R-13-12-05-H7 - 12/5/2013RESOLUTION NO. R -13-12-05-H7
WHEREAS, the City of Round Rock Finance Department has established a policy concerning
the issuance and management of debt; and
WHEREAS, the City Council has reviewed the attached governing Policy for long term debt
for the City of Round Rock and wishes to approve same, Now Therefore
BE IT RESOLVED BY THE COUNCIL OF THE CITY OF ROUND ROCK, TEXAS,
That the City of Round Rock Governing Policy -- Long -Term Debt, attached hereto as Exhibit
"A" and incorporated herein, is hereby approved and adopted.
The City Council hereby finds and declares that written notice of the date, hour, place and
subject of the meeting at which this Resolution was adopted was posted and that such meeting was
open to the public as required by law at all times during which this Resolution and the subject matter
hereof were discussed, considered and formally acted upon, all as required by the Open Meetings Act,
Chapter 551, Texas Government Code, as amended.
RESOLVED this 5th day of December, 2013.
ALAN MCGRAW, Mayor
City of Round Rock, Texas
ATTEST:
SARA L. WHITE, City Clerk
0112.1304;00287383
EXHIBIT
„A„
ROUND ROCK, TEXAS
PURPOSE. PASSION. PROSPERITY.
CITY OF ROUND ROCK GOVERNING POLICY --LONG-TERM DEBT
The City of Round Rock establishes the following policy concerning the issuance and management of
debt. This debt policy, as presented to City Council and the citizens, was established by the City of
Round Rock Finance Department to improve the quality of decisions in relation to the City's financing
activities, provide a comprehensive view of the City's Long-term debt picture and make it easier for
decision -makers to understand issues concerning debt issuance and management.
Conditions of Debt Issuance
Debt should be issued for the purpose of meeting the needs of the community through funding of capital
projects and equipment but without constituting an unreasonable burden to taxpayers.
Long-term debt is only issued to finance the acquisition and/or construction of capital improvements.
Additionally, only capital needs identified in the capital improvement program will be considered.
Refunding bonds will only be issued if the present value of debt service savings exceeds three percent of
the par value of the refunded bonds.
Types of Debt
General Obligation Bonds - General Obligation Bonds may only be issued with a majority
approval of a popular vote. The use of the proceeds from GO Bonds is limited to the acquisition
or improvement of real property and other uses allowed by law and applicable bond ordinances.
Libraries, parks and public safety facilities are all types of facilities that could be financed with
GO Bonds. To the extent that property tax revenues are used to fund debt service, an increase to
the property tax will be proposed.
Enterprise Revenue Bonds - Enterprise Revenue Bonds finance facilities for a revenue
producing enterprise, and are payable from revenue sources within that enterprise. Municipal
Water and Sewer and Solid Waste are examples of revenue producing enterprises within the
City.
ROUND ROCK, TEXAS
PURPOSE. PASSION. PROSPERITY.
Refunding Obligations - Pursuant to the Government Code and various other financing statutes
applicable in particular situations, the City Council is authorized to provide for the issuance of
bonds for the purpose of refunding any long-term obligation of the City. Absent any significant
non -economic factors, a refunding should produce minimum net debt service savings (net of
reserve fund earnings and other offsets) of at least 3% of the par value of the refunded bonds on
a net present value basis, using the refunding issue's True Interest Cost (TIC) as the discount
rate, unless the Finance Department determines that a lower savings percentage is acceptable for
issues or maturities with short maturity dates.
Tax Anticipation Notes -Proceeds from Tax Anticipation Notes are used to fund projects whose
source of payment is future tax revenues. These instruments have a term of one to three years
and are for a specific purpose such as temporary financing for capital improvements, cash flow
needs and major equipment leasing.
Leases - Leases may be used to finance major capital purchases, other than infrastructure,
including fleet, major system upgrades and large equipment purchases.
Assessment Bonds - Proceeds from Assessment Bonds may be used to finance local public
improvements, provided that said improvements benefit the parcels of land to be assessed. Local
streets, street lights, landscaping, sidewalks and sanitary sewers are some examples of local
improvements commonly financed by assessment bonds.
Internal borrowing between City funds - The City can authorize use of existing long-term
reserves as "loans" between funds. The borrowing fund will repay the loan at a rate consistent
with current market conditions. The loan will be repaid within ten (10) years. The loan will be
considered an investment of working capital reserves by the lending fund.
Other Obligations - There may be special circumstances when other forms of debt are
appropriate and may be evaluated on a case-by-case basis. Such other forms include, but are not
limited to limited tax notes, non -enterprise revenue bonds, bond anticipation notes, grant
anticipation notes and judgment or settlement obligation bonds.
Restrictions on Debt Issuance
• The City of Round Rock will not use long-term debt to finance current operations or normal
maintenance.
• Derivative products will not be used by the City.
• Swaps will not be entered into without establishment of a Swap Policy.
• Variable rate debt will not be entered into without establishment of a Variable Rate Debt Policy.
2Ic
ROUND ROCK, TEXAS
PURPOSE. PASSION. PROSPERITY
Limitations on Outstanding Debt
There is no direct debt limitation in the City Charter or under State law. The City operates under a
Home Rule Charter (Article XI, Section 5, Texas Constitution) approved by voters in August 1977 that
limits maximum tax rate, for all City purposes to $2.50 per $100 assessed valuation. Administratively,
the Attorney General of the State of Texas will permit allocation of $1.50 of the $2.50 maximum tax rate
for general obligation debt service.
Characteristics of Debt Issuance
When the City finances capital projects by issuing bonds, it will pay back the bonds within standard
terms that include the following:
• Term may be up to 30 years depending on cash flow assumptions, or useful life of asset being
financed.
• Call provisions will be shortest possible optional call consistent with optimal pricing.
• The City will seek level or declining debt repayment schedules and will avoid issuing debt that
provides for balloon principal payments reserved at the end of the term of the issue.
• The City will avoid variable-rate debt due to the potential volatility of such instruments.
Therefore, the City will avoid the use of variable-rate debt for its general obligation bond issues.
• The Debt service program will be managed in conformity with applicable bond covenants.
Commercial insurance or other credit enhancements to the bond rating shall be considered when cost-
effective.
Debt Issuance Process
The City shall utilize the services of an independent, Municipal Securities Rulemaking Board -registered
financial advisor on all debt financing. Although not required, the City may utilize an RFP -selected
pool of underwriters to mitigate time constraints and reduce overhead costs to the City in procuring
such services. Bond counsel will be used for each transaction.
The Finance Department shall review each debt issuance transaction on a case-by-case basis to
determine the most appropriate method of sale.
• Competitive Sale In a competitive sale, bids for the purchase of the bonds are opened at a
specified place and time and are awarded to the underwriter (or syndicate) whose conforming
bid represents the lowest true interest cost to the City (TIC). This method is most
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ROUND ROCK, TEXAS
PURPOSE. PASSION. PROSPERITY.
advantageous when the debt to be issued is less complex, the municipal bond market for
high-grade credits is stable, and the sale of the City's bonds is assured.
■ Bond sales shall be cancelable at any time prior to the time bids are to be received.
• Upon award to the bidder whose conforming bid represents the lowest true interest cost,
the City may restructure the bonds in accordance with the Official Notice of Sale. The
City shall reserve the unfettered right to reject all bids or waive bid irregularities.
• Negotiated Sale In a negotiated sale, the City chooses the initial buyer of the bonds in
advance of the sale date. The initial buyer is usually an investment banking firm, or a
syndicate of investment banking firms interested in reoffering the bonds to investors through
an underwriting process. This type of sale allows the. City to discuss different financing
techniques with the underwriter in advance of the sale date. This method is most
advantageous when the debt issue is complex, debt structuring flexibility is required (as
would be the case in a bond refunding) or the municipal bond market is unstable or uncertain.
• Direct Purchase In a direct purchase, the City may select a private purchaser willing to bid
a below market rate or other preferential financing terms. Such transactions often allow debt
to be issued more efficiently by eliminating the need for bond ratings and other associated
issuance costs. Such financing will be analyzed on a case-by-case basis, depending primarily
on rates prevailing in the market from time to time.
BOND REIMBURSEMENT RESOLUTIONS
The City may utilize bond reimbursements as a tool to manage its debt issues, due to arbitrage
requirements and project timing. In so doing, the City uses its capital reserve "cash" to delay bond
issues until such time when issuance is favorable and beneficial to the City.
The City Council may authorize a bond reimbursement resolution for General Capital projects that have
a direct impact on the City's ad valorem tax rate when the bonds will be issued within the term of the
existing City Council. In the event of unexpected circumstances that delay the timing of projects, or
market conditions that prohibit financially sound debt issuance, the approved project can be postponed
and considered by a future council until circumstantial issues can be resolved.
The City Council may also authorize revenue bond reimbursements for approved utility and other self-
supporting capital projects within legislative limits.
The total outstanding bond reimbursements may not exceed the total amount of the City's reserve funds.
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ROUND ROCK, TEXAS
PURPOSE. PASSION. PROSPERITY
INVESTMENT OF BOND PROCEEDS
The City maintains in its Investment Policy document approved by the City Council, the strategy and
policies for investing bond proceeds. The City's Investment Policy complies, and will at all times
comply, with the provisions of the Public Funds Investment Act, Chapter 2256, Texas Government
Code, as amended. Interest on bond proceeds is restricted such that it may only be used to fund projects
that have the same purpose as the purpose for which the bonds were originally issued. Construction
proceeds are typically invested in short-term securities so that they are liquid. Interest & Sinking funds
may be invested longer as they have to be maintained for the life of the issue.
ARBITRAGE COMPLIANCE
Compliance with arbitrage requirements on invested tax-exempt bond funds will be maintained.
Proceeds that are to be used to finance construction expenditures are exempted from the filing
requirements, provided that proceeds are spent in accordance with requirements established by the IRS.
On fixed -yield issues, the calculation of rebate must be performed no later than each 5 -year anniversary
date of the issuance ("Delivery Date") of the bonds and at final maturity. Where bond interest earnings
exceed the arbitrage yield, the City rebates those excess earnings to the Internal Revenue Service. The
City keeps detailed records of investments and construction and provides this information to a consultant
for the arbitrage calculation.
"'ROUND ROCK TEXAS
MIME PASSION PROSPB.
City of Round Rock
Agenda Item Summary
Agenda Number: H.7
Title: Consider a resolution approving a governing policy for long term debt for
the City of Round Rock.
Type: Resolution
Governing Body: City Council
Agenda Date: 12/5/2013
Dept Director: Cheryl Delaney, Finance Director
Cost:
Indexes:
Attachments: Resolution, Exhibit A
Department: Finance Department
Text of Legislative File 13-956
The City of Round Rock establishes the following policy concerning the issue and management of
debt. This debt policy, as presented to City Council and the citizens, was established by the City of
Round Rock Finance Department to improve the quality of decisions in relation to the City's
financing activities, provide a comprehensive view of the City's long-term debt picture and make it
easier for decision -makers to understand issues concerning debt issuance and management.
Staff recommends approval.
City of Round Rock Page 1 Printed on 1213/2013