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HomeMy WebLinkAbout07 ADOPTION OF RESOLUTION NO. 17-42 APPROVING A DEBT MANAGEMENT POLICY REQUIRED BY SENATE BILL 1029AGENDA REPORT MEETING DATE: JULY 18, 2017 TO: JEFFREY C. PARKER, CITY MANAGER Agenda Item Reviewed: City Manager Finance Direc FROM: JOHN A. BUCHANAN, ACTING FINANCE DIRECTOR JENNY LEISZ, DEPUTY DIRECTOR - FINANCIAL SERVICES SUBJECT: ADOPTION OF RESOLUTION NO. 17-42 APPROVING A DEBT MANAGEMENT POLICY REQUIRED BY SENATE BILL 1029 SUMMARY: In the audit recommendation letter from White, Nelson, Diehl, Evans, LLP, for the fiscal year 2016 audit, the recommendation was made to implement a debt management policy. During the review of the overall internal control environment of the City, they noted that the City did not have a formal written policy regarding debt management. Then, in September 2016, the Governor signed Senate Bill (SB) 1029 (California Debt and Investment Advisory Commission: Accountability Reports) into law. Senate Bill 1029 requires issuers of public debt to adopt a Debt Management Policy to provide guidance in the issuance and management of their debt. Effective January 1, 2017, Government Code section 8855(i) requires any issuer of public debt to provide the California Debt and Investment Advisory Commission (CDIAC), no later than 30 days prior to the sale of any debt issue, a report of the proposed issuance which includes notification to CDIAC that the issuing agency has adopted debt policies concerning the use of debt and that the proposed debt is consistent with those policies. The proposed Debt Management Policy is required to be in place prior to any issuance of bonds and other debt obligations. RECOMMENDATION: Adopt the resolution approving the Debt Management Policy as required by Senate Bill 1029. The proposed Debt Management Policy is consistent with Government Code section 8855(i) requirements and is also consistent with GFOA's (Government Finance Officer Association) recommendations and reflects objectives that establish parameters for the issuance and administration of City debt. FISCAL IMPACT: Correlates with the City's Strategic Plan Goal C: Financial Strength, Item 3 "Develop and communicate a comprehensive set of financial policies and their purpose to strengthen financial practices." This policy provides a general framework for future City debt issuances. ADOPT RESOLUTION NO. 17-42 APPROVING DEBT MANAGEMENT POLICY July 18, 2017 Page 2 of 3 BACKGROUND/DISCUSSION: This Debt Management Policy ("Debt Policy") is intended to comply with Government Code Section 8855(1), which became effective on January 1, 2017. Section 8855(i) was added via SB 1029 (approved September 12, 2016), which made the following major changes to current law: • Requires the California Debt and Investment Advisory Commission to track and report on all state and local outstanding debt until fully repaid or redeemed. • Requires that the report of proposed debt include a certification by the issuer that it has adopted local debt policies, which include specified provisions concerning the use of debt and that the contemplated debt issuance is consistent with those local debt policies. • Requires a state or local public agency to submit an annual report for any issue of debt. The intent of this bill was to facilitate improved financial transparency and accessibility to information about public debt. SB 1029 requires that debt management policies reflect local, state, and federal laws and regulations. It was recommended that public agency debt management policies incorporate recommendations set forth by the Government Finance Officers Association (GFOA). The attached Debt Management Policy is being brought forward to City Council to comply with state law as it relates to debt issuance requirements set forth by SB 1029. The Debt Management Policy will apply to the City, the Successor Agency to the City of Tustin Redevelopment Agency, the Tustin Public Housing Authority, the Tustin Public Financing Authority, or any other public agency or non-profit public benefit corporation affiliated with the City. SB 1029 sets out key objectives that should be incorporated in a Debt Management Policy. The objectives are to: • Minimize debt service and issuance costs • Maintain access to cost-effective borrowing • Achieve and maintain highest reasonable credit rating • Full and timely repayment of debt • Maintain full and complete financial disclosure and reporting • Ensure compliance with state and federal laws and regulations The proposed policy meets the requirements of SB 1029; it does not change any of the City's existing policies and practices and preserves flexibility for the City in managing its debt. The Audit Commission reviewed the proposed policy at their May 4, 2017 meeting and recommended approval. By adopting the Resolution to approve this Debt Management - Policy the City will comply with the key objectives of SB 1029 and will enact policy to ensure proper debt management in accordance with the strategic plan. ADOPT RESOLUTION NO. 17-42 APPROVING DEBT MANAGEMENT POLICY July 18, 2017 Page 3 of 3 oh A. Buchanan g Finance Director Attachments: Resolution No. 17-42 Debt Management Policy Appendix A: Resolution No. 04-28 Appendix B: Agenda Report 12-16-14 nny LP Deputy Director - Financial Services RESOLUTION NO. 17-42 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN ADOPTING A DEBT MANAGEMENT POLICY WHEREAS, the City Council recognizes that cost-effective access to the capital markets depends on prudent management of the City's debt program; and WHEREAS, the City wishes to set parameters for issuing debt, managing the debt portfolio and providing guidance to decision makers; and WHEREAS, the Government Finance Officers Association recommends as a best practice for government agencies to adopt a debt management policy; and WHEREAS, SB 1029 (2016) amended Government Code 8855 to require the City to certify that it has adopted a debt management policy prior to issuing new debt. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of TUSTIN that the DEBT MANAGEMENT POLICY attached hereto be approved and adopted. PASSED, APPROVED, AND ADOPTED BY THE CITY COUNCIL OF THE CITY OF TUSTIN THIS 18th DAY OF JULY, 2017. DR. ALLAN BERNSTEIN Mayor ATTEST: ERICA N. RABE City Clerk APPROVED AS TO FORM: DAVID E. KENDIG City Attorney Resolution No. 17-42 STATE OF CALIFORNIA ) COUNTY OF ORANGE ) SS CITY OF TUSTIN ) I, Erica N. Rabe, City Clerk and ex -officio Clerk of the City Council of the City of Tustin, California, do hereby certify that the whole number of the members of the City Council of the City of Tustin is five; that the above and foregoing Resolution No. 17-42 was duly passed and adopted at a regular meeting of the Tustin City Council, held on the 18"' day of July, 2017 by the following vote: COUNCILMEMBER AYES: -COUNCILMEMBER NOES: COUNCILMEMBER ABSTAINED: COUNCILMEMBER ABSENT: ERICA N. RABE City Clerk Resolution No. 17-42 DEBT MANAGEMENT POLICY This Debt Management Policy (the "Debt Policy") of the City of Tustin (the "City") and the entities listed in the following paragraph was approved by the City Council on , 2017. The Debt Policy may be amended or waived pursuant to Section 2.F. by City Council as it deems appropriate from time to time in the prudent management of the debt of the City. This Debt Policy will also apply to any debt issued by the Successor Agency to the City of Tustin Redevelopment Agency, Tustin Public Housing Authority, or the Tustin Public Financing Authority, or any other public agency or non-profit public benefit corporation affiliated with the City (collectively, "Related Entities"). 1. Debt Management Objectives This Debt Policy sets objectives in the issuance and management of debt by the City of Tustin or its Related Entities. This Debt Policy shall govern all debt undertaken by the City and its Related Entities. The City has a long history of balanced budgets and prudent financial management. The City has healthy cash reserves and a systematic approach to plan for future rehabilitation of capital facilities, such as roadways, storm drains and water enterprise infrastructure. It is a best practice to develop a debt management policy to be used as a framework in the event that the City considers the issuance of debt in the future. The City recognizes that a fiscally prudent debt policy is required in order to: • Maintain the City's sound financial position; • Ensure the City has the flexibility to 'respond to changes in future service priorities, revenue levels, and operating expenses; • Protect the City's credit -worthiness; and • Ensure that the City's debt is consistent with the City's planning goals and objectives and capital improvement program or budget, as applicable. The main objectives of this Debt Policy are to establish conditions for the use of debt: • To ensure that debt capacity and affordability are adequately considered; • To minimize the City's interest and issuance costs; • To maintain the highest possible credit rating; • To provide complete financial disclosure and reporting; and • To maintain financial flexibility for the City. Debt, properly issued and managed, is a critical element in any financial management program. It assists in the City's effort to allocate limited resources to provide the highest quality of service to the public. A properly managed debt program promotes economic growth and enhances the vitality of the City of Tustin for its residents and businesses. 2. Policies A. Purposes For Which Debt May Be Issued The City will consider the use of debt financing primarily for capital improvement projects (CIP) when the project's useful life will equal or exceed the term of the financing or otherwise comply with federal tax law requirements and when resources are identified sufficient to fund the debt service requirements. An exception to this CIP driven focus is the issuance of short-term instruments such as tax and revenue anticipation notes, which are to be used for prudent cash management purposes and conduit financing, as described below. Bonded debt should not be issued to finance normal operating expenses. If a department has any project which is expected to use debt financing, the department director is responsible for expeditiously providing the City Manager and the Director of Finance with reasonable cost estimates, including specific revenue sources that will provide payment for the debt service. This will allow an analysis of the project's potential impact on the City's debt capacity and limitations. The department director shall also provide an estimate of any incremental operating and/or additional. maintenance costs associated with the project and identify sources of revenue, if any, to pay for such incremental costs. (i) Long -Term Debt. Long-term debt may be issued to finance or refinance the construction, acquisition, and rehabilitation of capital improvements and facilities, equipment and land to be owned and/or operated by the City. (a) Long-term debt financings are appropriate when all of the following conditions exist: • When the project to be financed is necessary to provide basic services; • When the project to be financed will provide benefit to constituents over multiple years; • When total debt does not constitute an unreasonable burden to the City and its taxpayers and ratepayers (b) Long-term debt financings may be used to refinance outstanding debt in order to produce debt service savings or to realize the benefits of a debt restructuring. (c) Long-term debt financings will not be considered appropriate for current operating expenses and routine maintenance expenses. (d) The City may use long-term debt financings subject to the following conditions: • The project to be financed has been or will be approved by the City Council; • The City estimates that sufficient income or revenues will be available to service the debt through its maturity; • The City determines that the issuance of the debt will comply with the applicable requirements of state and federal law; and • The City considers the improvement/facility to be of vital, time - sensitive need of the community and there are no plausible alternative financing sources. (e) Periodic reviews of outstanding long-term debt will be undertaken to identify refunding opportunities. Refunding will be considered (within federal tax law constraints, if applicable) if and when there is a net economic benefit of the refunding. Refundings which are non -economic may be undertaken to achieve City objectives relating to changes in covenants, call provisions, operational flexibility, tax status of the issuer, or the debt service profile. In general, refundings which produce a net present value aggregate savings of at least three (3) percent of the refunded debt will be considered economically viable. Refundings which produce a net present value aggregate savings of less than three (3) percent or negative savings will be considered on a case-by-case basis, and are subject to City Council approval. (ii) Short-term debt. Short-term borrowing may be issued to generate funding for cash flow needs. Short-term borrowing, such as commercial paper, Tax and Revenue Anticipation Notes (TRANS), and lines of credit, will be considered as an interim source of funding, in anticipation of long-term borrowing. Short-term debt may be issued for any purpose for which long-term debt may be issued, including capitalized interest and other financing -related costs. Prior to issuance of the short-term debt, a reliable revenue source shall be identified to secure repayment of the debt. The final maturity of the debt issued to finance the project shall be consistent with the economic or useful life of the project. Short-term debt may also be used to finance short-lived capital projects such as lease -purchase financing for equipment. The City may issue Interfund loans rather than outside debt instruments to fund short-term cash flow needs. Interfund loans will be permitted only if an analysis of the affected fund indicates excess funds are available and the use of these funds will not impact its current operations. Interfund loans must be approved by the City Council and have a defined repayment term. The prevailing interest rate, as established by the City's Finance Department, will be paid to the lending fund. (iii) Financings on Behalf of Other Entities. The City may also find it beneficial to issue debt on behalf of other governmental agencies or private third parties in order to further the public purposes of City. In such cases, the City shall take reasonable steps to confirm the financial feasibility of the project to be financed and the financial solvency of any borrower and that the issuance of such debt is consistent with the policies set forth herein. In no event will the City incur any liability or assume responsibility for payment of debt service on such debt. B. Types of Debt In order to maximize the financial options available to benefit the public, it is the policy of the City to allow for the consideration of issuing all generally accepted types of debt, including, but not exclusive to the following: General Obligation (GO) Bonds: General Obligation Bonds are suitable for use in the construction or acquisition of improvements to real property that benefit the public at large. Examples of projects include libraries, parks, and public safety facilities. All GO bonds shall be authorized by the requisite number of voters in order to pass. • Revenue Bonds/Certificatesof Participation (COPs): Revenue Bonds are limited -liability obligations tied to a specific enterprise or special fund revenue stream where the projects financed clearly benefit or relate to the enterprise or are otherwise permissible uses of the special revenue. Generally, no voter approval is required to issue this type of obligation but in some cases, the City must comply with proposition 218 regarding rate adjustments. • JointPowersAuthority (IPA) Revenue Bonds: As an alternative to COPs, the City may obtain financing through the issuance of debt by a joint exercise of powers agency with such debt payable from amounts paid by the City under a lease, installment sale agreement, or contract of indebtedness. • Loans: The City is authorized to enter into loans, installment payment obligations, or other similar funding structures secured by a prudent source, or sources of repayment. • Lease -Backed Debt/Certificates of Participation (COP/Lease Revenue Bonds): Issuance of Lease -backed debt is a commonly used form of debt that allows a City to finance projects where the debt service is secured via a lease agreement and where the payments are budgeted in the annual budget appropriation by the City. Lease -Backed debt does not constitute indebtedness under the state or the City's constitutional debt limit and does not require voter approval. Lease Revenue Bonds may be issued by the Tustin Public Financing Authority on behalf of the City. • Special Assessment/Special Tax Debt: The City will consider requests from developers for the use of debt financing secured by property based assessments or special taxes in order to provide for necessary infrastructure for new development under guidelines adopted by City Council, which may include miriimum value -to -lien ratios and maximum tax burdens. Examples of this type of debt are Assessment Districts (AD) and Community Facilities Districts (CFD) or more commonly known as Mello -Roos Districts. In order to protect bondholders as well as the City's credit rating, the City will also comply with all state guidelines regarding the issuance of special tax or special assessment debt. The City has previously adopted local goals and policies for special tax debt. (See Appendix A). • Tax Allocation Bonds: Tax Allocation Bonds are special obligations that are secured by the allocation of tax increment revenues that are generated by increased property taxes in the designated redevelopment project areas. Tax Allocation Bonds are not debt of the City. Due to changes in the law affecting California Redevelopment agencies with the passage of ABX1 26 (as amended, the "Dissolution Act") as codified in the California Health and Safety Code, the City of Tustin Redevelopment Agency (RDA) was dissolved as of February 1, 2012, and its operations substantially eliminated but for the continuation of certain enforceable RDA obligations to be administered by the Successor Agency to the City of Tustin Redevelopment Agency (Successor Agency). The Successor Agency may issue Tax Allocation Bonds to refinance outstanding obligations of the RDA, subject to limitations included in the Dissolution Act. • Multi -Family Mortgage Revenue Bonds: The City is authorized to issue mortgage revenue bonds to finance the development, acquisition and rehabilitation of multi -family rental projects. The interest on the bonds can be exempt from federal and state taxation. As a result, bonds provide below market financing for qualified rental projects. In addition, the bonds issued can qualify projects for allocations of federal low- income housing tax credits, which can provide a significant portion of the funding necessary to develop affordable housing. • HUD Section 108 Loan Guarantee Program: The U.S. Department of Housing and Urban Development (HUD) Section 108 Loan Guarantee Program allows cities to use their annual Community Development Block Grant (CDBG) entitlement grants to obtain federally guaranteed funds large enough to stimulate or pay for major community development and economic development projects. The program does not require a pledge of the City's General Fund, only of future CDBG entitlements. By pledging future CDBG entitlement grants as security, the City can borrow at favorable interest rates because of HUD's guarantee of repayment to investors. • Refunding Bonds: The City shall refinance debt pursuant to the authorization that is provided under California law, including but not limited to Articles 10 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, as market opportunities arise. The Finance Director shall identify refunding opportunities and prepare a present value analysis that describes the economic effects of a refunding. Refundings may be undertaken in order: (i) to take advantage of lower interest rates and achieve debt service costs savings; (ii) to eliminate restrictive or burdensome bond covenants; or (iii) to restructure debt to lengthen the duration of repayment, relieve debt service spikes, reduce volatility in interest rates or free up reserve funds. Generally, the City shall strive to achieve a minimum of three (3) percent net present value savings for a current refunding and a minimum of five (5) percent net present value savings for an advance refunding. Upon the advice of the Finance Director and with the assistance of a financial advisor and bond counsel, the City will consider undertaking refundings for other than economic purposes upon a finding that such a restructuring is in the City's overall best financial interest. The City may from time to time find that other forms of debt would be beneficial to further its public purposes and may approve such debt without an amendment of this Debt Policy. To maintain a predictable debt service burden, the City will give preference in the future to debt that carries a fixed interest rate. An alternative to the use of fixed rate debt is variable rate debt. The City may choose in the future to issue securities that pay a rate of interest that varies according to a pre -determined formula or results from a periodic remarketing of securities. When making the determination to issue bonds in a variable rate mode in the future, consideration will be given in regards to the useful life of the project or facility being financed or the term of the project requiring the funding, market conditions, credit risk and third party risk analysis, cost benefit of employing interest rate CAPS, and the overall debt portfolio structure when issuing variable rate debt for any purpose. The use of derivative products can, among other things, increase City financial flexibility and provide opportunities for interest rate savings or enhance investment yields. Careful monitoring of such products is required to preserve City credit strength and budget flexibility. Swaps will not be used to speculate on perceived movements in interest rates. Before the City enters into any derivative product associated with debt, the City Council or appropriate governing body shall consider and approve the plan and product separately. C. Relationship of Debt to Capital Improvement Program and Budget The City intends to issue debt for the purposes stated in this Debt Policy and to implement policy decisions incorporated in the City's capital budget and the capital improvement plan. The City shall seek to avoid the use of debt to fund infrastructure and facilities improvements that are the result of normal wear and tear, unless a specific revenue source has been identified for this purpose. The City shall integrate its debt issuances with the goals of its capital improvement program by timing the issuance of debt to ensure that projects are available when needed in furtherance of the City's public purposes. The decision to incur new indebtedness should be integrated with the City Council adopted bi-annual Operating Budget and Capital Improvement Program Budget. The annual debt service payments shall be included in the Operating Budget. D. Policy Goals Related to Planning Goals and Objectives The City is committed to financial planning, maintaining appropriate reserves levels and employing prudent practices in governance, management and budget administration. The City intends to issue debt for the purposes stated in this Debt Policy and to implement policy decisions incorporated in the City's annual operating budget. It is a policy goal of the City to protect taxpayers, ratepayers and constituents by utilizing conservative financing methods and techniques so as to obtain the highest practical credit ratings (if applicable) and the lowest practical borrowing costs. It is a policy goal of the City to reduce the unfunded liabilities for employee pension and other post -employment benefits (OPEB). The City will consider options to accelerate funding, including creating a tax-exempt Section 115 Trust for pension costs. The City will comply with applicable state and federal law as it pertains to the maximum term of debt and the procedures for levying and imposing any related taxes, assessments, rates and charges. Except as described in Section 2.A., when refinancing debt, it shall be the policy goal of the City to realize, whenever possible, and subject to any overriding non-financial policy considerations minimum aggregate net present value debt service savings equal to or greater than three (3) percent of the refunded principal amount. E. Internal Control Procedures When issuing debt, in addition to complying with the terms of this Debt Policy, the City shall comply with any other applicable policies regarding initial bond disclosure, continuing disclosure, post -issuance compliance, and investment of bond proceeds. A copy ,of the City's adopted policies are attached as Appendix B. The Director of Finance has the responsibility to determine and oversee internal control procedures. The City will periodically review the requirements of and will remain in compliance with the following: • Federal securities law, including any continuing disclosure undertakings under SEC Rule 15c2-12; •Any federal tax compliance requirements, including without limitation arbitrage and rebate compliance, related to any prior bond issues; *The City's investment policies as they relate to the investment of bond proceeds; and • Government Code section 8855(k) and the annual reporting requirements therein. The City shall be vigilant in using bond proceeds in accordance with the stated purpose at the time that such debt was issued. Whenever reasonably possible, proceeds of debt will be held by a third -party trustee and the City will submit written requisitions for such proceeds. The City will submit a requisition only after obtaining the signature of the City Manager or the Director of Finance or the Deputy Finance Director. F. Amendment and Waivers of Debt Policy • The Policy will be reviewed and amended from time to time as appropriate, subject to City Council approval. • There will be circumstances from time to time when strict adherence to a provision of this Debt Policy is not possible or not in the best interest of the City. • If the City staff has determined that a waiver of one or more provisions of this Debt Policy should be considered by the City Council, it will prepare an analysis for the City Council describing the rationale for the waiver and the impact of the waiver on the proposed debt issuance and on taxpayers, if applicable. • upon a majority vote of the City Council, one or more provisions of this Debt Policy may be waived for a debt financing, • The failure of a debt financing to comply with one or more provisions of this Debt Policy shall in no way affect the validity of any debt issued by the City in accordance with applicable laws. G. Professional Assistance The City shall utilize the services of independent financial advisors and bond counsel on all debt financings. The Director of Finance shall have the authority to periodically select service providers as necessary to meet legal requirements and minimize net City debt costs. Such services, depending on the type of financing, may include financial advisory, underwriting, trustee, bond counsel, disclosure counsel, verification agent, escrow agent, arbitrage consulting, continuing disclosure consultants, and special tax consulting. The goal in selecting service providers, whether through a competitive process or when appropriate, a sole -source selection, is to achieve an appropriate balance of service and cost. APPENDIX A RESOLUTION NO. 04-28 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN, CALIFORNIA, ADOPTING LOCAL GOALS AND POLICIES FOR MELLO-ROOS COMMUNITY FACILITIES DISTRICTS WHEREAS, Section 53312.7(a) of the California Government Code provides that a local agency may initiate proceedings to establish a communities facilities district pursuant to the Mello -Roos Community Facilities Act of 1982 (the "Act") only if it has first considered and adopted local goals and policies concerning the use of the Act; and WHEREAS, the City Council (the "City Council") of the City of Tustin (the "City") has determined that the City may, from time to time, desire to initiate proceedings to establish a community facilities district under the Act; and WHEREAS, the City Council has considered local goals and policies concerning the use of the Act; and WHEREAS, there has been presented to this meeting a compilation of such goals and policies entitled the "City of Tustin Mello -Roos Community Facilities Act of 1982 Local Goals and Policies" (the "Goals and Policies"); and WHEREAS, the City Council desires to adopt the Goals and Policies as the City's local goals and policies concerning the use of the Act; NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Tustin, California, as follows: Section 1, The City Council hereby adopts the Goals and Policies as the City's local goals and policies concerning the use of the Act. Section 2. The officers, employees and agents of the City are hereby authorized and directed to take all actions and do all things which they, or any of them, may deem necessary or desirable to accomplish the purposes of this Resolution and not inconsistent with the provisions hereof. Section 3. This Resolution shall take effect immediately upon its adoption. PASSED .AND ADOPTED .at a regular meeting of the City Council of the City of Tustin on the 1st day of March, 2004. Resolution No. 04-28 Page 1 of 2 TONY KA ASHIMA, Mayor ATTEST: ,'t� ��� � .iii •• •� STATE OF CALIFORNIA ) COUNTY OF ORANGE ) SS CITY OF TUSTIN ) I,_ Pamela Stoker, City Clerk and ex -officio Clerk of the City Council of the City of Tustin, California, do hereby certify that the whole number of the members of the City Council of the City of Tustin is five; that the above and foregoing Resolution No. 04-28 was duly passed and adopted at a regular meeting of the Tustin City Council, held on the 1st day of March, 2004 by the following vote: COUNCILMEMBER AYES: COUNCILMEMBER NOES: COUNCILMEMBER ABSTAINED: COUNCILMEMBER ABSENT: PAMELA STOKER, City. Clerk Resolution No. 04-28 Page 2 of 2 KAWASHIMA, BONE, DAVERT, HAGEN, THOMAS (5) NONE (0) NONE MT NONE (0) CITY OF TUSTIN MELLO-ROOS COMMUNITY FACILITIES ACT OF 1982 LOCAL GOALS AND POLICIES INTRODUCTION Section 53312.7(a) of the California Government Code provides that a local agency may initiate proceedings to establish a communities facilities district (a "Community Facilities District's pursuant to the Mello -Roos Community Facilities Act of 1982 (the "Act') only if it has first considered and adopted local goals and policies concerning the use of the Act. The following goals and policies have been considered and adopted by the City of Tustin (the "City") and are intended to meet the requirements of the Act. PRIORITIES FOR FINANCING The priority that various ldnds of public facilities and services will have for financing through the City's use of the Act is as follows: (a) backbone infrastructure required to serve proposed development; (b) • other public facilities (excluding in -tract infrastructure) to be owned and/or operated by the City for which there is a clearly demonstrated public benefit; and (c) services authorized to be financed pursuant to the Act. ,In -tract infrastructure will not be financed throukh the Citv's use of the Act. Public facilities to be own and/or ope yap lir agency other than the City, including such public facilities financed in lieu of the payment of development fees imposed by such public agency, will be considered on a case-by-case basis. BOND ISSUE CREDIT QUALITY REQUIREMENTS Stowery Requirements; The City will require that the credit quality of any Community Facilities District bond issue be such that the requirements of Section 53345.8 of the Government Code will be met. Reserve Fund In order to enhance the credit quality of Community Facilities District bond issues, the City generally will require that each such bond issue be secured by a reserve fund. Generally, each such reserve fund will be required to be funded (with, cash or an acceptable reserve surety or other credit facility) in an amount no less than the least of (a) 101/9 of the initial principal amount of the bonds of such issue, (b) maximum annual debt service on the, bonds of such issue, or (c)125% of the average annual debt service on the bonds of such issue. Any reserve surety or other credit facrility funding such a reserve fund will generally be required to be issued or guaranteed by an MCSLA 1:464'190.4 5-5GH) entity, the long term unsecured obligations of which are rated at least 'W by Moody's Investors Service or Standard & Poor's Ratings Service. Credit Enhancement. The City may require credit enhancement to increase the credit quality of a Community Facilities District bond issue, particularly where the value-to-lien ratio of a significant portion of the property in such Community Facilities District is less than three-to-one or, in the case of commercial property, where a substantial amount of such property is undeveloped or has a vahuko-lien ratio of less than four-to-one. Such credit enhancement will usually be the form of an irrevocable letter of credit, will be required to be in an amount not less than two times the amount of annual special taxes levied' on such undeveloped property and will be required to remain in effect until such property is developed or the value thereof has otherwise been sufficiently increased. Such letter of credit will generally be required to be issued or guaranteed by an entity, the long term unsecured obligations of which are rated at least "A" by Moody's Investors Service or Standard & Poor's Ratings Service. Capitalized Interest. The amount of capitalized interest funded for an issue of Community Facilities District bonds may not exceed any maximum specified in the Act. Bond Structure: The term to maturity of any Community Facilities District bonds shall not exceed the maximum term specified in the Act. Generally, Community Facilities District bonds shall be structured such that, once principal amortization thereof has commenced, debt service thereon will be substantially level. However, the City may, in its discretion, on a case-by-case basis, allow such bonds to be structured such that debt service thereon escalates by no more than 2% per bond year. DISCLOSURE TO PROSPECTIVE PROPERTY PURCHASERS In order to ensure that prospective property purchasers are fully informed about their taxpaying obligationsimposed under the Act, the City will require that the requirements of disclosure to prospective property purchasers contained in the Act, including, but not limited to, Sections 53328.3, 53328.5 (including the referenced sections of the California Streets and Highways Code), 53340.2 and 53341.5 of the Government Code, be met. EQUITY OF SPECIAL TAX FORMULAS AND MAXIMUM SPECIAL TAXES Reasonable Basis of apportionment: Special taxes must be allocated and apportioned on a reasonable basis to all categories and classes of property (other than exempt property) within the Community Facilities District. Exemptions from the special tax may be given to parcels which are publicly-owned, are held by property owners associations, are used for a public purpose such as open space or wetlands or are affected by public utility easements malting impractical their utilization for other than the purposes set fortis in the easement. Total Tax Burden. The total tax burden (consisting of the anticipated maximum annual Community Facilities District special tax, together with ad valorem property taxes, special assessments, special taxes for any overlapping community facilities district, and any other taxes, fees and charges payable from and secured by the property) on any parcel in a Community Facilities oocsi. 1:464790.4 5-s aHI 2 District on which a for -sale residential unit has been, is being or is to be constructed shall not exceed 2% of the estimated base sales price of such parcel upon completion of the public and private improvements relating thereto. , Rate and Method of Apportionment The rate and method of apportionment for Community Facilities District special taxes must be structured so as to produce special tax revenues sufficient to pay (a) debt service on all Community Facilities District bonds, and (b) reasonable and necessary annual administrative expenses of the Community Facilities District. Additionally, the rate and method of apportionment may be structured so as to produce amounts sufficient to fund (a) any amounts required to establish or replenish any reserve fund established for a Community Facilities District bond issue, (b) amounts to pay directly the costs of public facilities authorized to be financed by the Community Facilities District, (c) amounts to pay the costs of services authorized to be financed by the Community Facilities District, (d) the accumulation of funds reasonably required for future debt service on Community Facilities District bonds, (e) amounts equal to projected delinquencies in special tax payments, (0 remarketing, credit enhancement or liquidity fees, and (g) any other costs or payments permitted by law. In any case, the Community Facilities District special tax rate and method of apportionment must be structured such that the projected maximum special tax that could be levied in any fiscal year would produce special tax revenues at least equal to (a) 110% of projected annual debt service on all Community Facilities District bonds for the calendar year commencing in such fiscal year, plus (b) projected administrative expenses of the Community Facilities District for the calendar year commencing in such fiscal year. Generally, the rate and method of apportionment for Community Facilities District special taxes will be required to include a back-up tax so that changes in development within the Community Facilities District would not result in the inability to levy special taxes that would produce special tax revenues in such amounts. Increases in Special Tax. Generally, the maximum special tax levied to finance public facilities for any parcel within a Community aca rh or w c a g penmit or e construction of a for -sale residential unit has been issued shall not escalate. However, the City may, in its discretion, on a case-by-case basis, allow such maximum sped tax to escalate annually in an amount not exceeding any maximum specified in the Act. The annual increase, if any, in the maximum special tax levied to finance public facilities for any other parcel within a Community Facilities District, and the annual increase, if any, in the maximum special tax levied to finance services for any parcel within a Community Facilities District may not exceed any maximum specified in the Act. The increase in the special tax levied on any parcel within a Community Facilities District as a consequence of delinquency or default by the owner on any other parcel may not exceed any maximum specified in the Act. Prepayment of Spedal Tiiz Generally, the special tax rate and method of apportionment for a Community Facilities District will be structured so as to allow the prepayment of special taxes by property owners. DOCS[.A 1:464790.4 5 -SOMI APPRAISALS Except as provided below, the definitions, standards and assumptions to be used in appraisals required in connection with the City's use of the Act for Community Facilities Districts are as set forth in the Appraisal Standards for Land Secured Financings published by the California Debt and Investment Advisory Commission and dated May 1994 (the "CDIAC Guidelines"), with the following modifications: (a) the independent review appraiser is an option, and not a requirement; (b) the comparable sales method may be used whenever there is sufficient data available; (c) the appraiser should assume the presence of the public infrastructure to be financed with the bonds in connection with which the appraisal is being prepared; and (d) the special tax lien need not be computed as the present value of the future tax payments if there is a prepayment mechanism or other appropriate measure. Notwithstanding the foregoing, if there is a conflict between the definitions, standards or assumptions in the CDIAC Guidelines and the corresponding definitions, standards or assumptions in the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation ("USPAP'j, USPAP shall govem. DISCLOSURE FOR BOND ISSUES Initial Disclosure. Each owner of property within a Community Facilities District that has not reached its planned development stage .and that will be responsible for a substantial portion (as determined by the City) of annual debt service on an issue of Community Facilities District bonds will be required to provide for inclusion in the official statement or other offering materials distributed in connection with the offering and sale of such bonds such information as may be required for the City to comply with, satisfy any requirements of or avoid any liability under, any applicable federal or state securities laws. Continuing Disclosure Each owner of property within a Community Facilities District, and each subsequent owner of property therein, that has not reached its planned development stage and that will be responsible for a substantial portion (as determined by the City) of annual debt service on an issue of Community Facilities District bonds will be required to provide such information, on an ongoing basis, as may be required for the underwriter of such bonds to satisfy the requirements imposed on it pursuant to Rule 15c2-12 promulgated under the Securities Exchange Act of 1934. DEPOSITS The costs of the proceedings for a Community Facilities District financing initiated by petition of landowners will be home by the petitioners. No action will be taken on any petition unless and until a deposit of funds is made by the petitioners with the City. The deposit must be sufficient to cover the expense of City member staff time, the costs of non -contingent outside DOCSLA1:4b4M4 s -s CH 4 consultants retained for the financing and the costs of recordings, filings, duplication, mailings and deliveries. In general, the deposit will not be less than $25,000, and may be more, as required by the City. The deposit must be increased upon demand of the City if at any time the City determines that the remaining amount is not sufficient to cover anticipated remaining expenses and costs. If the additional amount is not paid within ten business days of the mailing of a written demand by the City to the petitioners, the City will cease all activities with respect to the Community Facilities District financing until the additional amount is paid. The initial deposit and any additional amounts will be held by the City and used only for the expenses and costs incurred in connection with the Community"Facilities District proceedings. Any balance of such deposit remaining upon completion of the Community Facilities District proceedings, or the abandonment thereof, and not needed to.pay expenses and costs relating thereto will be returned to the petitioner. The use of the deposit shall in no way be construed as requiring the City to issue Community Ficilities District bonds or to provide reimbursement from the proceeds thereof for portions of the deposit that are expended. . If bonds are issued by a Community Facilities District, the petitioners wilt be reimbursed from bond proceeds for the portion of such deposit that has been expended or encumbered. CONSULTANTS The City will select all consultants to be retained by the City for a Community Facilities District financing, including, but not limited to, the financial advisor, special tax consultant, bond counsel, disclosure counsel, underwriter, market absorption analyst, appraiser and trustee. Providers of letters of credit, bond insurance policies, surety bonds or other credit enhancements are also subject to City approval. Consultants, including legal counsel, to the applicant or any financing beam member other than the City will, be selected, retained and paid by the applicant or such member, such consultants will not be paid from the proceeds of the financing. MIlVIMUM STANDARDS; WAIVERS AND AMENDMENT The policies set forth herein reflect the minimum standards under which the City will make use of the Act to finance public facilities. The City may, in its discretion, require additional . ,measures and procedures, enhanced security and higher standards in particular cases. The City may, in its discretion and to the extent permitted by law, waive any of the policies set forth herein in particular cases. The goals and policies set forth herein may be amended at any time and from time to time by the City. D=LAI;464790.4 S-5 GHI APPENDIX B Agenda Item 6 ' AGENDA REPORT Reviewed. City Manager Finance Director MEETING DATE: DECEMBER 16, 2014 TO: I JEFFREY C PARKER, CITY MANAGER FROM: PAMELA ARENDS-KING, FINANCE DIRECTOR/CITY TREASURER SUBJECT: APPROVAL OF CONTINUING DISCLOSURE PROCEDURES FOR PUBLIC DEBT ISSUANCES AND RELATED CONTINUING DISCLOSURE OBLIGATIONS SUMMARY: The Security Exchange Commission ("SEC") requires all issuers of bonds to prepare initial disclosure documents and file annual continuing disclosure reports so that investors can receive information concerning their decision to purchase the bonds or continue holding the bonds. Adopting continuing disclosure procedures for public debt issuances will ensure the City is in compliance with SEC requirements. STAFF RECOMMENDATION: Staff recommends that the City Council adopt the attached Continuing Disclosure Procedures related to the City's bonds, Successor Agency to the Tustin Community Redevelopment Agency's bonds, and the Housing Authority's bonds. FISCAL IMPACT: None BACKGROUND: The Securities Exchange Commission ("SEC") requires all issuers of bonds to prepare initial disclosure documents and file annual continuing disclosure reports so that investors can receive initial disclosure documents. without any misstatements or omissions regarding information material to prospective investors in connection with their decision to purchase obligations of each issuer, and can monitor the fiscal status of each issuer and determine the risks associated with holding the bonds of that issuer. The information included in these annual continuing disclosure reports vary depending on the issuer and the type of bonds issued, but in general include the issuer's Comprehensive Annual Financial Report ("CAFR"), debt service coverage ratios, credit agency changes and other information relevant for an investor to make investment decisions. Approval of Continuing Disclosure Procedures December 16, 2014 Page 2 The annual continuing disclosure reports are filed with the Municipal Securities Rulemaking Board's Electronic Municipal Market Access, or "EMMA', which then makes the information available to the market. The attached Continuing Disclosure Procedures will ensure that the City's initial disclosure documents and annual continuing disclosure reports will be filed by the City, the Successor Agency and all other entities created by the City or by State law for which the City Council serves as the governing or legislative body. They will also ensure that event notices and any other filings with EMMA are accurate and comply with all applicable federal and state securities laws. The procedures establish a Disclosure Practices Working Group charged with general oversight over the continuing disclosure process. Members of the Disclosure Practices Working Group will be appointed by the City Manager in consultation with the Finance Director and will consist of persons relevant to the disclosure process. The Working Group shall retain the services of a Disclosure Consultant to assist with the preparation and filing of the annual continuing disclosure reports. Pamela Arends-King 113 Finance Director/City Treasurer Attachment: Disclosure Procedures for Public Debt Issuances and Related Disclosure Obligations DISCLOSURE PROCEDURES FOR PUBLIC DEBT ISSUANCES AND RELATED DISCLOSURE OBLIGATIONS INTRODUCTION A. Purpose. These disclosure procedures (the "Procedures") of the City of Tustin (the "City"), are intended to (1) ensure that the City's Initial Disclosure Documents and Continuing Disclosure Documents (as such terms are defined in Section II A,2 below) are accurate and comply with all applicable federal and state securities laws, and (2) promote best practices regarding the preparation of the City's Initial Disclosure Documents and Continuing Disclosure Documents. For purposes of these Procedures, the "City" shall mean the City of Tustin, California, the Successor Agency to the Tustin Community Redevelopment Agency, the Tustin Housing Authority and other entities created by the City Council of the City of Tustin or for which the members of the City Council of the City of Tustin serve as the governing board or the legislative body, including joint powers agencies and special districts. II. KEY PARTICIPANTS A. Disclosure Practices Working Group 1. Composition. A Disclosure Practices Working Group (the "Disclosure Working Group") will have general oversight over the entire initial and continuing disclosure process. Members of the Disclosure Working Group shall be appointed from time to time by the City Manager (in consultation with the Finance Director) and shall consist of persons relevant to the disclosure process. The initial Disclosure Working Group shall include the following persons: (a) the Finance Director; (b) the Disclosure Coordinator (as described below); (c) the City Attorney; and (d) and any other individuals appointed by the City Manager. The Disclosure Working Group shall consult with finance team members for each applicable City debt obligation, or other interested parties as the Finance Director or any other member of the Disclosure Working Group determines is advisable, related to disclosure issues and practices. Meetings of the Disclosure Working Group may be held telephonically. The Disclosure Working Group is an internal working group of City staff and not a decision- making or advisory. body subject to the provisions of the Ralph M. Brown Act (Government Code Section 54950 et seq.). 2. Responsibilities. The Disclosure Working Group is responsible for: (a) reviewing all Initial Disclosure Documents, and making recommendations to the City Council or appropriate governing board for their approval of Initial Disclosure Documents; (b) reviewing all continuing disclosure obligations as contained in Initial Disclosure Documents before such documents are released to the prospective investors, and making recommendations to the City Council or appropriate governing board for their approval of such continuing disclosure obligations; (c) reviewing annually the City's status and compliance with continuing disclosure obligations, including filings of Continuing Disclosure Documents, compliance with these Procedures and the annual report prepared by the Disclosure Consultant as described in Section l) (C) below; (d) reviewing any items referred to the Disclosure Working Group; and (e) evaluating the effectiveness of these Procedures and approving changes to these Procedures. For purposes of these Procedures, "Initial Disclosure Documents" means disclosure documents describing City indebtedness for use in connection with the offering and sale of the indebtedness or interests therein, including Official Statements (as defined in the next sentence); and "Continuing Disclosure Documents" means (i) annual continuing disclosure reports filed with the MSRB, and (ii) event notices and any other filings with the MSRB. As used in these Procedures, the term "Official Statements" means preliminary and final official statements, private placement memoranda and remarketing memoranda relating to the City's debt obligations, together with any supplements, for debt obligations for which a continuing disclosure obligation is required. B. Disclosure Coordinator 1. Appointment. The Finance Director, in consultation with the other members of the Disclosure Working Group, shall select and appoint a Disclosure Coordinator. The Finance Director may serve as the Disclosure Coordinator. 2. Responsibilities. The Disclosure Coordinator is responsible for: (a) serving as a "point person" for personnel to communicate issues or information that should be or may need to be included in any Initial Disclosure Document or Continuing Disclosure Document; (b) in preparing Initial Disclosure Documents and in anticipation of preparing Continuing Disclosure Documents, soliciting "material" information (as defined in Securities and Exchange Rule 10b-5) from City departments and other.relevant City Staff; (c) following up with others, including management of outside consultants assisting the City, in the preparation and dissemination of Initial Disclosure Documents and Continuing Disclosure Documents to make sure that assigned tasks have been completed on a timely basis and making sure that the Continuing Disclosure Documents are filed on a timely basis and are accurate; (d) In cooperation with the attorney or attorneys, or financial advisor, preparing any Initial Disclosure Document, and with other City or public agency Staff members with knowledge of the subject matter of the respective debt obligation, (i) reviewing each Initial Disclosure Document with the Disclosure Working Group and (ii) presenting the Initial Disclosure Document to the City Council or other appropriate governing board for approval, before it is disseminated to the public or prospective purchasers of the related debt obligation, all in order to ensure that all disclosure contained therein and not otherwise attributable to sources other than the City is accurate and does not omit to state information required to be stated therein in order to make the statements therein not misleading in any material respect; (e) preparing and filing the required Continuing Disclosure Documents, to the extent such filings are not prepared and filed by the Disclosure Consultant; (f) monitoring compliance by the City with these Procedures, including timely dissemination of annual report and event filings as described in Sections III (B) and (C) below; (g) recommending changes to these Procedures to the Disclosure Working Group as necessary or appropriate; (h) together with the Finance Director (if other than the Disclosure Coordinator), coordinating the timely provision of information to the Disclosure Consultant as needed to fulfill its responsibilities to the City; (i) maintaining records documenting the City's compliance with these Procedures; Q) reviewing compliance with and providing appropriate certifications in connection With the various covenants in documents for debt obligations; and the Disclosure Coordinator shall review the documents for debt obligations to determine which covenants require an annual or regular certification and maintain a list of those with the Disclosure Coordinator (the Disclosure Coordinator may delegate such compliance requirements to the Disclosure Consultant); and (k). ensuring that members of the Disclosure Working Group and the City Council or other applicable governing board approving Initial Disclosure Documents or Continuing Disclosure Documents receive periodic training regarding disclosure responsibilities and practices. 3. Consultation. The Disclosure Coordinator shall consult with the disclosure counsel for a respective debt obligation to the extent the Disclosure Coordinator considers appropriate to perform the Disclosure Consultant's responsibilities. C. Disclosure Consultant 1. Appointment, The Finance Director shall designate or hire, as applicable, a Disclosure Consultant (who may be a City Staff member, an attorney retained as disclosure counsel, a financial advisor or other appropriate consultant) in consultation with the Disclosure Working Group. The Disclosure Consultant shall have significant expertise and experience related to on-going disclosure requirements for municipal securities. 2. Responsibilities. The Disclosure Consultant is responsible for: (a) communicating to the Disclosure Working Group its information needs, reviewing Initial Disclosure Documents, Continuing Disclosure Documents and other relevant information, consulting with appropriate City staff or interested parties needed to confirm that the City is meeting its disclosure obligations; and (b) from time to time, making recommendations to the Disclosure Working Group regarding ways the City may improve these Procedures and methods of meeting City continuing disclosure obligations. D. Others With Responsibility for Initial Disclosure Documents. 1. Responsibilities of City Attorney, The City Attorney (or a designee) shall review Initial Disclosure Documents and shall draft for Initial Disclosure Documents descriptions of (a) any material current, pending or threatened litigation, (b) any material settlements or court orders and (c) any other legal issues that are material information for purposes of any respective Initial Disclosure Document. 2. Responsibilities of Finance Director. The Finance Director shall review each Initial Disclosure Document, identify any material difference in presentation of financial information from the City's most recent financial statements and ensure there are no misstatements or omissions of material information in any sections that contain descriptions of information prepared by the Finance Director (or the Finance Director's staff) or of relevance to the finances of the City. In addition, the Finance Director shall determine whether the City's then -available financial statements are appropriate to be included in the respective Initial Disclosure Document and whether to seek the consent of the City's auditor to include financial statements in the respective Initial Disclosure Document. III. CONTINUING DISCLOSURE FILINGS A. Overview of Continuing Disclosure Filings Under the continuing disclosure undertakings it has entered into in connection with its debt offerings, the City is required to file annual reports with the Municipal Securities Rulemaking Board's (" MSRB") Electronic Municipal Market Access ("EMMA") system in accordance with such undertakings in each year. Such annual reports are required to include certain updated financial and operating information (or may refer to a publicly -available document), which varies among the different obligations issued by the City, the City's audited financial statements and other information material to investors. The City is also required under the continuing disclosure undertakings to file notices of certain events with EMMA. B. Annual Reports The Disclosure Coordinator shall ensure that the preparation of the City's annual reports commences as required to satisfy the filing requirements under each specific continuing disclosure obligation. Before any annual report is submitted to EMMA, the Disclosure Coordinator shall confer with the Disclosure Working Group as needed regarding the content and accuracy of any annual report. Prior to each filing, the Disclosure Coordinator will review each report with the Disclosure Consultant, and the Disclosure Consultant will confirm in writing (which may be by email) that such report appears to comply with the requirements of the applicable continuing disclosure undertaking. 4 C. Event Filings Each member of the Disclosure Working Group shall notify the other members of the Disclosure Working Group if he or she becomes aware of any of the material events listed in any of the City's continuing disclosure undertakings. The Disclosure Working Group may meet to discuss the event and to determine, in consultation with the Disclosure Consultant, whether a filing is required or is otherwise desirable. D. ' Uncertainty The Finance Director may direct questions regarding the disclosure to the Disclosure Consultant, disclosure counsel, bond counsel or the City Attorney or such other counsel or consultant he/she deems appropriate. IV. CONTINUING DISCLOSURE DOCUMENTS TO BE RETAINED The Disclosure Coordinator shall be responsible for retaining records demonstrating compliance with the Continuing Disclosure Document requirements of these Procedures. The Disclosure Coordinator shall retain an electronic or paper file ("Disclosure File") for each continuing disclosure annual report that the City completes. Each Disclosure File shall include the final version of the applicable Initial Disclosure' Document and all related Continuing Disclosure. Documents; written confirmations, certifications, letters and legal opinions described herein; copies of these Disclosure Procedures and a list of individuals to whom they have been distributed and the dates of such distributions; and a written record of the dates of meetings of the Disclosure Working Group. The Disclosure File shall be maintained in a central depository for a period of five years from the later of the date of delivery of the securities referenced in the Continuing Disclosure Document, or the date the Continuing Disclosure Document is published, posted, or otherwise made publicly available, as applicable. V. EDUCATION The Finance Director shall ensure that the Disclosure Coordinator and the members of the Disclosure Working Group are properly trained to understand and perform their responsibilities. Such training may include training sessions conducted by consultants with expertise in municipal securities disclosure or by the Disclosure Consultant, attendance at conferences, or other appropriate methods identified by the Finance Director. VI, AMENDMENTS Any provision of these Procedures may be waived or amended at any time by action of the City Council, or otherwise by written confirmation of the City Manager upon consultation with the Finance Director.