HomeMy WebLinkAboutSS2 - Debt Policy Review - PowerPointOctober 10, 2017
Item No. SS2
Council Study Session Presentation
Debt Policy
October 10, 2017
Importance of a Debt Policy
Essential financial management tool to ensure acceptable levels of
indebtedness are maintained and future generations are not
burdened by large amounts of debt.
Demonstrates to investors and rating agencies that the City is
committed to sound financial management.
Provides consistency and continuity to public policy development
when elected officials work from guidelines that govern the planning
and execution of projects for which debt is used.
High Credit Rating are more than just
bragging rights.
City's Issuer Credit Rating is highest possible
AAA Aaa AAA
Exceptionally Exceptional Exceptionally
Strong Strong
GA
Standard
• •
Measure of sound financial practices
2010 Civic Center COPS
AA+
Fitch
Maintains credibility with investment community and bondholders
Speaks to the City's ability to repay its obligations
Provides City access to cheap capital
Provides financial flexibility to react swiftly to financial needs and opportunities
History of Bond Issuances Over Last Decade
City Obligated Bonds
Year of
Original
Balance
Final
Issuance Name Issuance
Issuance
June 30, 2017
Maturity Notes
Civic Center COPs 2010
$ 127,815,300
110,956,659*
2040 Ongoing
C.D.B.G. Revenue Bonds 2015
$ 1,339,000
1,066,000
2022 Ongoing
*Amount required to amortize 2010 COPS balance over remaining term equals $218.906.847
Limited Obligation Bonds
Year of
Issuance Name
Assessment District
Reassessment District
AD 100
AD 103
AD 101
AD 99-2
AD 92
Community Facilities District
Bonita Canyon CFD
Conduit Bonds
Hoag Revenue Bonds
Issuance
01,
Original Balance June Final
Issuance 30, 2017 Maturity Notes
2012
$
13,583,436 7,476,808 2025
Ongoing
2010
$
2,670,000 -
Refunded
2009
$
3,295,700 -
Refunded
2008
$
2,467,597 -
Refunded
2008
$
1,953,952 -
Refunded
2008
$
1,425,000 -
Refunded
2012
$
38,330,000 31,675,000 2028
Ongoing
2007-2011
$
202,080,000 -
Defeased
Library Financing History
June 1992 — City issued $7.5 million of Certificates of Participation (COP) to finance
construction of the Central Library.
July 1998 — City issued $7.33 million of refunding COPs to refund the June 1992
Central Library COP issuance.
November 2010 — City issued approximately $126.7 million of new COPs. $3.9 million
was used to refinance the balance of the 1998 Library COPs, and $122.8 million was
used for the Civic Center project.
Purpose of Debt Policy Revisions
Good practice to review policies frequently
New legal requirements mandated by SB 1029*
Opportunity to improve upon current policy
Allow for more public input into Debt issuance terms
*It is important to note that no new debt can be issued until SB 1029 provisions
are adopted by City Council including pending assessment district financings.
New Requirements of SB 1029
Agencies shall adopt a Debt Management Policy before issuing any new debt
Agencies shall comply with the adopted policy when issuing new debt and
managing existing debt
Agencies shall submit an annual report to CDIAC on the status of new and existing
Agencies shall include the following five elements in their Debt Management Policy:
1. The purposes for which the debt proceeds may be used
2. The types of debt that may be issued
3. The relationship of the debt to, and integration with, the issuer's capital improvement program or budget,
if applicable
4. Policy goals related to the issuer's planning goals and objectives
5. The internal control procedures that the issuer has implemented, or will implement, to ensure that the
proceeds of the proposed debt issuance will be directed to the intended use.
Options to retain more control over terms?
Prescriptive Policy, Process & Restrictions
Policy restriction to not allow make -whole call provision or lock -out periods
greater than 10 Years without explicit authorization in authorizing bond
resolution.
Require Finance Committee, which includes four members of the public, to
craft and recommend terms of authorizing bond resolution, with the benefit
of a financial advisor, underwriter and bond counsel.
Council to be as explicit and restrictive in authorizing bond resolution
language as is desired with full understanding of current market conditions.
Options to gather Public Input:
Protest H ea ri n
Mirror Prop 218 Notice and Protest Hearing Procedures
Ballot Initiative Required for Capital Improvement Proiects
Require Ballot initiative for all Capital Improvement Projects over $_Million
Ballot Initiative Required for new Debt Issuance
Require Ballot initiative for all Lease Financings over $_Million
Next Steps?
First Draft of proposed revisions to Finance Committee on
October 12, 2017
Reluctant but Collective Decision not
purchase more flexible call option
Financial Advisor and Underwriter provided data analytics and sounding board for call option
Muni market was considered toxic by many investors
Interest rates were at a 40 Year Low
No Indication that Build America Bonds would be renewed, closing access to taxable market
Perceived risk that rates were moving in the wrong direction
Buyer/Investor Driven Market Conditions
Perceived cost of a traditional COP, callable after 10 Years, was too expensive. The option
might not ever be exercised - Additional cost $720 thousand per year or $20 million over
30 years.
Even today, who knows where interest rates will at the first call date — 2020?
Ultimately it was the City's decision to not to purchase a more flexible call option
Who was involved in that decision?
Two Council Members including the Mayor at the time
Two Staff Members — Admin Services Director and Deputy Director