, Village staff shall recommend in which c for construction or other issuance of debt based upon the cash flow needs of the capital which to contracts awarded during the calendar other year. p-vic improvement blyje be goods and services can reasonably be feasibility of obtaining Consideration shall be given to the g rights -of -way, engineering services, or other matters which affect the completion of the project in a timely to issue debt is made. h Y manner, before a Village of Lemont, Illinois Debt Management Policy Adopted August xx, 2011 E. Governmental Obligation Bonds Alternate Revenue Source Bonds The Village may seek to finance the capital needs of governmental activities and its revenue producing enterprise funds through the issuance of Alternate Revenue Source debt obligations. These debt obligations are payable from various limited revenue sources. 1. Governmental Funds Revenue sources pledged for governmental activities include income taxes, sales taxes, use taxes and utility taxes. The Village may only pledge up to 50% of the annual revenue received for debt service. Debt service payments for the most recent fiscal year represented 11.94% of pledged revenues. 2. Enterprise Funds Revenue sources pledged for enterprise funds include water and sewerage revenues. In addition, the Village has pledged revenue from income taxes, sales taxes and use taxes as additional funding for repayment of these obligations. The Village may only pledge up to 50% of the annual revenue received for debt service. Debt service payments for the most recent fiscal year represented 7.58% of pledged revenues. Prior to issuing Alternate Revenue Source debt obligations, the Assistant Village Administrator and Village Treasurer will develop financial plans and projections showing the feasibility of the planned financing, required rates and charges needed to support the planned financing and the impact of the planned financing on rate payers, property owners and the other affected parties. On an annual basis, the Village will review the percent of revenue stream that is pledged for repayment of debt for compliance with Village limitations. If it is not feasible to issue an Alternative Revenue obligation, then a revenue - secured debt obligation should be considered. F. Conduit Financing Under federal and state statutes the Village Board has the authority to issue tax- exempt bonds for non - profit organizations organized under Internal Revenue Code 501 (c) (3), and economic development revenue bonds, also known as private activity bonds, under the Tax Reform Act of 1986. These tax- exempt bonds shall be collectively referred to as conduit financings. The Village has no liability or responsibility for repayment of the debt authorized under these statutes. The following policy and procedures shall be followed prior to the issuance of any such debt: 1. The applicant shall contact the Assistant Village Administrator or the Village Treasurer and submit a formal application for the issuance of a conduit financing. 8 Village of Lemont, Illinois Debt Management Policy Adopted August xx, 2011 2. For private activity bonds (economic development revenue bonds), the application shall include a written proposal which should include, but not be limited to, the following information, where applicable: a. A description of the project including original issuance, refinancing, recollateralization or other action sought; b. A statement indicating the amount of funding required for the project and a description of the purpose for which such funding will be used; c. A description of any proposed financing arrangement for the project (e.g., loan agreement, or Village to own the project and lease to applicant); d. A statement of the public purpose to be served by the issuance of economic development revenue bonds for the project; e. An anticipated construction schedule and schedule for completing the financing; f. The name and address of the proposed purchaser of the economic development revenue bonds proposed to be issued, if known; g. A complete description, with such supporting exhibits as may be appropriate, of the physical aspects of the project; h. Projected number of vehicles entering the facility area per day; i. Ability of the streets to carry additional load; j. Drainage /storm sewer requirements; k. Utility requirements; 1. Ability of the schools to accommodate possible enrollment increases; m. Financial stability of the applicant; n. Description of principal business of applicant; o. Number of employees anticipated at the new facility; p. Number of new jobs to be created; q. Number of management level employees; 9 Village of Lemont, Illinois Debt Management Policy Adopted August xx, 2011 r. Types of skills required by the facility's employees; s. Yearly payroll /average employee salary; t. Projected appraised /assessed value of the facility's real personal property in Lemont; u. Number of years the prospective tenant has been in business; v. Number of plant relocations since 1960, if applicable w. Civic Awareness 3. For the issuance of 501 (c) (3) bonds the proposal shall include all of the information listed in section 2. above as well as the following, as applicable: a. A statement of the public purpose to be served by the issuance of 501 (c) (3) revenue bonds for the project; 4. The information submitted by the applicant should be reviewed by the Assistant Village Administrator and the Village's financial and legal advisors and a summary of such information, together with an evaluation thereof and the recommendation of the staff should be presented to the Village Board as promptly as practicable thereafter. In addition, the Village may retain the services of qualified legal counsel to act as special counsel or the Village's financial advisor to do a study of the economic viability of the project. The applicant shall be responsible for all fees of the financial and legal advisors and shall deposit with the Village a sum sufficient to cover such costs and fees as determined from time to time by the Assistant Village Administrator. 5. The Village Board shall review the report presented to them by the Village staff as promptly as practicable after receipt thereof and shall take one of the following actions: a. Notify the applicant in writing that its proposal has been rejected and refund to the applicant any uncommitted balance of the deposit, if any. b. Adopt a resolution of intent to proceed with the project and refund to the applicant any uncommitted balance of the deposit, if any. 6. If a resolution of intent is adopted by the Village Board, the financing, refinancing, or recollateralization may proceed pursuant to the provisions of this policy. All costs of issuance associated with such financing, including any expenses attributable to the Village, shall be borne by the applicant. 10 Village of Lemont, Illinois Debt Management Policy Adopted August xx, 2011 G. TIF Debt Tax Increment Financing debt is excluded from this policy as it is governed by the specific TIF redevelopment agreement. 11