HomeMy WebLinkAbout04. Follow-up discussion from June 6, 2017 and June 20, 2017 meetings on proposed new Board Policy No. BP 029 – Debt Management and Continuing Disclosure 4■
Central Contra Costa Sanitary [district
BOAR[ OF DIRECTORS
-S
POSITION PAPER
Board Meeting Date: JULY 20, 2 017
Subject: ADOPT NEVA BOARD POLICY NO. BP 929 - DEBT MANAGEMENT AND
CONTINUING DISCLOSURE
Submitted By: Initiating Dept.Xiv.:
Phil Leiber Administration
Director of Finance and Administration Finance
REVIEWED AND RECOMMENDED FOR BOARD ACTION:
Ann Sasaki, Deputy General manager
Roger S. Bailey
General Manager
ISSUE: The District does not currently have a debt policy. With a capital spending
program that is projected to increase significantly from the current level, and a financial
plan that contemplates the use of debt in the coming decade, the adoption of a debt
policy that addresses the permissible uses, types, and parameters of debt is advised.
BACKGROUND: During 2016, the Board directed the General Manager to develop a
debt policy, and the adoption of a debt policy was included as a Fiscal Year 2016-17
goal in the current two-year Strategic Plan. Additionally, California. Senate Bill No.
1029, approved by the Governor September 12, 2016, requires that any issuer of state
or local government debt shall submit a report on the issuance of any debt to the
California Debt and Investment Advisory Commission (CDIAC), shall provide certain
ongoing reporting related to such debt, and shall have adopted a debt policy concerning
any debt issuance. The table below references where the five elements required by
SB 1929 are addressed in the draft policy.
SB 1029 Requirement Location in Central San Polio
1. The purposes for which the debt V11. STANDARDS FOR USE OF DEBT
proceeds may be used. FINANCING
A. Use and Timing of Debt
VIII. FINANCING CRITERIA
2. The types of debt that may be issued. X TYPES OF DEBT
3. The relationship of the debt to, and IV. INTEGRATION WITH OTHER
integration with, the issuer's capital FINANCIAL POLICIES AND
improvement program or budget, if DOCUMENTS
applicable.
Page 1 of 4
POSITION PAPER
Board Meeting Date: JULY 20, 2017
Subject." ADOPT NEW BOARD POLICY NO. BP 029 - DEBT MANAGEMENT AND
CONTINUING DISCLOSURE
4. Policy goals related to the issuer's 11. POLICY OBJECTIVES
planning goals and objectives.
VII. STANDARDS FOR USE OF DEBT
FINANCING
A. Use and Timing of Debt
5. The internal control procedures that the 111. SCOPE OF DELEGATION AND
issuer has implemented, or will AUTHORITY
implement, to ensure that the proceeds of
the proposed debt issuance will be IV. ROLES AND RESPONSIBILITIES
directed to the intended use.
V. ETHICS AND CONFLICTS OF
INTEREST
VII. STANDARDS FOR USE OF DEBT
FINANCING
C. Ongoing Debt Administration
and Internal Controls
XIV. MARKET RELATIONSHIPS
C. Continuing Disclosure
Central San staff drafted the attached debt policy using the following process:
1 . Obtained several debt policies from other agencies and localities that financial
advisor PFM had assisted in developing which met the requirements of SB1 029;
2. Reviewed, and integrated provisions of the various policies to arrive at a
comprehensive draft;
3. Addressed specific matters of interest and concern to Central San;
4. Obtained feedback from Central San staff;
5. Split the draft into a policy level document containing higher-level policy related
guidance (Attachment 2) and a more detailed procedures-level document
(Attachment 3) that provides more guidance on specific issues;
6. Obtained feedback on the draft from PFM and another financial advisor, Sperry
Capital;
7. Obtained initial feedback from the Administration Committee of the Board on June
61 2017, and made edits accordingly;
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Page 2 of 4
POSITION PAPER
Board Meeting Date: J U LY 20, 2017
Subject: ADOPT NEW BOARD POLICY NO. BP 029 - DEBT MANAGEMENT AND
CONTINUING DISCLOSURE
8. Obtained additional feedback from the Administration Committee of the Board on
June 20, 2017, and made edits accordingly related to the following matters (which
are discussed in detail in Attachment 1, and which are highlighted in red-text in
attachments 2 and 3);
* Specified a debt service coverage target of 2.Ox in the policy;
* Specified a limit of 60% debt for funding the capital program over a 10-year
period in the policy; and
* Specified in the policy that the weighted average maturity of bonds should not
exceed 100% of the weighted average useful life of the capital assets being
financed.
ALTERNATIVES/COI ISIDE RATIONS: Alternatives related to a debt policy include:
1 . Level of detail contained in the document, from high-level policy to specific detailed
provisions. Various agencies have debt policies that cover this range.
2. The overall risk stance taken with respect to the use and types of debt, from
conservative to more aggressive.
3. The extent to which the document proscribes ongoing Board reporting,
transparency, and internal controls related to debt.
With respect to these considerations, the current proposed debt policy:
1 . Provides a moderate level of specificity, with additional detail contained in a General
Manager maintained administrative procedure.
2. Is conservative in that it:
• Contemplated targeting the highest possible credit ratings consistent with Central
San's debt management objectives; and
• Specifies that the amount of debt to be issued in a specified ten-year period will
be limited, and that rate revenues will need to fund at least the amount of
collection system replacement program spending.
3. Specifies Board approval of each debt transaction, provides transparency regarding
the contemplated use of debt in the financial plan, ongoing reporting regarding debt,
and the maintenance of internal controls regarding debt administration.
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POSITION PAPER
Board Meeting Date: JULY 20, 2017
Subject: ADOPT NEW BOARD POLICY NO. BP 029 - DEBT MANAGEMENT AND
CONTINUING DISCLOSURE
4. Specifies a minimum debt service coverage target of 2.0x; a limit of 60% of debt
financing of the capital program over a ten-year period, and specifies that the
weighted average maturity of bonds should not exceed 100% of the weighted
average useful life of the capital assets being financed.
FINANCIAL IMPACTS: The adoption of a debt policy does not have an immediate
financial impact, but the content of the policy governs any subsequent debt issuances.
The issuance of debt would have financial impacts related to the need to pay principal
and interest and the funding ratio for capital improvement program. A debt policy
would provide guidance on matters such as the type of debt that can be issued, the
allowable term, allowable purposes for use of debt proceeds, and other administrative
matters related to the debt.
COMMITTEE RECOMMENDATION: On June 6, 2017 the Administration Committee
conducted an initial review of the draft Debt Policy and requested certain additional
information including references to the sections of the policy that were specified by law
or regulation. On June 20, 2017, the Administration Committee conducted a second
review of the draft Debt Policy and requested that three matters be addressed in the
policy rather than just the Administrative Procedure, including a target debt service
coverage ratio, a limit on the amount of the capital budget to be funded over a ten-year
period, and a limitation on the duration of the bonds as compared to the expected
useful lives of the assets being financed. The Administration Committee reviewed the
revised draft reflecting these amendments on July 11, 2017 and recommend Board
approval.
RECOMMENDED BOARD ACTION: Adopt new Board Policy No. BP 029 - Debt
Management and Continuing Disclosure.
Attached Supporting Document:
1. Debt Policy Memorandum—Appendix A (additional changes after June 20, 2017 Administration
Committee Meeting
2. BP 029-Debt Management and Continuing Disclosure
3. AP 029-Debt Administrative Procedure
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Debt Policy Memorandum
Appendix A
Additional Changes After June 20, 2017 Administration committee Meetin
As a result of feedback received on June 20, 2017, staff has reflected in the policy certain
financial policies related to debt, including:
1. Specify in the policy a Debt Service Coverage target of 2.0x. Debt service coverage is the
net revenue after expenses available to pay debt service payments in a given year. This
is the level of coverage modeled in the current ten year financial projection as a minimum
targeted coverage level. Projected coverage ranges from 8.9x in FY 2017-18 gradually
declining and stabilizing at about 2.2x towards the end of the ten-year projection.
Adopting a 2.0x coverage policy target is consistent with the Moody's rating criteria for a
Aaa rated entity, which ascribes 15% of the overall rating to this measure.
Financia[Strength(35%) Aaa Aa A Baa Ba B and Betow
Annual Debt Service Coverage(15%) >2.00x 2.00x?n> 1.70x>n> 125x:n> 1.00x?!n> :5 C 1OX
1.70x 1.25x 1.000 0.70x
Moody's also uses 5% of the overall rating based on the legally covenanted
minimum debt service coverage level, as noted below.
Legal Provisions(10%) Aaa Aa A Baa Ba B and BeEow
Rate Covenant(S%) >1.:3ox 1.3ox-e n> 1.2ox�n>1.10x 1.10x;�n>1.00x {1.00X
1.2Dx
Source: htttps://www.amwa.net/sites/default/files/moodys-rfc-municipalutiIitybonds.pdf
2. Another measure of the extent to which debt is used is the percentage of the capital plan
that is financed with debt over a period of time. Central San included in the
Administrative Procedure a limit of 00% debt financing of the capital plan over a ten-year
period. This limit is now included in the Debt Policy. In the current financial plan, the
maximum ten-year debt issuance is 50% for the period from FY 2018-19 to FY 2027-28.
The higher limit of 00% leaves some capacity ($110,000,000 of additional capacity) in the
event other necessary projects are identified that are most optimally financed through
debt. A related, and more commonly used measure of the extent of debt financing used
by an organization is the measure of debt to total capitalization (assets). This would
measure the use of debt from the inception of the organization. Central San's debt to
capitalization would be well below the 00% limit due to relatively limited use of debt to
the present time (presently debt to capitalization is 5%). over a ten-year period, debt to
capitalization is projected to reach 38% in FY 2024.
Adoption ofaDebt Policy
July 11. 2O17
Page 2of2
3. Section l47ofthe Internal Revenue code specifies that the weighted average maturity of
the tax exempt bonds should not exceed l2DY6ofthe weighted average useful life ofthe
capital assets being financed, excluding land. The original draft ofthe proposed Debt
Policy specified this limit. During discussion of this topic at the Administration
Committee., members expressed a desire for a more conservative debt term, specifically,
alOO96limit rather than aI2O96limit. Accordingly, vvehave included inthe policy alOO96
limit. Given the anticipated long life of the assets that Central San would be financing
(treatment plant assets with aforty-yeer life), this reduction from 12096to l00% is not
anticipated to be problematic or even a binding constraint that would change the
anticipated rate trajectory )nthe current ten-year financial plan (which anticipated the
issuance ofdebt with athirty year termn).
Central Contra Costa
Number: BP 029 Sanitary District
Related Admin. Procedure AP 029 r
Authority: Board of Directors �
Effective: , 2017
Revised:
Reviewed:
Initiating Dept./Div.: Administration/Finance
BOARD POLICY
DEBT MANAGEMENT AND CONTINUING DISCLOSURE
I. PURPOSE
The Government Finance Officers Association (GFOA) recommends' as a best
management practice that state and local governments adopt comprehensive
written debt management policies to improve the quality of decisions, articulate
policy goals, provide guidelines for the structure of debt issuance, and
demonstrate a commitment to long-term capital financial planning. Additionally,
California SB 1029 requires public agency issuers of debt to adopt
comprehensive written debt management policies pursuant to the GFOA
recommendation, and to provide reports on any issuance prior to and after the
debt sale, and on an ongoing basis, to the California Debt and Investment
Advisory Commission (CDIAC).2
The purpose of this Debt Management and Continuing Disclosure Policy (Debt Policy) is
to organize and formalize debt issuance and management related policies and
procedures for the Central Contra Costa Sanitary District (District). This Debt Policy is
applicable to both the District and the Central Contra Costa Sanitary District Facilities
Financing Authority. This Debt Policy is intended to comply with Government Code
Section 8855(1). General Manager maintained procedures amplify and provide
additional guidance to staff related to the Debt Policy. The debt policies and procedures
of the District are subject to and limited by applicable provisions of State and Federal
law.
L
1 In their publication "Best Practice Debt Management Policy"
2 https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201520160SB1029
Number: BP 029
DEBT MANAGEMENT AND CONTINUING DISCLOSURE
Page 2 of 9
IL POLICY OBJECTIVES
The primary objectives of the District's debt and financing related activities are the
following:
• Maintain cost-effective access to the capital markets through prudent
fiscal management policies and practices;
• Specify parameters related to the prudent use of debt in the context of The
District's rates and financial planning;
0 Ensure debt proceeds are expenditures for permissible uses as
defined in this policy, and in accordance with bond covenants and
other applicable requirements;
• Minimize debt service commitments through effective planning and cash
management;
• Ensure the District is compliant with all applicable federal and state
securities laws;
• Protect the District's creditworthiness and achieve the highest practical
credit ratings; and
• Maintain the District's sound financial position.
Ill. SCOPE AND DELEGATION OF AUTHORITY
This Debt Policy will govern the issuance and management of all debt funded through
the capital markets, including the selection and management of related financial and
advisory services and products, and the investment of bond proceeds.
Overall policy direction of this Debt Policy will be provided by the District's Board of
Directors (Board). Responsibility for implementation of the Debt Policy and day-to-day
responsibility for structuring, implementing, and managing the District's debt and finance
program will lie with the General Manager or his/her designee (Director of Finance and
Administration). The Board's adoption of the District's Annual Budget and Capital
Improvement Program (CIP), or review of the financial plan, does not, in and of itself,
constitute authorization for debt issuance for any capital projects. This Debt Policy
requires that the Board specifically authorize each debt financing.
While adherence to this Debt Policy is required in applicable circumstances, the Board
recognizes that changes in the capital markets, District programs, and other unforeseen
circumstances may from time to time produce situations that are not covered by the
Debt Policy and will require modifications or exceptions to achieve policy goals. In these
cases, management flexibility is appropriate, provided specific authorization from the
Board is obtained.
Number: BP 029
DEBT MANAGEMENT AND CONTINUING DISCLOSURE
Page 3 of 9
IV. BOLES AND RESPONSIBILITIES
General Manager and/or Deputy General Manager— Provides oversight of
debt program and recommendations on debt to the Board.
■ Director of Finance and Administration — Has primary responsibility for
debt issuance recommendations, financing transaction execution,
oversight of bond proceeds expenditures, and ongoing debt management.
Board of Directors — Sets debt policy and approves individual
transactions.
V. ETHICS AND CONFLICTS OF INTEREST
Staff and Board involved in the debt management program will not engage in any
personal business activities that could conflict with proper and lawful execution of
securing capital financing and are to comply with the District's Conflict of Interest
Code.
VI. INTEGRATION WITH OTHER FINANCIAL POLICIES AND DOCUMENTS
The District is committed to long-term capital and financial planning, maintaining
appropriate reserve levels and employing prudent practices in governance,
management and budget administration. Policies related to these topics are adopted
separately but affect this Debt Policy in the context of the overall long-term financial
plan. The Board shall be presented with the results of the long-term financial plan in
contemplation of any proposed rate adjustment where the capital budget, financial
policies, proposed debt issuances and resulting debt service are presented as elements
contributing to the calculation of overall projected customer rates.
VII. STANDARDS FOR USE OF DEBT FINANCING
In financial planning, the District will evaluate the use of various alternatives including
current year funding of capital projects through rates, various forms of debt financing,
use of reserves, and inter-fund borrowing. The District will utilize the most
advantageous financing alternative balancing the goals of long-term cost minimization,
risk exposure, and compliance with generally accepted ratemaking principles. The
.District's debt management program will consider debt issuance where public policy,
equity, general ratemaking principles, economic efficiency and compliance with long-
term financial planning parameters favor financing over cash funding.
A. Use and Timing of Debt
The District 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 District's public purposes and are
Number: BP 029
DEBT MANAGEMENT AND CONTINUING DISCLOSURE
Page 4 of 9
consistent with the rate and financial planning parameters specified in the
District's long-term financial plans. The Board shall be presented with a long-term
financial plan in each instance Sewer Service Charge rates are to be adjusted.
1 . The long-term financial plans will specify an expected debt issuance
amount over a decade or more long-term planning horizon.
2. The District shall ensure that rate revenues fund, at a minimum, the
running ten-year average of the collection system replacement program of
the CIP.
a. Not more than 60% of the capital program shall be financed with debt.
3. All projects in the CIP are eligible to use debt financing, so long as the
minimum rate revenues are generated as described in A.2 of this section.
This policy does not contemplate the use of debt financing to fund ongoing
operating & maintenance expenditures; exceptions beyond a de-minimis amount
would require approval of the Board.
With respect to debt repayment and amortization, the debt repayment period
should be structured so that the weighted average maturity of the debt does not
exceed 100% of the expected average useful life of the project being financed.
B. Credit Quality
All District debt management activities for new debt issuances will be conducted
in a manner conducive to receiving the highest credit ratings possible consistent
with the District's debt management objectives.
As debt service coverage is a key ratings consideration, the District shall target a
debt service coverage level of at least 2-Ox or greater for financial planning and
ratemaking purposes.
C. Ongoing Debt Administration and Internal Controls
The District will maintain all debt-related records according to the District's
Retention Policy. The District will maintain internal controls to ensure
compliance with the Debt Policy (including use of bond proceeds for
purposes specified in the applicable Bond Official Statements and in
compliance with this debt policy), all debt covenants and any applicable
requirements of Federal and State law, including but not limited to the
following: initial bond disclosure, continuing disclosure, tax-exemption,
post-issuance compliance, investment of bond proceeds (including, for
example, any continuing disclosure obligations under Securities and
Exchange Commission (SEC) Rule 15c2-12, and tax covenants, and
related federal tax compliance requirements such as arbitrage restrictions
and rebate requirements), and annual transparency reporting to CDIAC.
These internal controls are further specified in the related Debt
Management and Continuing Disclosure (AP 029).
Number: BP 029
DEBT MANAGEMENT AND CONTINUING DISCLOSURE
Page 5 of 9
D. Rebate Policy and System
The District will develop a system of reporting interest earnings that
relates to and complies with Internal Revenue Code requirements relating
to rebate, yield limits and arbitrage. The District will accurately account for
all interest earnings in debt-related funds to ensure that the District is
compliant with all debt covenants and with state and federal laws. The
District will invest funds in accordance with the investment parameters set
forth in each respective bond indenture, and as permitted by the District's
Statement of Investment Policy (BP 005).
VIII. FINANCING CRITERIA
When District staff determines the use of debt is appropriate, staff shall provide a report
to the Board that describes the intended use of the financing proceeds (funding for new
projects or to refund existing bonds), and recommends a specific debt type to include
duration, type, interest rate characteristics, call features, credit enhancement or financial
derivatives to be used in the transaction. For refunding transactions, a comprehensive
report on the debt to be redeemed, the replacement debt, and the benefits of the
transaction shall be provided.
IX. TERMS AND CONDITIONS OF DEBT
The District will establish all terms and conditions relating to the issuance of debt, and
will control, manage, and invest all debt proceeds. The District will specify to the Board
proposed debt terms, coupon structure, debt service structure, redemption features, any
use of capitalized interest, and lien structure.
X. TYPES OF DEBT
The following types of debt are allowable under this Debt Policy, subject to applicable
law, and the District's statutory authority to issue debt:
0 General obligation bonds
0 Commercial paper
• Bond or grant anticipation notes
0 Lease revenue bonds, certificates of participation and lease-purchase
transactions
• Other revenue bonds, including private placement obligations
• Tax and revenue anticipation notes
• Land-secured financings, such as special tax revenue bonds issued under
the Mello-Roos Community Facilities Act of 1982, as amended, and
limited obligation bonds issued under applicable assessment statutes
• Refunding Obligations
• State Revolving Fund Loans
• Lines of Credit
Number: BP 029
DEBT MANAGEMENT AND CONTINUING DISCLOSURE
Page 6 of 9
• Letters of Credit
• The Board 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.
X1, CREDIT ENHANCEMENTS.
The District may consider the use of credit enhancement on a case-by-case basis,
evaluating the economic benefit versus cost for each case. Only when a clearly
demonstrable savings or other measurable advantages can be shown will enhancement
be considered.
X11. REFINANCING OUTSTANDING DEBT
The District will periodically evaluate outstanding bond issues for refunding
opportunities and will bring to the attention of the Board those opportunities that are in
the District's interest. Reports to the Board on potential refunding shall describe
anticipated savings and the structure of refunding and refunded debt.
X111. METHODS OF ISSUANCE
District bonds may be sold on a competitive or negotiated basis (including private
placement). A recommendation regarding the proposed use of either method shall be
prepared by staff and provided to the Board prior to or concurrent with the proposed
issuance.
XIV. MARKET RELATIONSHIPS
A. Rating Agencies and Investors
The General Manager and designees (Deputy General Manager and Director of
Finance and Administration) will be responsible for maintaining the District's
relationships with rating agencies, which will typically include two or more of the
nationally recognized statistical rating agencies.
B. Board Communication
The General Manager will make available to the Board any ratings report or other
relevant feedback provided from rating agencies and/or investors regarding the
District's financial strengths and weaknesses and recommendations.for
addressing any weaknesses.
C. Continuing Disclosure
The District will remain in compliance with SEC Rule 15c2-12 addressing
continuing disclosure obligations. The District will also comply with state
reporting requirements specified in SB 1029, which require initial and
ongoing debt reporting requirements for California public agencies.
Number: BP 029
DEBT MANAGEMENT AND CONTINUING DISCLOSURE
Page 7 of 9
D. Rebate Reporting
The use and investment of bond proceeds shall be monitored to ensure
compliance with arbitrage restrictions.
E. Other Jurisdictions
From time to time, the District may issue bonds to fund projects that provide a
benefit to other public entities, (e.g. City of Concord). The District will conduct
such analyses as deemed necessary to assure adequate cost recovery for such
funding and to mitigate risks to the District.
The District may participate in a joint powers authority with one or more other
eligible entities pursuant to Section 6500 of the California Government Code if
deemed advantageous and appropriate and approved by the Board.
XV. CONSULTANTS
A. Selection of Financing Team Members
The General Manager or designee will make recommendations for all
financing team members, with the Board providing final approval.
Financing team members may include a financial advisor, bond counsel,
disclosure counsel (which may be the same firm as bond counsel), and
underwriter. Selection of those financing team members shall be 'in
accordance with Professional Service and Consultant provisions of the
District's procurement policies, and consistent with Chapter 2.36
"Purchasing and Materials Policy" of the District Code. In the event of a
competitive bond sale, the District's debt will be offered to the underwriter
providing the most cost advantageous proposal to the District.
B. Financial Advisor
The District may utilize a financial advisor to assist in its debt issuance
and debt administration processes as is deemed prudent and necessary
by management and in compliance with Municipal Securities Rulemaking
Board (MSRB) regulations.
C. Bond Counsel
District debt will include a written opinion by legal counsel affirming that
the District is authorized to issue the proposed debt and that the District
has met all constitutional and statutory requirements necessary for
issuance and a determination of the proposed debt's federal income tax
status. The approving opinion and other documents relating to the
issuance of debt will be prepared by counsel with extensive experience in
public finance and tax issues.
Number: BP 029
DEBT MANAGEMENT AND CONTINUING DISCLOSURE
Page 8 of 9
D. Disclosure Counsel
The District may utilize a separate firm to serve as disclosure counsel as it
deems necessary. If cost effective, bond counsel may also serve as disclosure
counsel.
E. Underwriter
The District will have the right to select a senior manager for a proposed
negotiated sale, as well as co-managers and selling group members, as
appropriate.
F. Conflict of Interest Disclosure by Financing-Team Members
All financing team members will be required to provide full and complete
disclosure, relative to agreements with other financing team members and
outside parties. The extent of disclosure may vary depending on the
nature of the transaction. However, in general terms, no agreements will
be permitted which could compromise the firm's ability to provide
independent advice that is solely in the District's interests (to the extent
the firm's role involves a duty to do so) or which could reasonably be
perceived as a conflict of interest.
XVI. INITIAL AND CONTINUING DISCLOSURE COMPLIANCE
A. Disclosure Coordinator and Overall Reguirements for Initial and continuing
Disclosure
The Director of Finance and Administration (or as designated, the Finance
Manager) for the District shall be the disclosure coordinator of the District
(Disclosure Coordinator). The Disclosure Coordinator shall perform the following
functions:
• Ensure that any Official Statement meets appropriate standards and is
approved by the Board as required.
• Ensure that initial and continuing disclosure obligations undertaken
by the District related to each debt issuance are met, including
State of California requirements, and MSRB requirements that the
District commits to undertake in the Continuing Disclosure
Certificate or Agreement over the life of the bonds to investors.
0 Initial Disclosure requirements include preparation of the
Bond Official statement and reports on the issuance to the
CDIAC.
0 Ongoing disclosure requirements include annual reports with
the MSRB Electronic Municipal Market Access (EMMA)
system and the CDIAC.
Number: BP 029
DEBT MANAGEMENT AND CONTINUING DISCLOSURE
Page 9 of 9
XVII. EXCEPTIONS
In the event there are any deviations or exceptions from the Debt Policy when a certain
bond issue is structured, those exceptions will be discussed in the staff reports when
the bond issue is agendized for Board consideration.
XVIII. POLICY CONSIDERATION
This policy shall be reviewed on a bi-annual basis. Any changes must be approved by
the Board after review by the Administration Committee, as well as the individual(s)
charged with maintaining internal controls.
[0r19' incl Retained by the Secretary of the District]
central Contra costa
Number: AP 029 Sanitary District
Related Board Policy: BP 029
Authority:
Effective: ) 2017
Revised: www.centralsan.org
Reviewed:
Initiating Dept/Div: Administration/Finance
Date Signed:
Phil Leiber, Director of Finance& Administration
Roger S. Bailey, General Manager
ADMINISTRATIVE PROCEDURE
DEBT MANAGEMENT AND CONTINUING DISCLOSURE
(Contains Board Policy with Procedures shown in italicized 10 pt text)
I. INTRODUCTION AND PURPOSE
The Government Finance Officers Association (GFOA) recommends' as a best
management practice that state and local governments adopt comprehensive written
debt management policies to improve the quality of decisions, articulate policy goals,
provide guidelines for the structure of debt issuance, and demonstrate a commitment to
long-term capital financial planning. Additionally, California SB 1029 requires public
agency issuers of debt to adopt comprehensive written debt management policies
pursuant to the GFOA recommendation, and to provide reports on any issuance prior to
and after the debt sale, and on an ongoing basis to the California Debt and Investment
Advisory Commission (CDIAC).2
The purpose of the Board Policy BP 029 - Debt Management and Continuing Disclosure
Policy (Debt Policy) is to organize and formalize debt issuance and management
related policies and procedures for the Central Contra Costa Sanitary District (District).
This Debt Policy is applicable to both the District and the Central Contra Costa Sanitary
District Facilities Financing Authority. This Debt Policy is intended to comply with
Government Code Section 8855(1). General Manager maintained procedures amplify
and provide additional guidance to staff related to the Debt Policy. The debt policies and
procedures of the District are subject to and limited by applicable provisions of state and
federal law.
L
In their publication "Best Practice Debt Management Policy"
2 https://Ieginfo.leg islatu rexa.gov/f aces/bill N avCl ient.xhtm I?bil 1-id=201 5201 60SB 1029
Number: AP 029
DEBT MANAGEMENT AND CONTINUING DISCLOSURE
Page 2 of 17
Ill. DEBT POLICY OBJECTIVE
The primary objectives of the District's debt and financing related activities are the
following:
• Maintain cost-effective access to the capital markets through prudent fiscal
management policies and practices;
• Specify parameters related to the prudent use of debt in the context of Central
San's rates and financial planning;
0 Ensure debt proceeds are expenditures for permissible uses as defined in
this policy, and in accordance with bond covenants and other applicable
requirements;
• Minimize debt service commitments through effective planning and cash
management;
• Ensure the District is compliant with all applicable federal and state securities
laws;
• Protect the District's creditworthiness and achieve the highest practical credit
ratings; and
■ Maintain the District's sound financial position.
111111. SCOPE AND DELEGATION OF AUTHORITY
This Debt Policy will govern the issuance and management of all debt funded through
the capital markets, including the selection and management of related financial and
advisory services and products, and the investment of bond proceeds.
Overall policy direction of this Debt Policy will be provided by the District's Board of
Directors (Board). Responsibility for implementation of the Debt Policy and day-to-day
responsibility for structuring, implementing, and managing the District's debt and finance
program will lie with the General Manager or their designee (Director of Finance and
Administration). The Board's adoption of the District's Annual Budget and Capital
Improvement Program (CIP), or review of the financial plan, does not, in and of itself,
constitute authorization for debt issuance for any capital projects. This Debt Policy
requires that the Board specifically authorize each debt financing.
While adherence to this Debt Policy is required in applicable circumstances, the Board
recognizes that changes in the capital markets, utility programs, and other unforeseen
circumstances may from time to time produce situations that are not covered by the
Debt Policy and will require modifications or exceptions to achieve policy goals. In these
cases, management flexibility is appropriate, provided specific authorization from the
Board is obtained.
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IV. ROLES AND RESPONSIBILITIES
• General Manager and/or Deputy General Manager— Provides oversight of debt
program and recommendations on debt to the Board.
■ Director of Finance and Administration — Has primary responsibility for debt
issuance recommendations, financing transaction execution, oversight of bond
proceeds expenditures, and ongoing debt management.
• Provide for the issuance of Central San debt at the lowest possible cost and
risk;
• Determine the available debt capacity of Central San;
• Provide for the issuance of Central San debt at appropriate intervals and in
reasonable amounts as required to fund approved capital expenditures in
accordance with the Board reviewed financial plan;
Track and report on debt proceed usage to ensure that bond proceeds are
spent on and directed toward the intended use;
Recommend to the Board the method and manner of sale of Central San debt;
• Monitor opportunities to refund debt and recommend such refunding as
appropriate to reduce costs or to achieve other policy objectives;
• Comply with all Internal Revenue Service (IRS), Municipal Securities
Rulemaking Board(MSRB), and Securities and Exchange Commission (SEC)
rules and regulations governing the issuance of debt;
Maintain a current database with all outstanding Central San debt;
Provide for the timely payment of principal and interest on all Central San debt;
• Comply with all terms and conditions, and disclosure required by the legal
documents governing the debt issued;and
• In conjunction with other Central San management, maintain a financial plan to
evaluate the impact of capital program spending, operations and maintenance
costs, and debt service on rates and overall financial condition.
• Board of Directors — Sets debt policy and approves individual transactions.
• Approve and review debt policy not less than bi-annually;
• Review Central San's long-term financial plan in the context of rate setting
discussions; and
• Approve each debt issuance,
V. ETHICS AND CONFLICTS OF INTEREST
Staff and Board involved in the debt management program will not engage in any
personal business activities that could' conflict ►with proper and lawful execution of
securing capital financing and are to comply with the District's Conflict of Interest Code.
VI. INTEGRATION WITH OTHER FINANCIAL POLICIES AND DOCUMENTS
The District is committed to long-term capital and financial planning, maintaining
appropriate reserve levels and employing prudent practices in governance,
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management and budget administration. Policies related to these topics are adopted
separately but affect this Debt Policy in the context of the overall long term financial
plan. The Board shall be presented with the results of the long-term financial plan in
contemplation of any proposed rate adjustment where the capital budget, financial
policies, proposed debt issuances and resulting debt service are presented as elements
contributing to the calculation of overall projected customer rates.
• The District's multi-year Capital Improvement Program (CIP)sets priorities for projects to be
completed and funded over a ten-year horizon. The Capital Improvement Budget provides the
detailed cost for the first year of the ten-year plan.
The District's financial plan specifies how the costs of those projects, operating and other costs
are to be recovered from customers and other funding sources.
• The Reserve Policies (BP 017—Fiscal Reserves)set financial planning parameters related to
reserve levels for the operating expenses, Sewer Construction Fund, and emergency reserve.
This Debt Policy provides policy direction and limitations for proposed financings undertaken to
implement the CIP in the context of the financial plan. Debt issuance for capital projects should
be incorporated into the financial plan to be reviewed with the Board in the context of setting
customer rates and charges.
V111. STANDARDS FOR USE OF DEBT FINANCING
In financial planning, the District will evaluate the use of various alternatives including
current year funding of capital projects through rates, various forms of debt financing,
use of reserves, and inter-fund borrowing. The District will utilize the most
advantageous financing alternative balancing the goals of long-term cost minimization,
risk exposure, and compliance with generally accepted ratemaking principles. The
District's debt management program will consider debt issuance where public policy,
equity, general ratemaking principles, economic efficiency and compliance with long-
term financial planning parameters favor financing over cash funding.
A. Use and Timing of Debt
The District 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 District's public purposes and are
consistent with the rate and financial planning parameters specified in the
District's long-term financial plans. The Board shall be presented with a long-term
financial plan in each instance Sewer Service Charge rates are to be adjusted.
1. The long-term financial plans will specify an expected debt issuance amount
over a decade or more long-term planning horizon.
2. The District shall ensure that rate revenues fund, at a minimum, the running
ten-year average of the collection system replacement program of the CIP.
a. Not more than 60% of the capital program shall be financed with debt.
3. All projects in the CIP are eligible to use debt financing, so long as the
minimum rate revenues are generated as described in A.2 of this section.
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This policy does not contemplate the use of debt financing to fund ongoing operating
and maintenance expenditures; exceptions beyond a de-minimis amount would require
approval of the Board.
With respect to debt repayment and amortization, the debt repayment period should be
structured so that the weighted average maturity of the debt does not exceed 100% of
the expected average useful life of the project being financed.
0 Debt versus rate funding considerations on a planning basis include:
• Debt may be appropriately targeted to fund long-term, non-routine,
large scale projects.
Current revenues would be targeted to fund those projects where
replacement and reconstruction costs are regular and predictable,
including routine, ongoing programs, and for work for which
expenditures on a programmatic basis are relatively level year by year.
• The expected debt issuance amount in the financial plan shall provide
for a maximum of 60% debt funding of the ten-year Capital
Improvement Plan.
In this context, debt may also be appropriately utilized where increases
in annual capital spending would result in a rate increase that general
ratemaking principles, contractual or customer limitations would indicate
should be mitigated.
The debt repayment period should relate to the expected useful life of the
facilities or equipment being financed, and should coincide with the stream of
benefits provided by the projects being financed. When the District finances
capital projects by incurring debt, the debt repayment period should be
structured so that the weighted average maturity of the debt does not exceed
100% of the expected average useful life of the project being financed. This is
more conservative that the IRC requirement of 120%. however, as the District's
assets are long-lived, this is not anticipated to have a significant constraining
impact on the flexibility of reasonable amortization schedules selected.
Inherent in its long-term debt policies, the District recognizes that future
ratepayers will benefit from the capital investment and that it is appropriate that
they pay a share of the asset cost.
Long-term debt financing will not be used to fund operating costs beyond a de-
minimis amount acceptable according to tax-exempt debt regulations specified
by the Internal Revenue Code and District needs.
B. Credit Quality
All District debt management activities for new debt issuances will be conducted
in a manner conducive to receiving the highest credit ratings possible consistent
with the District's debt management objectives.
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As debt service coverage is a key ratings consideration, the District shall target a
debt service coverage level of at least 2.Ox or greater for financial planning and
ratemaking purposes.
The District will strive to maintain and improve the current credit ratings assigned to the District's
outstanding debt by the major credit rating agencies with due consideration for the financial
parameters considered by the rating agencies consistent with this rating including:
0 Debt Service Coverage Levels
0 Debt Ratio
0 Debt per Capita
C. Ongoing Debt Administration and Internal Controls
The District will maintain all debt-related records according to the District's
Retention Policy. The District will maintain internal controls to ensure compliance
with the Debt Policy (including use of bond proceeds for purposes specified in
the applicable Bond Official Statements and in compliance with this debt policy),
all debt covenants and any applicable requirements of state and federal law,
including but not limited to the following: initial bond disclosure, continuing
disclosure, tax-exemption, post-issuance compliance, investment of bond
proceeds (including, for example, any continuing disclosure obligations under
Securities and Exchange Commission (SEC) Rule 15c2-12, and tax covenants,
and related federal tax compliance requirements such as arbitrage restrictions
and rebate requirements), and annual transparency reporting to CDIAC.
The repository of Debt related records will include all official statements, bid documents,
ordinances, indentures, trustee reports, etc. for all District debt. The District will collect all
available documentation for outstanding debt and will maintain a standard procedure for archiving
transcripts for any new debt.
0 Whenever reasonably possible, proceeds of debt will be held by a third-parly
trustee and the District will submit written requisitions for such proceeds. The
District will submit a requisition only after obtaining the signature of the Director
of Finance and Administration. In those cases, where it is not reasonably
possible for the proceeds of debt to be held by a third-party trustee, the Director
of Finance and Administration shall retain records of all expenditures of
proceeds through the final payment date for the debt.
Accounting shall coordinate with Capital Projects and Planning and
Development Services to:
• Maintain records of the funding sources for capital spending, whether
rate funded, bond funded or any other source of funding in order to
track compliance with the "Use and Timing of Debt"provisions of the
Debt Policy, bond arbitrage rebate requirements, debt covenants, or
other use of proceeds commitments made in Bond Official Statements.
The District shall provide to the Board an accounting of the use of bond
proceeds when the funds have been fully spent. The District shall evaluate and
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perform ongoing compliance reporting as committed to for continuing
disclosures through EMMA, and with CDIAC as specified in Section XVI of this
document
D. Rebate Policy and System
The District will develop a system of reporting interest earnings that relates to
and complies with Internal Revenue Code requirements relating to rebate, yield
limits and arbitrage. The District will accurately account for all interest earnings in
debt-related funds to ensure that the District is in compliance with all debt
covenants and with state and federal laws. The District will invest funds in
accordance with the investment parameters set forth in each respective bond
indenture, and as permitted by the District's Statement of Investment Policy (ESP
005).
Will. FINANCING CRITERIA
When District staff determines the use of debt is appropriate, staff shall provide a report
to the Board that describes the intended use of the financing proceeds (funding for new
projects or to refund existing bonds), and recommends a specific debt type to include
duration, type, interest rate characteristics, call features, credit enhancement or financial
derivatives to be used in the transaction. For refunding transactions, a comprehensive
report on the debt to be redeemed, the replacement debt, and the benefits of the
transaction shall be provided.
The following criteria will be utilized to evaluate the type of debt to be issued.
A. Long-term debt financing will be used to finance eligible capital projects including the acquisition,
construction or major rehabilitation of capital facilities, when funding requirements cannot be met
with current revenues or cash reserves or the use of such funds would be contrary to ratemaking
principles. The proceeds derived from long-term borrowing will not be considered appropriate for
any recurring purpose such as current operating and maintenance expenditures.
B. Short-term Debt.- Short-term borrowing may be utilized for the temporary funding of operational
cash flow deficits or anticipated revenues, where anticipated revenues are defined as an assured
revenue source with the anticipated amount based on conservative estimates. The District will
determine and utilize the least costly method for short-term borrowing. The District may issue
short-term debt when there is a defined repayment source and amortization of principal.
C. Variable Rate Debt. To maintain a predictable debt service burden, the District will give
preference to debt that carries a fixed interest rate. Variable rate debt may be deemed
appropriate to diversify the District's debt portfolio, reduce interest costs, provide interim funding
for capital projects and improve the match of assets to liabilities.
o Variable Rate Debt Capacity. The District will maintain a conservative level of outstanding
unhedged variable rate debt not to exceed a maximum of a 20-30% variable rate
exposure, in addition to maintaining adequate safeguards against risk and managing the
variable revenue stream both as described below:
Adequate Safeguards Against Risk:Financing structure and budgetary safeguards are In
place to prevent adverse impacts from interest rate shifts; such structures could include,
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but are not limited to, interest rate swaps, interest rate caps and the matching of assets
and liabilities.
0 Variable Revenue Stream: The revenue stream for repayment is variable, and is
anticipated to move in the same direction as market-generated variable interest rates, or
the dedication of revenues allows capacity for variability.
0 As a Component to Synthetic Fixed Pate Debt: Variable rate bonds may be used in
conjunction with a financial strategy that results in synthetic fixed rate debt.
D. Financial Derivative Products. Financial Derivative Products will be considered appropriate in the
issuance or management of debt only in instances where it has been demonstrated that the
derivative product is expected to either provide a hedge that reduces the risk of fluctuations in
expense or revenue, or alternatively where the derivative product is expected to reduce total pro
project cost.
E. Refunding Financing. Refunding bonds are issued to retire all or a portion of an outstanding bond
issue. Refunding issuances can be used to achieve present-value savings on debt service or to
restructure the payment schedule, type of debt instrument used, or covenants of existing debt.
The District must analyze the refunding issue on a present-value basis to identify economic
effects before approval.
ix. TERMS AND CONDITIONS OF DEBT
The District will establish all terms and conditions relating to the issuance of debt, and
will control, manage, and invest all debt proceeds. The District will specify to the Board
proposed debt terms, coupon structure, debt service structure, redemption features, any
use of capitalized interest, and lien structure.
The following restrictions will be followed unless otherwise authorized by the District Board.
A. Term
All capital improvements financed through the issuance of debt will be financed for a period so
that the weighted average maturity of the debt will not exceed 120% of the expected average
useful life of the assets being financed.
B. Coupon Structure
Debt may include par, discount and premium. Discount and premium bonds must be
demonstrated to be advantageous relative to par bond structures. For variable rate debt, the
variable rate may be based on one of a number of commonly used interest rate indices and the
index will be determined at the time of pricing.
C. Debt Service Structure
Debt service will be structured primarily on a level debt service (combined annual principal and
interest) basis. Certain individual bond issues, such as refunding bonds, may have debt service
that is not level. However, on an aggregate basis, debt service should be structured primarily on a
level basis. Exceptions may be warranted in the context of the overall financial plan, and shall be
discussed with and approved by the Board of Directors.
D. Redemption Features
In order to preserve flexibility and refinancing opportunities, District debt will generally be issued
with call provisions no longer than 10 years from the anniversary date of the delivery of the debt.
The District may consider calls that are shorter than traditional andlor non-call debt when
warranted by market conditions and opportunities. For each transaction, the District will evaluate
the efficiency of call provision alternatives.
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E Capitalized Interest
Given the timing of the District's revenue stream, the use of capitalized interest for a limited
period of time may be used on occasion if justified. Additionally, certain types of financings may
require the use of capitalized interest from the issuance date until the District has constructive
uselbenefit of the financed project. Interest will not be funded(capitalized) beyond three (3)years
or a shorter period if further restricted by statute.
F. Lion Levels
Senior and junior liens for each revenue source will be utilized In a manner that will maximize the
most critical constraint, typically either cost or capacity, thus allowing for the most beneficial use
of the revenue source securing the bond.
X. TYPES OF DEBT
The following types of debt are allowable under this Debt Policy, subject to applicable
law, and the District's statutory authority to issue debt:
0 General obligation bonds
0 Commercial Paper
0 Bond or grant anticipation notes
0 Lease revenue bonds, certificates of participation and lease-purchase
transactions
0 Other revenue bonds, including private placement obligations
& Tax and revenue anticipation notes
a Land-secured financings, such as special tax revenue bonds issued under the
Mello-Roos Community Facilities Act of 1982, as amended, and limited obligation
bonds issued under applicable assessment statutes
0 Refunding Obligations
a State Revolving Fund Loans
0 Lines of Credit
0 Letters of Credit
0 The Board 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.
X1. CREDIT ENHANCEMENTS
The District may consider the use of credit enhancement on a case-by-case basis,
evaluating the economic benefit versus cost for each case. Only when a clearly
demonstrable savings or other measurable advantages can be shown will enhancement
be considered.
The District may purchase bond insurance when such purchase is deemed prudent and advantageous.
The predominant determination will be based on such insurance being less costly than the present value
of the difference in the interest on insured bonds versus uninsured bonds. With the District's current
"AAA"rating (as of 2017), bond insurance would not be necessary or cost effective.
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When required, a reserve fund will be funded from the proceeds of each series of bonds, subject to
federal tax regulations and in accordance with the requirements of credit enhancement providers and/or
rating agencies. The District may purchase reserve equivalents (i.e., the use of a reserve fund surety)
when such purchase is deemed prudent and advantageous. Such equivalents will be evaluated In
comparison to cash funding of reserves on a net present value basis.
The District may enter into a letter-of-credit agreement when such an agreement is deemed prudent and
advantageous. Letters of credit willenerally be provided only by those financial institutions with long-
term ratings in one of the two highest rating categories, and short-term ratings.
X1111. REFINANCING OUTSTANDING DEBT
The District will periodically evaluate outstanding bond issues for refunding
opportunities and will bring to the attention of the Board those opportunities that are in
the District's interest. Reports to the Board on potential refundings shall describe
anticipated savings and the structure of refunding and refunded debt.
The District will consider the following issues when evaluating possible refunding opportunities:
A. Debt Service Savings
The District has established a minimum savings threshold of three percent(3%) of the refunded
bond principal amount unless there are other compelling reasons for defeasance. The present
value savings will be net of all costs related to the refinancing.
B. Restructuring
The District will refund debt as opportunities are identified. Refundings may include restructuring
for purposes of achieving cost savings, mitigating irregular debt service payments, releasing
reserve funds, removing unduly restrictive bond covenants, termination of swaps or other factors
deemed necessary by the Board of Directors;
C. Term of Refunding Issues
The District will generally refund within the term of the originally issued debt. However, the District
may consider maturity extension when necessary to achieve a desired outcome, provided that
such extension is legally permissible. The District may also consider shortening the term of the
originally issued debt to achieve greater savings. The remaining useful life of the financed asset
and the concept of intergenerational equity be will given due consideration in formulating these
decisions.
D. Escrow Structuring
The District will utilize the least costly securities available in structuring refunding escrows. A
certificate from a 9
third-party agent, who is not a broker-dealer, is required stating that the
R
securities were procured through an arms-length, competitive bid process (in the case of open
market securities), that such securities were more cost effective than State and Local
Government Obligations (SLGS) (or in the event SLGS are not available, the prudent and
available alternative), and that the price paid for the securities was reasonable within federal
guidelines. Under no circumstances will an underwriter, agent or financial advisor sell escrow
securities to the District from its own account.
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E Arbitrage
The District will take all necessary steps to optimize escrows and to avoid negative arbitrage in its
refundings. Any resulting positive arbitrage will be rebated as necessary according to federal
guidelines.
X111. METHODS OF ISSUANCE
District bonds may be sold on a competitive or negotiated basis (including private
placement). A recommendation regarding the proposed use of either method shall be
prepared by staff and provided to the Board prior to or concurrent with the proposed
issuance.
The District will consider the following factors when determining the prudency of a competitive versus
negotiated sale.
A. Competitive Sale
In a competitive sale, the District's bonds will be awarded to the bidder providing the lowest true
interest cost as long as the bid adheres to the requirements set forth in the official notice of sale.
Conditions under which a competitive sale would be preferred are as follows.-
0 Bond prices are stable andlor demand is strong
0 Market timing and interest rate sensitivity are not critical to the pricing
0 There are no complex explanations required during marketing regarding the District's
projects, media coverage, political structure, political support, funding or credit quality
0 The bond type and structure are conventional
0 Bond insurance is included or pre-qualified(available)
0 Manageable transaction size
0 The bonds carry strong credit ratings
0 Issuer is well known to investors
B. Negotiated Sale
The District recognizes that some securities are best sold through negotiation under the following
conditions:
0 Bond prices are volatile
0 Demand is weak or supply of competing bonds is high
0 Market timing►is important, such as for refundings
0 The Bonds will carry lower credit ratings or are not rated
0 Issuer is not well known to investors
0 The bond type and/or structural features are unusual, such as for a forward delivery bond
sale, issuance of variable rate bonds, or where there is the use of derivative products
0 Bond insurance is not available
0 Early structuring and market participation by underwriters are desired
0 The par amount for the transaction is significantly larger than normal
0 Demand for the bonds by retail investors is expected to be high
C. Private Placement
The District may elect to privately place its debt under certain conditions. Such placement will
only be considered where a cost savings can be achieved by the District relative to other methods
of debt Issuance, or to enable the financing to be completed within a shorter timeframe.
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XIV. MARKET RELATIONSHIPS
A. Rating Agencies and Investors
The General Manager and designees (Deputy General Manager and Director of
Finance and Administration) will be responsible for maintaining the District's
relationships with rating agencies, which will typically include two or more of the
nationally recognized statistical rating agencies.
In addition to general communication, District designees may: (1) meet with credit analysts at
least once each fiscal year, or(2)prior to each competitive or negotiated sale, offer conference
calls with agency analysts in connection with the planned sale.
B. Board Communication
The General Manager will make available to the Board any ratings report or other
relevant feedback provided from rating agencies and/or investors regarding the
District's financial strengths and weaknesses and recommendations for
addressing any weaknesses.
C. Continuinq Disclosure
The District will remain in compliance with SEC Rule 15c2-12 addressing
continuing disclosure obligations. The District will also comply with state reporting
requirements specified in SB 1029, which require initial and ongoing debt
reporting requirements for California public agencies.
D. Rebate Reporting
The use and investment of bond proceeds shall be monitored to ensure
compliance with arbitrage restrictions.
Existing regulations require that issuers calculate rebate liabilities related to any bond issues, with
rebate paid every five years and as otherwise required by applicable provisions of the Internal
Revenue Code and regulations. The Director of Finance and Administration will ensure that
proceeds and investments are tracked in a manner that facilitates accurate, complete calculation,
and timely rebate payments, if necessary.
E. Other Jurisdictions
From time to time, the District may issue bonds to fund projects that provide a
benefit to other public entities (e.g. City of Concord). The District will conduct
such analyses as deemed necessary to assure adequate cost recovery for such
funding and to mitigate risks to the District.
The District may participate in a joint powers authority with one or more other
eligible entities pursuant to Section 6500 of the California Government Code if
deemed advantageous and appropriate and approved by the Board.
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XV. CONSULTANTS
A. Selection of Financing Team Members
The General Manager or designee will make recommendations for all financing
team members, with the Board providing final approval. Financing team
members may include a financial advisor, bond counsel, disclosure counsel
(which may be the same firm as bond counsel), and underwriter. Selection of
those financing team members shall be in accordance with Professional Service
and Consultant provisions of the District's procurement policies, and consistent
with Chapter 2.36 "Purchasing and Materials Policy" of the District Code. In the
event of a competitive bond sale, the District's debt will be offered to the
underwriter providing the most cost advantageous proposal to the District.
B. Financial Advisor
The District may utilize a financial advisor to assist in its debt issuance and debt
administration processes as is deemed prudent and necessary by management
and in compliance with Municipal Securities Rulemaking Board (MSRB)
regulations.
Financial advisory services provided to the District may include, but will not be limited to the
following:
0 Evaluation of risks and opportunities associated with debt Issuance
0 Monitoring market opportunities
0 Evaluation of proposals submitted to the District by investment banking firms
0 Structuring, pricing, and timing of sales
0 Preparation and evaluation of requests for proposals for other financial services such as
trustee and paying agent services, printing, credit facilities, remarketing, agent services,
0 Advice, assistance and preparation for presentations with rating agencies and investors
%_1 %.W
6 Assisting in review of all legal documents related to the District's bond issues
0 Reviewing and updating the long-term financial plan
0 Being available at reasonable times for consultation to render advice regarding the
financial aspects of the Districts debt program as may be requested by the Board, the
General Manager, or the Director of Finance and Administration.
0 Other activities in connection with debt issuance including preparing the financing
schedule, monitoring the progress of financing team participants, facilitating and
1p
coordinating the completion of tasks and responsibilities in accordance with schedule and
revisingthe schedule as necessary.
y
The District also expects that its financial advisor will provide the District With objective advice and
analysis, maintain the confidentiality-of District financial plans, and be free from any conflicts of
interest, as required by the as specified in the Municipal Advisor("MA') rules promulgated by the
Municipal Securities Rulemaking Board(MSRB), Dodd`Frank Wall Street Reform and Consumer
Protection Act, and the SEC.
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C. Bond Counsel
District debt will include a written opinion by legal counsel affirming that the
District is authorized to issue the proposed debt and that the District has met all
constitutional and statutory requirements necessary for issuance and a
determination of the proposed debt's federal income tax status. The approving
opinion and other documents relating to the issuance of debt will be prepared by
counsel with extensive experience in public finance and tax issues.
The services of bond counsel may include, but are not limited to:
• Rendering a legal opinion with respect to authorization and valid issuance of debt
obligations including whether the interest paid on the debt is tax exempt under federal
and State of California law;
• Preparing all necessary legal documents in connection with authorization, sale, issuance
and delivery of bonds and other obligations;
Assisting in the preparation of the preliminary and final official statements and offering
memoranda;
• Participating in discussions with potential investors, Insurers and credit rating agencies, if
requested;and
• Providing continuing advice, as requested, on the proper use and administration of bond
proceeds under applicable laws and the bond documents.
D. Disclosure Counsel
The District may utilize a separate firm to serve as disclosure counsel as it
deems necessary. If cost effective, bond counsel may also serve as d'isclosure
counsel.
E. Underwriter
The District will have the right to select a senior manager for a proposed
negotiated sale, as well as co-managers and selling group members, as
appropriate.
F. Conflict of Interest Disclosure by Financing Team Members
All financing team members will be required to provide full and complete
disclosure, relative to agreements with other financing team members and
outside parties. The extent of disclosure may vary depending on the nature of the
transaction. However, in general terms, no agreements will be permitted which
could compromise the firm's ability to provide independent advice that is solely in
the District's interests (to the extent the firm's role involves a duty to do so) or
which could reasonably be perceived as a conflict of interest.
XVII INITIAL AND CONTINUING DISCLOSURE COMPLIANCE
A. Disclosure Coordinator and Overall Reguirements for Initial and Continui[ig
Disclosure
The Director of Finance and Administration (or as designated, the Finance
Manager) for the District shall be the disclosure coordinator of the District
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(Disclosure Coordinator). The Disclosure Coordinator shall perform the following
functions:
Ensure that any Official Statement meets appropriate standards and is approved
by the Board as required.
Ensure that initial and continuing disclosure obligations undertaken by the District
related to each debt issuance are met, including State of California requirements,
and MSRB requirements that the District commits to undertake in the Continuing
Disclosure Certificate or Agreement over the life of the bonds to investors.
0 Initial Disclosure requirements include preparation of the Bond Official
statement and reports on the issuance to the CDIAC.
0 Ongoing disclosure requirements include annual reports with the MSRB
Electronic Municipal Market Access (EMMA) system and the CDIAC.
B. Review and Approval of Official Statements
The Disclosure Coordinator of the District shall review any Official Statement prepared in
connection with any debt issuance by the District in order to ensure there are no misstatements
or omissions of material information in any sections that contain descriptions of information
prepared by the District.
• In connection with review of the Official Statement, the Disclosure Coordinator may consult with
third parties, including outside professionals assisting the District, and relevant members of
District staff, to the extent that the Disclosure Coordinator concludes they should be consulted so
that the Official Statement will include all "material"information (as defined for purposes of federal
securities law).
• As part of the review process, the Disclosure Coordinator shall submit all Official Statements to
the Board for approval.
• The approval of an Official Statement by the Board shall be agendized as a new business matter
and shall not be approved as a consent item. The Board shall undertake such review as deemed
necessary, following consultation with the Disclosure Coordinator, to fulfill the Board's
responsibilities under applicable federal and state securities laws. In this regard, the Disclosure
Coordinator shall consult with the Districts disclosure counsel to the extent the Disclosure
Coordinator considers appropriate.
• Under the continuing disclosure undertakings that the District has entered into in connection with
its debt offerings, the District is required each year to file annual reports with the MSRB Electronic
Municipal Market Access ("EMMA') system in accordance with such undertakings. Such annual
reports are required to include certain updated financial and operating information, and the
District's audited financial statements.
The District is also required under its continuing disclosure undertakings to file notices of certain
events With EMMA.
• The Disclosure Coordinator is responsible for establishing a system (which may involve the
retention or one or more consultants)by which:
0 the District will make the annual filings required by its continuing disclosure undertakings
on a complete and timely basis, and
0 the District will file notices of enumerated events on a timely basis.
Number: AP 029
DEBT MANAGEMENT AND CONTINUING DISCLOSURE
Page 16 of 17
C. California Debt and Investment Advisory Commission (CDIAC) Initial and Ongoing Disclosure.
SB 1029 requires California public agencies that issue debt to provide certain initial and ongoing
disclosures to CDIAC, including:
1. Report not later than 30 days prior to the sale of any debt issue to include:
• Certification by the issuer that it has adopted local debt policies concerning the
use of debt and that the contemplated debt issuance is consistent with those
local debt policies, to include:
a. The purposes for which the debt proceeds may be used.
b. The types of debt that may be issued.
c. The relationship of the debt to, and integration with, the issuer's capital
improvement program or budget, if applicable.
d. Policy goals related to the issuer's planning goals and objectives.
e. 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.
2. Report not later than 21 days after the sale of the debt, a final report on the sale to
include:
a. Final official statement or other disclosure document.
b. Indenture.
C. Installment sales agreement.
d. Loan agreement.
e. Promissory note.
f. Bond purchase contract.
91 Resolution authorizing the issue.
h. Bond specimen.
3. An Annual report not later than seven months from the end of the reporting period of July
1 to June 30.
The annual report shall consist of the following information:
a. Debt authorized during the reporting period, which shall include the following:
• Debt authorized at the beginning of the reporting period.
• Debt authorized and issued during the reporting period.
• Debt authorized but not issued at the end of the reporting period.
• Debt authorized at the beginning of the reporting period.
b. Debt outstanding during the reporting period, which shall include the following:
• Principal balance at the beginning of the reporting period.
• Principal paid during the reporting period.
• Principal outstanding at the end of the reporting period.
C. The use of proceeds of issued debt during the reporting period, which shall
include the following:
• Debt proceeds available at the beginning of the reporting period.
• Proceeds spend during the reporting period and the purposes for which it
was spent.
• Debt proceeds remaining at the end of the reporting period.
Compliance with this subdivision shall be required for each issue of debt with outstanding debt, debt that
has been authorized but not issued, or both, during the reporting period.
Number: AP 029
DEBT MANAGEMENT AND CONTINUING DISCLOSURE
Page 17 of 17
D. Public Statements Pecarding Financial Information
Whenever the District makes statements or releases information relating to Its finances to the public that
are reasonably expected to reach investors and the trading markets, the District is obligated to ensure
that such statements and information are complete, true, and accurate in all material respects.
E Training
The Disclosure Coordinator shall ensure that the members of the District staff
involved in the initial or continuing disclosure process, the Board, and staff are
properly trained to understand and perform their responsibilities.
The Disclosure Coordinator shall arrange for disclosure training sessions
conducted by the District's disclosure counsel. Such training sessions shall
include education on these Disclosure Policies, the District's disclosure
obligations under applicable federal and state securities laws and the disclosure
responsibilities and potential liabilities of members of the District's staff and
members of the Board. Such training sessions may be conducted using a
recorded presentation.
F District's Website
The District may maintain an investor information section on the District's website. Disclosure Documents
that are material to the District's securities, and no other information, shall be posted to the investor
information section of the District's website following review and approval by the Director of Finance and
Administration. Any investor information on the District's website shall include currently appropriate
disclaimer statements of the nature indicated below:
"The only information on this Web site that is posted with the intention of reaching the investing public,
Including bondholders, rating analysts, investment advisors, or any other members of the investment
community, is located on the investor information web pages. Other than the specific information
presented in the investor information web pages, no other information on the District's website is intended
to be the basis of or should be relied upon in making an investment decision. Because each security
issued by the District or its related entities may involve different sources of payment and security, you
should refer for additional information to the official statement and continuing disclosure filings for the
particular security. The information posted In the investor information web pages speaks only as of its
date.yy
XVII. EXCEPTIONS
In the event there are any deviations or exceptions from the Debt Policy when a certain
bond issue is structured, those exceptions will be discussed in the staff reports when
the bond issue is agendized for Board consideration.
XVIII. POLICY CONSIDERATION
This policy shall be reviewed on a bi-annual basis. Any changes must be approved by
the Board after review by the Administration Committee, as well as the individual(s)
charged with maintaining internal controls.
[Original retained by the Secretary of the District]