Debt PolicyAmended June 25, 2012
Chanhassen Debt Policy
The City of Chanhassen has chosen, by policy, to guide its issuance of debt by following
the guidelines listed below. These practices were identified through examination of
materials from state statutes, bond rating agencies, and the Government Finance Officers
Association (GFOA). This policy can be amended in the future by the City Council, but
is consistent with general municipal practices at the time of its adoption.
Policy Adoption
In accordance with the authorities cited in the background section, the City of
Chanhassen will use the following policies in determining when and how to use debt for
financing capital and equipment needs.
I. Debt Limits
a. Legal Limits:
i. Minnesota Statutes, Section 475 states that the statutory limit for
outstanding debt principal cannot exceed 3% of the taxable market
value. This limitation applies only to debt that is wholly tax -
supported. The type of debt included is either general obligation
debt of any size bond issue (G.O.), or lease revenue bond issues
that were over $1,000,000 at the time of issuance. However, there
are also several other types of debt, including G.O. tax increment,
G.O. abatement, G.O. special assessment, G.O. utility revenue, and
most HRA or EDA -issued debt that have a separate revenue source
other than taxes, and are therefore excluded from the legal debt
limit calculation. HRA and EDA public project revenue bonds or
lease revenue bonds that have a financing lease agreement with a
city or county do count against the statutory debt limit.
ii. Local ordinances do not limit the City's ability to issue debt.
b. Policy Limits:
i. Uses of Debt: Debt will be used for capital costs only. The City
will not utilize debt for cash flow borrowing, even though this is
allowed by state statutes.
ii. CIP and Financial Planning: The City's capital improvement plan
shall contain debt assumptions that match this policy and requires a
commitment to long-range financial planning that looks at multiple
years of capital and debt needs.
iii. Tax Increment Bonds: The City shall use G.O. Tax Increment
Bonds only when the development merits special consideration.
c. Financial Limits:
i. Direct debt is the amount of general obligation principal or lease
obligations supported by taxes that are outstanding for the City
only. Indirect debt is the amount of the City's share of debt of
other taxing jurisdictions based upon the City's share of that taxing
jurisdiction's net tax capacity. Direct debt per capita shall not
exceed $1,000. Direct debt as a percentage of the City's taxable
market value shall not exceed 2%, excluding revenue -based debt.
ii. Bond issues may require a special debt levy. The City hereby
adopts a policy to limit the amount of the city's property tax levy
dedicated to debt service (principal and interest plus 5% for G.O.
bonds) to less than 30% of the total tax levy. Unlike rating
agencies, the City's definition of tax levy does not include special
assessments, tax abatements, or tax increments.
iii. Conduit debt — The City will review requests for issuance of
conduit debt on a case-by-case basis. The city may request a fee
upfront not to exceed I% of the original par amount of the
issuance.
II. Use of Variable Rate Debt and Derivatives
a. Variable Rate Debt. The City shall use variable rate debt only if the total
principal and interest of the debt constitutes less than 20% of the City's
total debt payments and only if circumstances dictate the need for a short
call date.
b. Derivatives. The City will not use derivative -based debt.
III. Debt Structuring Practices
a. Term: State law limits general obligation debt to 30 years in most
circumstances. The City shall not exceed 25 years in term of debt.
b. Term for Equipment: The City has a goal of paying for all capital
equipment with a useful life of five years or less from cash reserves or
annual operating budgets. State law does allow cities to issue debt (known
as equipment certificates or capital notes) with a term of ten years or the
useful life of the equipment if it is at least 10 years. The City would
prefer, within the bounds of levy limits, to fund capital equipment on a
pay-as-you-go basis. Capital equipment with a useful life greater than five
years may be financed with debt, but the bond term should not exceed ten
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years.
c. The City's collective debt shall amortize at least 50% of its principal
within 10 years.
d. The City shall typically issue debt with level principal and interest
payments.
e. The City shall have a call date (pre -payment date) of no longer than
10 years on longer term debt and 6 to 8 years on shorter -term debt.
IV. Debt Issuance Practices
a. Rating Agencies: The City utilizes Standard and Poor's for all of its debt
issuance of more than $1 million or longer than 3 years in term.
b. Method of Sale: The City shall use competitive bidding for all of its debt
unless the debt is so specialized in its nature that it will not attract more
than 2 bids.
c. Refunding:
i. Advance refunding bonds shall not be utilized unless the present
value savings of 4% to 5% of refunded principal is achieved and
unless the call date is within 4 years. The state law minimum is
3% of refunded principal. Bonds shall not be advance refunded if
there is a reasonable chance that revenues will be sufficient to pre-
pay the debt at the call date.
ii. Current refunding bonds shall be utilized when present value
savings of 3% of refunded principal is achieved or in concert with
other bond issues to save costs of issuance.
iii. Special assessment or revenue debt will not be refunded unless the
Finance Director determines that special assessments or other
sufficient revenues will not be collected soon enough to pay off the
debt fully at that call date.
d. Professional Services. The City shall use an outside bond attorney and an
independent financial advisor to structure the sale.
V. Debt Management Practices
a. Investment of bond proceeds. The City shall follow the same investment
guidelines when investing debt proceeds as stated in the City's investment
policy.
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b. Disclosure: The City shall comply with SEC rule 15(c)2(12) on primary
and continuing disclosure. Continuing disclosure reports shall be filed no
later than 180 days after receipt of the City's annual financial report.
c. Arbitrage Rebate: The City shall complete an arbitrage rebate report for
each issue no less than every five years after its date of issuance.
VI. Post Issuance Debt Compliance
The Finance Director of the City is designated as the City's and City's EDA agent who is
responsible for post -issuance compliance of these obligations. Some of examples of this
are tax-exempt obligations, Build America Bonds, Recovery Zone Development Bonds
and various "Tax Credit" Bonds. In addition, this policy shall apply to the obligations
mentioned above as well as bonds, notes, loans, lease purchase contracts, lines of credit,
commercial paper or any other form of debt that is subject to compliance.
The Finance Director shall assemble all relevant documentation, records and activities
required to ensure post -issuance debt compliance as further detailed in corresponding
procedures (the "Post -Issuance Debt Compliance Procedures"). At a minimum, the Post -
Issuance Debt Compliance Procedures for each qualifying obligation will address the
following:
1. General post -issuance compliance;
2. Proper and timely use of obligation proceeds and obligation -financed property;
3. Arbitrage yield restriction and rebate;
4. Timely filings and other general requirements;
5. Additional undertakings or activities that support points 1 through 4 above;
6. Maintenance of proper records related to the obligations and the investment of
proceeds of obligations;
7. Other requirements that become necessary in the future.
The Finance Director shall apply the Post -Issuance Debt Compliance Procedures to each
qualifying obligation and maintain a record of the results. Further, the Finance Director
will ensure that the Post -Issuance Debt Compliance Policy and Procedures are updated on
a regular and as needed basis.
The Finance Director or any other .individuals responsible for assisting the Finance
Director in maintaining records needed to ensure post -issuance debt compliance, are
authorized to expend funds as needed to attend training or secure use of other educational
resources for ensuring compliance such as consulting, publications, and compliance
assistance.
Most of the provisions of this Post -Issuance Debt Compliance Policy are not applicable
to taxable governmental obligations unless there is a reasonable possibility that the City
may refund their taxable governmental obligation, in whole or in part, with the proceeds
of a tax-exempt governmental obligation. If this refunding possibility exists, then the
Finance Director shall treat the taxable governmental obligation as if such issue were an
issue of tax-exempt governmental obligations and comply with the requirements of this
Post -Issuance Debt Compliance Policy.
Private Activity Bonds
The City may issue tax-exempt obligations that are "private activity" bonds because
either (1) the bonds finance a facility that is owned by the City but used by one or more
qualified 501(c)(3) organizations, or (2) the bonds are so-called "conduit bonds", where
the proceeds are loaned to a qualified 501(c)(3) organization or another private entity that
finances activities eligible for tax-exempt financing under federal law (such as certain
manufacturing projects and certain affordable housing projects). Prior to the issuance of
either of these types of bonds, the Finance Director shall take steps necessary to ensure
that such obligations will remain in compliance with the requirements of this Post -
Issuance Debt Compliance Policy.
In a case where compliance activities are reasonably within the control of a private party
(i.e., a 501(c)(3) organization or conduit borrower), the Finance Director may determine
that all or some portion of compliance responsibilities described in this Post -Issuance
Debt Compliance Policy shall be assigned to the relevant party. In the case of conduit
bonds, the conduit borrower will be assigned all compliance responsibilities other than
those required to be undertaken by the City under federal law. In a case where the
Finance Director is concerned about the compliance ability of a private party, the Finance
Director may require that a trustee or other independent third party be retained to assist
with record keeping for the obligation and/or that the trustee or such third party be
responsible for all or some portion of the compliance responsibilities.
The Finance Director is additionally authorized to seek the advice, as necessary, of bond
counsel and/or its financial advisor to ensure the City is in compliance with this Post -
Issuance Debt Compliance Policy.
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ANNUAL MEASUREMENT TO DEBT POLICIES
Debt Limit as of December 31, 2011
Amount
Percent of
Market Value
Maximum Debt Limit Allowed by State Law
(Based on Market Value)
$100,504,254
3.0%
ctual Outstanding Debt
$ 13,585,258
0.4%
Available Debt
$86,918,996
2.6%
Debt Limit: As of 12-31-11, the City's debt limit was $100,504,254 (based on market
value) and the debt outstanding that is subject to the limit was $13,585,258. Direct debt
as a percentage of the City's taxable market value is 0.4% as of 12-31-11.
uirect cent per capita is -�J zsn as of i z -.j i -i i.
Amount of City's Property Tax Levy Dedicated to Debt Service
(Principal & Interest)
2012
2011
Total Levy $10,153,690
$10,2671390
Maximum Allowed Per Policy $3,046,107 30%
$31080,217 30%
Actual Amount $1,719,190 17%
1 $1091190 18%
The amount of the City's property tax levy dedicated to debt service (principal and
interest) is 17% of the total tax levy (2012 levy).
• The City currently has no outstanding variable rate debt. The policy requires that
50% of all debt be amortized within 10 years.
• As of December 31, 2011, 83% of the City's debt will be amortized within 10
years.
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