HomeMy WebLinkAboutResolution No. 17-7753-Adopting the City's Comprehensive Debt Policy• • •
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WHEREAS, the 2016 State Senate Bill 1029 requires local governments to certify that
any debt issuance is in accordance with the local government's debt policy; and
WHEREAS, the City of Downey seeks to codify its existing debt policies and procedures
into one comprehensive document; and
WHEREAS, the City of Downey approaches debt financing in a conservative, fiscally
prudent manner; and
WHEREAS, the City of Downey intends to update the Comprehensive Debt Policy
periodically to ensure compliance with state and federal law and best financial management
practices.
NOW, •-E, THE CITY COUNCIL OF OF DOWNEY DOES
RESOLVEHEREBY • •
Section 1. The City Council of the City of Downey hereby adopts the Comprehensive Debt
Policy.
Section 2.- The City Clerk shall certify to the adoption of this Resolution.
1.,
IAQX�LAI�CIA�DUAlRAiE, C
Interim City Clerk
ar, 2017.
HEREBY CERTIFY that the foregoing Resolution was adopted by the City Council of
the City of Downey at a regular meeting held on the 24th day of October, 2017 by the following
vote, to wit:
AYES:
Council Members: Rodriguez, Saab, Ashton, Mayor Vasquez
NOES:
Council Member: None.
ABSENT:
Council Member: Pacheco
ABSTAIN
Council Member: None.
41�AL?ICIADUARTE, CMC
Interim City Clerk
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
PURPOSE
The purpose of the City of Downey Comprehensive Debt Policy (this"Debt Policy") is to establish
guidelines and intent for the transparent, effective governance, management and administration of
the debt of the City of Downey (the "City"). This Debt Policy confirms the commitment of the City
Council, management, and staff to adhere to sound financial management practices
BACKGROUND
One of the overarching policy goals of the City Council of the City (the "City Council") is fiscal
responsibility through prudent, diligent financial planning employing best practices in governance,
management, budget administration and financial reporting, in accordance with the City's
established reserves policy.
SECTION 1.0
POLICY
Since its inception in 1956, the City has been an infrequent debt issuer, borrowing primarily to fund
long-term capital improvement projects, such as the 1984 Civic Center project. The City's long-
standing budget practices and policies include the policy that the issuance of long-term debt may
not be utilized to fund operating expenses, although, short-term public borrowing and inter -fund
loans may be used for operations. This Debt Policy sets forth debt management objectives for the
"City and establishes general parameters for issuing and administering the City's debt and the debt of
any other agencies for which the City Council acts as the legislative body. It primarily addresses debt
securities issued by the City in public or private capital markets. This Debt Policy is intended to
comply with Government Code Section 8855(1), effective January 1, 2017, and shall govern all debt
incurred by the City.
For purposes of this Debt Policy, "debt" shall be interpreted broadly to mean bonds, notes,
certificates of participation, financing leases, lease revenue bonds, or other financing obligations.
The use of the term "debt" in this Debt Policy shall be solely for convenience and shall not be
interpreted to characterize any obligation as an indebtedness or debt within the meaning of any
statutory or constitutional debt limitation. While this policy provides guidelines for general use, it
allows for exceptions in extraordinary conditions. In the event there are proposed exceptions to
Debt Policy guidelines, when a debt issue is structured those exceptions will be detailed in the
applicable staff reports to the City Council. Any approval of debt by the City Council that is not
consistent with this Debt Policy shall constitute a waiver of this Debt Policy.
This Debt Policy shall apply to any debt issued by any entity for which the City Council serves, from
time to time, as legislative body. Any approval of debt by the City Council that is not consistent with
this Debt Policy shall constitute a waiver of this Debt Policy.
1.1.013J ECTIVES
The policy assists the -City -in -the pursuit of the following equally important objectives, while
providing full and complete financial disclosure and ensuring compliance with applicable state
and federal laws:
- Minimize debt service and issuance costs;
- Maintain access to cost-effective borrowing
- Achieve the highest possible credit rating while maintaining operational flexibility and
reasonable tax and rate burdens;
Achieve full and timely repayment of debt.
ATTACHMENT B
CITY OF DOWNEY
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
1.2 ACCEPTABLE CONDITIONS FOR DEBT ISSUANCE
Because prudent debt issuances can be an equitable and cost-effective means of financing
infrastructure and capital project needs of the City, debt will be considered to finance such
projects if:
a) It meets the City's goal of distributing payments for the asset over its useful life so that
benefits of the project or infrastructure are closely matched to the costs borne by current and
future residents
b) It is the most effective funding means for the City, taking into account cash flow needs and
other funding alternatives
1.3 BUDGET INTEGRATION
The City funds a significant portion of capital improvements on a cash, or "pay-as-you-go," basis.
While "pay -go" has the benefit of avoiding interest payments, the approach may not be entirely
equitable because it requires current users to pay taxes over long periods of time in order to
accumulate reserves sufficient to pay for future capital improvements. On the other hand,
prudent use of debt financing allocates costs of the capital improvement to those who benefit
from it.
The discussion and analysis regarding the need for new indebtedness is undertaken as part of the
annual budget process, during which the City Council's adopted priorities, together with
infrastructure and maintenance needs, are used to inform the update of the five-year Capital
Improvement Program (CIP) Plan, which is then adopted along with the City's annual budget. The
CIP is a plan for the community's long-term capital improvement needs, including long-term
maintenance and asset management funding needs. The Department of Public Works bears
primary responsibility for working with the various City Departments to ensure necessary capital
improvements are included in the CIP. Because many capital improvement projects take more
than two years to design and construct, the CIP is a rolling five-year plan, allowing the City Council
to better forecast and anticipate upcoming capital improvements.
1.4 FINANCING PRIORITIES
The Finance Director is responsible for analyzing whether a"financing proposal is beneficial to the
City and conforms to the City's long-term financial planning objectives. An analysis of proposed
debt may include:
a) Confirmation that the capital project is eligible for debt financing;
b) Review of all available financing instruments for the project, consideration of alternative` debt
structures, and determination of the most cost effective option;
c) Determination of total cost of the capital project including its design, construction cost, cost
of furnishings, fixtures and equipment;
d) Identification of source of revenue to fund the annual debt service;
e) Analysis of the municipal bond market, including economic and interest rate trends;
f) Cost analysis of debt insurance;
g) Evaluation of timing of when the City should enter the capital markets.
1.5 ACCEPTABLE USES OF DEBT
a) Acquisition and/or improvement of land, right-of-way or long-term easements
b) Acquisition of a capital asset with a useful life of three or more years
c) Construction or reconstruction of a facility
[a] I W1812 DIDI►J/► I '1
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
d) Refunding, refinancing or restructuring debt, subject to refunding objectives and parameters
e) Although not the primary purpose of financing, debt proceeds may be used for reimbursable
project expenses including planning, design, engineering and other preconstruction efforts;
project -associated furniture fixtures and equipment; a debt service reserve fund (as
described in more detail in Section 4.6 hereof); capitalized interest, original issuer's discount,
underwriter's discount and other costs of issuance
f) Interim or cash flow financing such as anticipation notes
g) Refinancing or advance funding of City pension obligations, only to the extent that significant
financial benefit is achieved, as determined by City Council
1.6 PROHIBITED USES OF DEBT
a) Financing of operating costs except for anticipation notes with a term of less than one year
(or a term less than the adopted budget term, in the event the City adopts a biennial budget
process)
b) Debt issuance used to address budgetary deficits
c) Debt issued for periods exceeding the useful life of the asset or project(s) to be financed
1.7 FORMER COMMUNITY DEVELOPMENT COMMISSION DEBT OBLIGATIONS'
Due to changes in the law affecting California redevelopment agencies with the passage of ABx1
26 (as subsequently amended by Assembly Bill 1484), the Downey Community Development
Commission was dissolved as of February 1, 2012, and its operations substantially eliminated
except for the continuation of certain enforceable obligations to be administered by the City as
successor agency. The terms of ABx126 and subsequent legislation require successor agencies to
administer the outstanding bond obligations including debt service, reserve set -asides, and any
other obligations required under the bond indentures, and provide limited opportunities to
refinance outstanding bonds.
1.8 ANNUAL REVIEW
This Debt Policy will be reviewed annually by the Finance Director to ensure compliance with best
practices and industry standards. At least every five years, the Finance Director shall submit this
Debt Policy to the City Council for recertification. Any substantive changes to this Debt Policy shall
be brought to the City Council's Budget Subcommittee for evaluation prior to presentation to the
City Council for consideration and approval.
This Debt Policy will be included in the fiscal policy section of the Operating Budget adopted by
City Council.
SECTION 2.0
METHODS OF FINANCING
The Finance Director will investigate all possible project financing alternatives including, but not limited
to, bonds, loans, state bond pools, and grants.
2.1- CASH FUNDING
The City funds a significant portion of capital` improvements on a "pay-as-you-go" basis. As part of
a "pay as you go" strategy, the City will first look for grant funding for capital projects.
CITY OF DOWNEY
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
2.2 INTERFUND BORROWING _
The City may borrow internally from other funds with surplus cash in lieu of incurring third -party
debt. Purposes that could warrant the use of this type of borrowing include short-term cash flow
imbalances, interim financing pending the issuance of debt, or long-term financing in lieu of debt
for principal amounts of under $10 million. The City funds from which the money is borrowed shall
be repaid with interest based upon the earning rate of the City's investment pool. The Finance
Director shall also exercise due diligence to ensure that it is financially prudent for the fund
making the loan. The purpose of interfund borrowing is to finance high priority needs and to
reducecosts of interest, debt issuance and/or administration. lnterfund loans will be evaluated on
a case-by-case basis. Any borrowing between two City funds that exceeds 12 months requires a
repayment schedule approved by City Council.
2.3 BANK LOANS/LINES OF CREDIT AND LEASES
Although the City does not typically utilize lines of credit for the financing of capital projects,
financial institution credit is an option for municipal issuers and may be evaluated as a financing
option. These "loans and lines of credit" are often structured as leases in order to comply with the
California Constitution.
2.4 OTHER DEBT
The City will evaluate other financing programs, including but not limited to State financing such
as the Water Resources Control Board's revolving fund financing for the construction of water and
wastewater infrastructure projects (typically structured as installment payment transactions). The
coverage ratio, which is the ratio of available annual revenues to annual debt service, is a primary
indicator of the ability of an enterprise to meet its annual operating expenses and debt service
payments. Coverage ratio requirements are determined by the federal or state financing authority
on a per -project basis.
2.5 PUBLIC MARKET FINANCING
The City may issue any debt that is allowed under federal and state law including but not limited
to general obligation bonds, certificates of participation, revenue bonds, assessment district_
bonds, special tax bonds, tax increment bonds, bond, grant or tax and revenue anticipation notes
and conduit financings such as equipment financing. While conduit financings constitute a limited
obligation of the issuer, the same level of due diligence prior to issuance is required. The City will
consider requests for special district formation on a case-by-case basis. Special tax bonds issued
on behalf of a potential Community Facilities District (CFD) or Infrastructure Financing District
(IFD) are subject to additional policy provisions that must be developed and presented to Council
at the time the Council considers the establishment of a CFD or IFD.
2.6. JOINT POWERS AUTHORITY (JPA)
In addition to some of the long and short term financing instruments described in Sections 2.1
through 2.5, the City may also consider joint arrangements with other governmental agencies,
SECTION r
3.1 FINANCING TEAM
The Financing Team is the working group of City staff and outside consultants necessary to
complete a debt issuance, including but not limited to, bond counsel, disclosure counsel,
CITY OF DOWNEY
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
underwriter, municipal advisor, trustee, pricing consultant and/or arbitrage analyst. Typically, the
Finance Director, the City Attorney, the City Manager, a designated Debt and Investment Official,
and appropriate Department Head(s) form the City staff portion of the Financing Team. Other staff
members or designees may be appointed to the Financing Team.
3.2. CONSULTANT SELECTION
The City will consider the professional qualifications and experience of consultants as they relate
to the particular debt issue or other financing under consideration. In certain instances, the City
will conduct a request for proposal/qualification process to select such consultants. Other
professionals may be selected by the Finance Director on an as -needed basis. If the City
contemplates the possibility of selling bonds through a negotiated sale from the initial analysis
phase, the Finance Director shall first retain the municipal advisor in order to have professional
advice on the appropriate method of sale. If a negotiated sale is selected, Finance Director shall
then select an underwriter(s).
3.3. ROLES OF CONSULTANTS
While each financing may require different consultants, bond counsel, disclosure counsel, and
municipal advisor are required. Bond counsel prepares the necessary resolutions, ordinances,
agreements and other legal documents necessary to execute a bond financing. Disclosure Counsel
prepares the offering documents. While bond counsel can act as disclosure counsel, the City
typically retains separate counsel to draft the official statement and continuing disclosure
certificate. The municipal advisor assists with bond document negotiations, transaction
structuring including call provisions, timing of issuance, cash flow and savings analysis, and
obtaining ratings on the proposed debt issuance.
3.4. ROLES OF STAFF
Staff plays an important role in the issuance of debt, and their roles continue through the life of
the debt. The Finance Director is responsible for analyzing financial proposals (including structure,
credit enhancements, reserve funds, call options, and derivatives products), selecting consultants,
and submitting new or refunding debt options to City Council for approval. The Finance Director
maintains relationships with rating agencies, invests proceeds and ensures proceeds are spent for
their intended purposes. In regards to disclosure, the Finance Director approves all disclosure
documents, including offering documents, annual disclosure, event filings and voluntary
disclosures whether posted on the Electronic Municipal Market Access (EMMA) or submitted
directly to a bond owner in a private placement. In addition to any Bond Counsel or other legal
counsel which may be retained, the City Attorney reviews all documents, including offering
documents, to ensure all material litigation, settlements, and court orders are presented. The City
Attorney is also a member of the Disclosure Review Group (see Section 7.5), using internal
working knowledge of the City to comment on disclosure documents. The City Manager and
Finance Director work together to identify departments and staff to contribute information for the
offering documents. In addition, the City Manager will designate a staff point of contact, herein
referred to as the Debt and Investment Official, to organize the Disclosure Review Group, schedule
meetings, distribute disclosure documents, and solicit comments from the group. After any
disclosure document has been approved by the Disclosure Review Group and the Finance
Director, the designated Debt and Investment Official will be responsible for filing the documents
on EMMA or submitting the documents to a bond owner representative, as applicable. In addition,
Debt and Investment Official is responsible for ensuring compliance with other bond covenants,
legal requirements, and the retention of relevant bond documents.
CITY OF DOWNEY
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
SECTION 4.0
STRUCTURE AND TERM
4.1. TERM OF DEBT
Debt will be structured for the shortest period feasible, consistent with a fair allocation of costs to
current and future users. The standard term of long-term debt borrowing is typically 15-30 years.
Consistent with its philosophy of keeping its capital facilities and infrastructure systems in good
condition and maximizing a capital asset's useful life, the City will make every effort to set aside
sufficient current revenues to finance ongoing maintenance needs and to provide reserves for
periodic replacement and renewal. Generally, no debt will be issued for periods exceeding 120% of
the useful life or average useful lives of projects to be financed, as described in the federal tax code.
4.2. DEBT REPAYMENT STRUCTURE
In structuring a debt issue, the City will manage the amortization of the debt and, to the extent
possible, match its cash flow to the anticipated debt service payments. In addition, the City will seek
to structure debt with aggregate level debt service payments over the life of the debt. Structures
with unlevel debt service will be considered when one or more of the following exist:
a) Natural disasters or extraordinary unanticipated external factors make payments on the debt
in the early years prohibitive;
b) Such structuring is beneficial to the City's aggregate overall debt payment schedule;
c) Such structuring will allow debt service to more closely match project revenues during the
early years of the project's operation.
4.3. BOND MATURITY OPTIONS
For each issuance of bonds, the City will select serial bonds or term bonds, or both. On the occasions
where circumstances warrant, capital appreciation bonds ("CABs") may be used. The decision to use
term or serial bonds or CABs is typically driven by market conditions.
4.4. INTEREST RATE STRUCTURE
The City currently issues securities on a fixed interest rate basis only. Fixed rate securities ensure
budget certainty through the life of the issue and avoid the volatility of variable rates. The City
prefers to issue bonds at par. The City will, however, evaluate the use of premiums or discounts on a
case-by-case basis as recommended by the Municipal advisor at the time of pricing or sale.
4.5. CREDIT ENHANCEMENT
Credit enhancement may be used to improve or establish a credit rating on City debt obligation.
Types of credit enhancement include letters of credit, bond insurance and surety policies. The
Finance Director will recommend the use of a credit enhancement if it reduces the overall cost of
the proposed financing or if the use of such credit enhancement furthers the City's overall financial
objectives.
4.6. DEBT SERVICE RESERVE FUND
Debt service reserve funds are held by the Trustee to make principal and interestpayments to
bondholders in the event that pledged revenues are insufficient to do so. The City will fund debt
service reserve funds when it is in the City's overall best financial interest. The size of the reserve
fund is generally the least of:
a) 10% of par;
CITY OF DOWNEY
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
b) 125% of average annual debt service; and
c) 100% of maximum annual debt service. In lieu of holding a cash funded reserve, the City may
substitute a surety bond or other credit instrument in its place.
The decision to cash fund a reserve fund rather than to use a credit facility is dependent upon the
cost of the credit instrument and the investment opportunities. Additionally, the City may decide
not to utilize a reserve fund if the Finance Director, in consultation with the underwriter(s) and
municipal advisor, determines there would be no adverse impact to the City's credit rating or
interest rates.
4.7 CALL OPTIONS/REDEMPTION PROVISIONS
A call option or optional redemption provision gives the City the right to prepay or retire debt prior
to its stated maturity date. This option may permit the City to achieve interest savings in the future
through the refunding of the bonds. Because the cost of call options can vary depending on market
conditions, an evaluation of factors will be conducted in connection with each issuance. The Finance
Director shall evaluate and recommend the use of a call option on a"case by case basis.
4.8. DEBT LIMITS
Establishing debt limits and performing periodic review of debt capacity provides assurances that
debt will be affordable. The City, aware of the significant restrictions on local agency revenues,
particularly under Proposition 218, analyzes debt capacity in conjunction with the preparation of the
annual CIP Budget.
4.8.1 General Obligation Bonds
General Obligation Bonds shall be issued at a low -to -moderate debt statistic classification, as
determined by the municipal bond market. The primary factors in assessing the impact of General
Obligation Bonds on City finances include the debt -per -capita measure (the outstanding principal as
a percentage of the City's population) and the debt -as -percent -of -assessed -valuation measure (the
outstanding principal as a percentage of assessed value of properties in the City's jurisdiction).
4.8.2 General Fund -Supported Debt
General Fund supported debt securities (including Lease Revenue Obligations and Certificates of
Participation) shall include an analysis of the annual debt service or lease payment as a percentage
of the total available general fund revenues or expenditures ("Debt Ratio"). It should be noted that
while the City's other significant long-term fixed costs such as pensions and other post-retirement
benefits (OPER) do have an impact on the City's General Fund, these obligations are not controlled
by this debt policy. Instead, the Actuarially Determined Contribution (ADC) to the pension system
and OPER contributions as a percentage of available general revenues or expenditures
("Pension/OPER Ratio") shall also be taken into consideration for sound financial planning. Taken
together, the City will strive to maintain the combined Debt Ratio and Pension/OPEB Ratio below
25%.
4.8.3 Regulations
Beyond the City's own policy direction and fiscal prudence, there are also several regulatory factors
influencing the overall limits on debt for the city:
a) The State of California sets a bonded indebtedness limit under Government Code Section
43605, which limits bonded indebtedness against property tax to 15% of the assessed value of
all real and personal property of the City. However, the code was enacted when assessed
valuation was based upon 25 percent of market value. Beginning with the 1981-82 fiscal year,
CITY OF DOWNEY
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
each parcel is now assessed at 100% of market value (as of the most recent change in
ownershin fnr that,narrell- Therefnra the 11; has haan nriiuctari to nnP-neartar of 11;0/., nr
3.75% of the assessed value of all real and personal property of the City, in order to reflect the
intent of the debt limit in the Government Code.
b) The City's cumulative annual debt service of all debt issues supported by the General Fund is
restricted to no more than five percent of annual General Fund Revenue.
c) Debt issues supported by Enterprise Funds should maintain a minimum ratio of net operating
income to annual debt service that the Finance Director concludes is beneficial to the City.
Typically, the higher the ratio the better the rating and the lower the interest rate paid by the
City, but the benefits of a higher ratio must be balanced with operational flexibility and
management of taxpayer burden.
4.9 DERIVATIVES
Derivative products may have application to certain City borrowing programs. In certain
circumstances, these products can reduce borrowing costs and assist in managing interest rate risk.
However, these products carry with them certain risks not faced in standard debt instruments. The
Finance Director shall evaluate the use of derivative products on a case-by-case basis to determine
whether the potential benefits are sufficient to offset any potential costs.
4.10. REFUNDINGS
The City shall refinance debt to achieve savings as market opportunities arise. The Finance Director
shall remain cognizant of fluctuations in interest rates for the purpose of identifying refunding
opportunities and prepare a present value analysis identifying the economic effects of a refunding
to determine the value of refunding. Refundings may be undertaken in order to:
a) Take advantage of lower interest rates and achieve debt service costs savings;
b) Eliminate restrictive or burdensome debt covenants;
c) Restructure debt to either lengthen the duration of debtor free up reserve funds
Generally, the City shall strive to achieve a minimum of three percent net present value savings for a
current refunding and a minimum of five percent net present value savings for an advance refunding,
as a percentage of outstanding principal amount. Upon the advice of the Finance Director and with
the assistance of the municipal advisor and bond counsel, the City will consider undertaking
refundings for other than economic purposes upon a finding that such a restructuring is in the City's
overall best financial interest.
SECTION I.,.
5.1. METHOD OF SALE
Debt issues in public capital markets are sold to a single underwriter or to an underwriting
syndicate, either through a competitive sale or a negotiated sale. A negotiated sale may involve the
sale of securities to investors through an underwriter or the private placement of the securities with
a financial institution or other sophisticated investor. The selected method of sale will be that which
is most beneficial to the City in terms of lowest net interest rate, most favorable terms in financial
structure, and market conditions. The City will use competitive sales as the primary means of selling
debt. The City, however, reserves the option of pursuing a negotiated sale if there is evidence of
volatile market conditions, complex security features, or other overriding factors. If the negotiated
sale option is utilized, the Finance Director, with the approval of City Council, will negotiate the best
CITY OF DOWNEY
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
possible interest rates for the City. The overall objective is to obtain the lowest possible interest cost
and provide pricing transparency.
5.2. INITIAL DISCLOSURE REQUIREMENTS
The City acknowledges its disclosure responsibilities. Under the guidance of Disclosure Counsel, the
City will distribute or cause an underwriter to distribute its Preliminary Official Statement ("POS")
and final Official Statement (neither is typically required in a private placement, although income
cases a "private placement memorandum" maybe required by the investor). The Financing Team
shall be responsible for soliciting "material" information (as defined in Securities and Exchange
Commission Rule 10b-5) from City departments and identifying contributors who may have
information necessary to prepare portions of the Official Statement or who should review portions
of the Official Statement. In doing so, the Financing Team shall confirm that the Official Statement
accurately states all "material" information relating to the decision to buy or sell the subject debts
and that all information in the Official Statement has been critically reviewed by an appropriate
person. "Material information" is any information that a reasonable investor would consider in
making the decision to purchase or sell the debt. In connection with an initial offering of securities,
the City and other members of the Financing Team will:
a) Identify material information that should be disclosed in the Official Statement;
b) Identify other persons that may have material information (contributors);
c) Review and approve the Official Statement;
d) Ensure the City's compliance, and that of its related entities, with federal and state securities
laws.
The City's Debt and Investment Official shall contact the individuals and departments identified as
contributors as soon as possible in order to provide adequate time for them to perform their
assigned tasks. Contributors shall assist in reviewing and preparing the Official Statement using his
or her knowledge of the City and, if appropriate, by discussing the Official Statement with other
members of the contributor's department to ensure accuracy. The Finance Director shall review the
Official Statement, identify any material differences in the presentation of financial information
from the financial statements and ensure there are no misstatements or omissions of material
information in any sections that contain information prepared by the Finance Department or of
relevance to the finances of the City. The City Attorney (or designee) shall review the Official
Statement descriptions for (i) any material current, pending or threatened litigation; (ii) any material
settlements or court orders; and (iii) any other legal issues that are material information for
purposes of the Official Statement.
Following receipt of the Official Statement from the Financing Team, the Disclosure Review Group
(described in Section 7.5) shall critically evaluate the Official Statement for accuracy and compliance
with federal and state securities laws, and shall, if appropriate, ask questions of the Financing Team
and of any contributor or other person who reviewed or drafted any section of the Official
Statement. The Disclosure Review Group may instruct the Financing Team to solicit information or
review from additional contributors before approving the Official Statement.
Once the Disclosure Review Group has completed its evaluation and the Financing Team has
responded appropriately, the Official Statement must be presented to the City Council for approval.
The approval of an Official Statement shall be placed on the Administrative Reports section of the
City Council agenda and shall not be considered as a Consent Calendar item. The staff report will
summarize the steps followed to complete the Official Statement and review the City Council's
CITY OF DOWNEY
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
responsibilities with respect to the Official Statement, providing the City Council the opportunity to
review a substantially-romnlete PrQliminary Offirial Statement. The City Council -,hall undertake,_
such review as deemed necessary by the City Council to fulfill the City Council's securities law
responsibilities. Note: For any privately placed debt with no Official Statement, the Disclosure
Review Group must be provided with the final staff report describing the issue and such other
documents the Disclosure Review Group may request before the transaction is approved by the City
Council.
Note: The Securities and Exchange Commission (the "SEC"), the agency with regulatory authority over
the City's compliance with the federal securities laws, has issued guidance as to the duties of the City
Council with respect to its approval of the POS. In its "Report of Investigationin the Matter of County of
Orange, California as it Relates to the Conduct of the Members of the Board of Supervisors" (Release No.
36761 /January 24, 1996) (the "Release"), the SEC stated that, if a member of the City Council has
knowledge of any facts or circumstances that an investor would want to know about prior to investing in
the bonds, whether relating to their repayment, tax-exempt status, undisclosed conflicts of interest with
interested parties, or otherwise, he or she should endeavor to discover whether such facts are
adequately disclosed in the Official Statement. In the Release, the SEC stated that the steps that
member of the City Council could take include becoming familiar with the POS and questioning staff and
consultants about the disclosure of such facts.
SECTION 0
r r• r:
Ratings are a reflection of the general fiscal soundness of the City or the applicable City credit and the
capabilities of its management. Typically, the higher the credit ratings are, the lower the interest cost is
on the City's debt issues. To enhance creditworthiness, the City is committed to prudent financial
management, systematic capital planning, and long-term financial planning. The City recognizes that
external economic, natural, or other events may, from time to time, affect the creditworthiness of its
debt.
Creditworthiness is assessed by rating agencies. The most familiar nationally recognized bond rating
agencies are S&P Global Ratings, Moody's Investors Service, and Fitch Ratings. When issuing a credit
rating, rating agencies consider various factors including but not limited to:
a) City's fiscal status;
b) City's general management capabilities;
c) Economic conditions that may impact the stability and reliability of debt repayment sources;
d) City's general reserve levels;
e) City's debt history and current debt structure
f) Project being financed;
g) Covenants and conditions in the governing legal documents.
6.1. BOND RATINGS
The Financing Team will assess whether a credit rating should be obtained for an issuance. The City
typically seeks a rating from at least one nationally recognized rating agency on new and refunded issues
being sold in the public market. The finance Director, working with the Financing Team, shall be
responsible for determining which of the major rating agencies the City shall request provide a rating.
When applying for a rating on an issue, the City shall prepare a formal presentation of the relevant
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COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
credit criteria that will be reviewed by the Disclosure Review Group (Section 5.2) before its presentation
to a rating agency.
6.2. RATING AGENCY COMMUNICATIONS
The Finance Director is responsible for maintaining relationships with the rating agencies that assign
ratings to the City's various debt obligations. This effort shall include providing the rating agencies
with the City's financial statements, if applicable, as well as any additional information requested.
SECTIONr
7.1. INVESTMENT OF PROCEEDS
The Finance Director shall invest debt proceeds and reserve funds in accordance with each issue's
indenture or trust agreement, utilizing competitive bidding when possible. All investments will be
made in compliance with the City's Investment Policy objectives of safety, liquidity and yield.
Whenever possible, unexpended debt proceeds shall be held by the bank trustee. The trustee will
be responsible for recording all investments and transactions relating to the proceeds and providing
monthly statements regarding the investments and transactions.
7.2. USE OF DEBT PROCEEDS AND INTERNAL CONTROLS
The Finance Director is responsible for ensuring debt proceeds are spent for the intended purposes
identified in the debt documents and that the proceeds are spent in the timeframes identified in
the tax certificate prepared by the City's bond counsel Typically, the City would complete debt-
financed infrastructure projects itself, using the City's internal controls related to City Council award
of contracts, purchase orders and accounts payable. The Finance Director will authorize the use of
debt proceeds to reimburse expenditures and review unspent debt proceeds remaining after each
draw. The Debt and Investment Official will maintain records setting forth the date and amount of
each disbursement of proceeds together with evidence with respect to each disbursement (e.g.
name of payee, invoices, purchase orders, contracts, checks), and confirm each expense is
consistent with the legal documents. The Debt and Investment Official is responsible for reconciling
trustee and fiscal agent bank statements on a monthly basis. Although the City is an infrequent
issuer, it is recognized that each debt issue may be different and that there may be circumstances
that require deviation from the standard practice of the City contracting and managing construction.
In these situations, the Debt and Investment Official, working with the Finance Director, will develop
debt specific procedures, maintaining as many of the City's internal controls as possible.
7.3. ARBITRAGE COMPLIANCE
The City shall follow a policy of full compliance with all the arbitrage and rebate requirements of the
federal tax code and Internal Revenue Service regulations. The City shall engage qualified third
parties for the preparation of arbitrage and rebate calculations. All necessary rebates will be filed
and paid when due.
7.4. ONGOING DISCLOSURE AND EMMA
The City shall comply with the requirements of the Continuing Disclosure Certificate(s) entered into
at the time of each debt issue. The Finance Director shall be responsible for providing ongoing
disclosure information. Disclosure for publicly issued debt is filed with the Municipal Securities
Rulemaking Board's (MSRB's) Electronic Municipal Market Access (EMMA) system, the central
144 11 1kZ•T21*ff1k ► f A7
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
depository designated by the Securities and Exchange Commission for ongoing disclosure by
w...v. i..iv. c.l
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.1n-- — _ .Yl'. ---- ----
—7
email. The Debt and Investment Official will prepare the annual disclosure reports in accordance
with the Continuing Disclosure Certificates. The Debt and Investment Official will identify material
information that should be disclosed and identify other persons that may have knowledge of
material information. Once the annual disclosure reports are in final draft form, the Debt and
Investment Official will submit them for review by the Disclosure Review Group described in Section
7.5 of this policy.
After review and approval by the Disclosure Review Group, the Finance Director will authorize the
Debt and Investment Official to post the disclosure on EMMA using the user name and password
issued by the Municipal Securities Rulemaking Board. In addition to annual reports, Securities and
Exchange Commission Rule 15c2-12(b)(5)(i)(C) obligates the City to enter into a written undertaking
to disclose, in a timely manner to the MSRB, notice of certain specified events with respect to the
City's securities. The list of applicable events is included in each Continuing Disclosure Certificate.
The Debt and Investment Official, with Finance Director approval, may file notice with the MSRB of
specified events listed in the Continuing Disclosure Certificates without prior review and approval of
the Disclosure Review Group if the City is contractually obligated to file and the filing contains no
discretionary content. If any member of the Disclosure Review Group concludes that an event may
have occurred, the Finance Director shall be contacted and the Debt and Investment Official shall
notify the Disclosure Review Group to discuss the potential event.
7.5. DISCLOSURE REVIEW GROUP
The City has established a Disclosure Review Group to ensure the accuracy of its disclosure
information and the City's compliance with all applicable federal and state securities laws. The
Disclosure Review Group shall review and approve, to the best of its ability, the City's disclosure
documents listed below.
7.5.1. Members
The members of the group shall include the following:
- Finance Director/Treasurer;
- City Attorney or designee;
- City Manager or designee;
Department Heads (applicable to specific issue);
-Budget Officer;
—Accounting Manager/Senior Accountants
-Debt and Investment Official
The Disclosure Review Group is an internal working group of City staff and not a decision-making
or advisory body subject to the provisions of the Ralph M. Brown Act (Government Code
Sections 54950 et seq.).
7.5.2. Meetings
The Disclosure Review Group shall meet as often as necessary to fulfill its obligations, but not
less than once per calendar year. The Debt and Investment Official shall be responsible for
convening meetings of the Disclosure Review Group, although any member of the Disclosure
Review Group may instruct the Debt and Investment Official to convene a meeting.
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COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
7.5.3. Review and Approval
The Disclosure Review Group shall critically evaluate a disclosure document for accuracy and
compliance with federal and state securities laws, and shall, if appropriate, ask questions. The
Disclosure Review Group may send the Disclosure Document back for revisions.
7.5.4. Disclosure Documents
Disclosure documents shall include, but are not limited to, the following
A. Preliminary and final official statements;
B. Private placement memoranda and remarketing memoranda
C. Any filing made by the City with the MSRB, whether made pursuant to a continuing
disclosure undertaking to which the City is a party or made voluntarily;
D. Rating agency presentations, and other communications that are reasonably likely, in
the determination of the Disclosure Review Group, to reach investors or the securities
market;
E. Offering documents prepared by related entities if such documents are subject to the
approval of the City Council;
F. Management's discussion and analysis and transmittal letter portions of the City's
audited financial statement;
G. Press releases that are reasonably likely, in the determination of the Disclosure
Review Group, to reach investors or the securities market.
Any person preparing a document for release to the public that may be considered a
Disclosure Document shall notify the Finance Director of such information and its
proposed or mandatory dissemination date. If the document is not on the list of
Disclosure Documents and the Finance Director determines it is reasonably likely to
reach investors or the securities market, the Debt and Investment Official shall inform
the Disclosure Review Group. Disclosure Counsel may be consulted for advice.
7.5.5. Training
The Debt and Investment Official shall arrange for periodic disclosure training sessions
for the Disclosure Review Group. Such training sessions shall include the City's
disclosure obligations under applicable federal and state laws and the disclosure
responsibilities and potential liabilities of members of City staff and members of the City
Council. Such training sessions may be conducted using a recorded presentation. City
Councilmembers, at a minimum, will be informed of the disclosure responsibilities at his
or her new member orientation and prior to approving a debt issue.
7.6. POST -ISSUANCE COMPLIANCE
The City must maintain compliance with all undertakings, covenants, and agreements of each debt
issuance on an ongoing basis. This typically includes ensuring:
a) Revenues are annually appropriated to meet debt service payments;
b) Taxes/fees are levied and collected where applicable;
c) Debt service payments are timely transferred to the trustee; Insurance requirements are
met;
d) Rate covenants are satisfied.
There are other periodic reporting requirements associated with debt issues including the following:
CITY OF DOWNEY
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
a) California Debt and Investment Advisory Committee (CDIAC) Annual Yearly Fiscal Status
Rannrtc fnr r r-r)c r)ra%er nn tha_Racarva Fiend Nnn-Pn%/mPnt of Prinrinal and Intarest (nefault)
for CFDs;
b) Annual Reporting for debt pursuant SB 1029
c) CDIAC Proposed Issuance and Post -Sale report; Annual reporting approved by City Council as
required by the Local Agency Special Tax Bond and Accountability Act for Community Facilities
Districts
In addition, the following information related to Community Facilities Districts must be prominently
displayed on the City's website:
a) CDIAC Annual Yearly Fiscal Status Reports;
b) Any annual reported requested by a person who resides in or owns property within the
district (pursuant to California Government Code Section 53343.1);
c) State Controller's parcel report (pursuant to California Government Code Section 12463.2).
The City shall comply with all covenants agreed to and legal documents entered into at the time of
the debt offering as well as conditions contained in governing law. The Debt and Investment Official
will coordinate verification and monitoring of compliance. Appendix B summarizes the City's bond
issues and important compliance dates. The City utilizes EMMA's email reminder system to calendar
these reporting requirements and notify the Debt and Investment Official as well as other staff
members of upcoming obligations.
7.7. RETENTION
A copy of all relevant documents and records will be maintained by the Finance Department for the
term of the debt (including refunding debt, if any) plus ten years. Relevant documents and records
will include sufficient documentation to support the requirements relating to the tax-exempt status,
including the following:
a) Bond transcripts, official statement and other offering documents. All documents relating to
capital expenditures financed by debt proceeds, including construction contracts; purchase
orders; invoices and payment records; documents relating to costs reimbursed with debt
proceeds.
b) Records identifying the assets or portion of assets financed with debt proceeds.
c) All contracts and arrangements involving private use (including private management) of the
debt financed assets.
d) All reports relating to the allocation of debt proceeds and private use of debt financed assets.
e) All records of investments, investment agreements, arbitrage reports, return filings with the
IRS and underlying documents, trustee statements, rating correspondence, and continuing
disclosure.
7.8. INVESTOR RELATIONS
While the City shall post its annual financial report as well as other financial reports on the City's
website, this information is intended for the constituents of the City. Information with the intention
of reaching the investing public, including bondholders, rating analysts, investment advisors, or any
other members of the investment community shall be filed on the EMMA system.
7.9. ADDITIONAL REQUIREMENTS FOR FINANCIAL STATEMENTS
Itis the City's policy to hire an auditing firm that has the technical skills and resources to properly
perform an annual audit of the City's financial statements. More specifically, the firm shall be a
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
recognized expert in the accounting rules applicable to the City and shall have the resources
necessary to review the City's financial statements on a timely basis.
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
Ad Valorem Tax: A tax calculated"according to the value" of property. Such a tax is based on the
assessed valuation of real property and a valuation of tangible personal property.
Advance Refunding: Refunding bonds that are issued more than 90 days prior to the date upon which
the refunded bonds will be redeemed. Proceeds of the advance refunding bonds are placed into an
escrow account with a fiduciary and used to pay interest and principal on the refunded bonds and then
used to redeem the refunded bonds at their maturity or call date.
Arbitrage: The gain that may be obtained by borrowing funds at a lower (often tax-exempt) rate and
investing the proceeds at higher (often taxable) rates. The ability to earn arbitrage by issuing tax-exempt
securities has been severely curtailed by the Tax Reform Act of 1986, as amended.
Assessed Valuation: The appraised worth of property as set bya taxing authority through assessments
for purposes of ad valorem taxation.
Assessment District Bonds: Bonds issued for public improvements benefiting property within
assessment districts created pursuant to the Improvement Act of 1911 and the Municipal Improvement
Act of 1913. Bond: A security that represents an obligation to pay a specified amount of money on a
specific date in the future, typically with periodic interest payments.
Bond Anticipation Notes (BANS): Short-term notes issued usually for capital projects and paid from the
proceeds of the issuance of long-term bonds. Provide interim financing in anticipation of bond issuance.
Bond Counsel: An attorney retained by the issuer to give a legal opinion concerning the validity of
securities. The bond counsel's opinion usually addresses the subject of tax exemption. Bond counsel
may prepare or review and advise the issuer regarding authorizing resolutions, trust indentures and
litigation.
Bond Insurance: A type of credit enhancement whereby an insurance company indemnifies an investor
against default by the issuer. In the event of failure by the issuer to pay principal and interest in full and
on time, investors may call upon the insurance company to do so. Once issued, the municipal bond
insurance policy is generally irrevocable. The insurance company receives its premium when the policy is
issued.
Bond Resolution: Resolution adopted by the City Council authorizing the issuance of bonds, approving
the Notice of Sale and the Official Statement.
Book -Entry: Bonds that are issued in fully registered form but without certificates of ownership.
Call Option: The right to redeem a bond prior to its stated maturity, either on a given date or
continuously. The call option is also referred to as the optional redemption provision. Often a "call
premium" is added to the call option as compensation to the holders of the earliest bonds called.
Capital Appreciation Bond: A municipal security on which the investment return on an initial principal
amount is reinvested at a stated compounded rate until maturity, at which time the investor receives a
single payment representing both the initial principal amount and the total investment return.
CITY OF DOWNEY
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
Capital Improvement Program Budget: A forecast of the City's capital needs over a five-year period
based on various long-range plans, goals, and policies. Capital projects are typically large-scale
endeavors in terms of cost, size and benefit to the community.
Capitalized Interest: A portion of an issue that is set aside to pay interest on the debt for a specified
period of time. Interest is commonly capitalized for the construction period of a project finance with
Lease Revenue or Enterprise Revenue bonds, prior to the project producing revenue.
Certificates of Participation: A financial instrument representing a proportionate interest in payments
such as lease payments by one party (such as a city acting as a lessee) to another party (often a trustee),
Commercial Paper: Short-term debt instrument.
CommunityFacilities District: Commonly known as Mello -Roos Districts, are used to finance local public
facilities and provide funding for public services.
Competitive Sale: A sale of bonds in which an underwriter or syndicate of underwriters submit sealed
bids to purchase the bonds. Bids are awarded on a true interest cost basis ("TIC"), providing that other
bidding requirements are satisfied. Competitive sales are recommended for simple financings with a
strong underlying credit rating. This type of sale is in contrast to a Negotiated Sale.
Comprehensive Annual Financial Report (CAFR): Government's financial statement.
Conduit Financing: The issuance of securities by a governmental entity to finance a project that will
primarily benefit a third party. The security for this type of financing is the credit of the third party.
Usually such securities do not constitute general obligations of the issuer since the private entity is liable
for generating the pledged revenues for repayment. Industrial development bonds and multifamily
housing revenue bonds area common type of conduit refinancing.
Continuing Disclosure: The requirement established by the Securities and Exchange Commission
pursuant to Rule 15c2-12 that requires underwriters of most publicly -sold debt to ensure that issuers
enter into a written undertaking to provide current financial information to the Municipal Securities
Rulemaking Board for access by the general marketplace.
Coupon Rate: The interest rate on specific maturities of a bond issue. While the term "coupon" is
derived from the days when virtually all municipal bonds were in bearer form with coupons attached,
the term is still frequently used to refer to the interest rate on different maturities of bonds in registered
form.
Credit Rating Agency: A company that rates the relative credit quality of a bond issue and assigns a
letter rating. These rating agencies include Moody's Investors Service, Standard & Poor's, and Fitch
Ratings.
Current Refunding: Refunding bonds that are issued 90 days or less before the date upon which the
refunded bonds will be redeemed.
CITY OF DOWNEY
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
CUSIP Number: The term CUSIP is an acronym for the Committee on Uniform Securities Identification
_ _.... -.. -.__�- _-_i.._: e...._6.-... T6... r i ic1D ..�.w+horr
Proce(lures. An identification number is a5sigiied to Caen nnatus iLy O ass ea,uc. I lite ...._ __— ..
intended to help facilitate the identification and clearance of municipal securities.
Debt Limit: The maximum amount of debt that is legally permitted by a jurisdiction's charter,
constitution, or statutes. Debt Service: The amount necessary to pay principal and interest requirements
on outstanding bonds for a given year or series of years.
Default: The failure to pay principal or interest in full or on time and, in some cases, the failure to
comply with non-payment obligations after notice and the opportunity to cure.
Defeasance: Providing for the payment of principal, premium (if any) and interest on debt through the
call date or scheduled principal maturity in accordance with the terms of the debt. A legal defeasance
usually involves establishing an irrevocable escrow funded with only cash and U.S. Government
obligations.
Depository Trust Company (DTC): A limited purpose trust company organized under the New York
Banking Law. The DTC facilitates the settlement of transactions in municipal securities using the Book
Entry system.
Derivative: A financial instrument which derives its own value from the value of another instrument,
usually an underlying asset such as a stock, bond, or an underlying reference such as an interest rate
index.
Disclosure Counsel: An attorney retained to provide advice on issuer disclosure obligations, to prepare
the official statement and to prepare the continuing disclosure undertaking.
Discount: The difference between a bond's par value and the price for which it sold when the latter is
less than par. Electronic Municipal Market Access (EMMA): A system operated by the Municipal
Securities Rulemaking Board and serves as the official source for municipal securities disclosures and
related market data (htt s emna.msrb.or )
Enterprise Activity: A revenue generating project or business. The project often provides funds
necessary to pay debt service on securities issued to finance the facility. Common examples include
water and sewer treatment facilities and electric utility facilities.
Financing Team: The working group of City staff and outside consultants necessary to complete a debt
issuance.
General Obligation Bond: A bond secured by an unlimited ad valorem property tax pledge. Requires a
two-thirds vote by the electorate. GO bonds usually achieve lower rates of interest than other financing
instruments since they are considered to be a lower risk.
Indenture: A contract between the issuer and the trustee stipulating the characteristics of the financial
instrument, the issuer's obligation to pay debt service, and the remedies available to the trustee in the
event of default.
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
Industrial Development Bonds: Securities issued to finance the construction or purchase of industrial,
commercial or manufacturing facilities to be purchased by or leased to a private user. These securities
are backed by the credit of the private user and generally are not considered liabilities of the
governmental issuer.
Issuance Costs: The costs incurred by the bond issuer during the planning and sale of securities. These
costs include but are not limited to fees and expenses of municipal advisors, bond counsel and
disclosure counsel, City staff costs, printing and advertising costs, rating agencies fees, and other
expenses incurred in the marketing of an issue.
Lease: An obligation wherein a lessee agrees to make payments to a lessor in exchange for the use of
certain property. The term may refer to a capital lease or to an operating lease.
Lease Revenue Bonds: Bonds that are secured by an obligation of one party to make annual lease
payments to another.
Letter of Credit: An unconditional pledge of the bank's credit which is used to guarantee payment of
principal and interest on debt in the event insufficient funds are available to meet a debt service
obligation. Letters of credit are most often employed when the stated interest on the City's securities is
variable.
Line of Credit: A contract with 'a"financial institution, "usually a bank, that establishes a maximum loan
balance that the bank will permit the borrower to maintain. The borrower can draw down on the line at
any time, as long as the maximum set in the agreement isnot exceeded.
Mortgage Revenue Bonds: Bonds issued for the purpose of providing single-family mortgage financing
or acquisition and construction funds for multi -family housing projects. The bonds are secured by the
mortgage repayments and project revenue. See Conduit Financing.
Municipal Advisor: A consultant who provides the issuer with advice on the structure of the bond issue,
timing, terms and related matters for a new bond issue.
Municipal Securities Rulemaking Board (MSRB): A self-regulating organization established on
September 5, 1975 upon the appointment of a 15 -member board by the Securities and Exchange
Agreement. The MSRB, comprised of representatives from investment banking firms, dealer bank
representatives, and public representatives, is entrusted with the responsibility of writing rules of
conduct for the municipal securities market.
Negotiated Sale:A sale of securities in which the terms of the sale are determined through negotiation
between the issuer and the purchaser, typically an underwriter, without competitive bidding. The
negotiated sales process provides control over the financing structure and issuance timing. Negotiated
sales are recommended for unusual financing terms, periods of market volatility and weaker credit
quality. A thorough evaluation of market conditions will be performed to ensure reasonable final pricing
and underwriting spread.
Net Interest Cost (NIC): A method of computing the interest expense to the issuer of bonds, which may
serve as the basis of award in a competitive sale of a new issue of municipal securities. NIC takes into
account any premium or discount applicable to the issue, as well as the dollar amount of coupon
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
interest payable over the life of the issue. NIC does not take into account the time value of money (as
--- urr u!d he done in nthnr calculation methods_. such.. as the "true interest rust" ITIri —.+k -,Il Thn tarm... ----
VYVUIIAaJa.UV�Ia.lr rVa111..1a.4ra.MIM arVrrIl ra..�rrVaA J, JNarrr 4Jar ra..a�arV interest aiJa `r ia,.�rrra. Girvan,.�rra.aa...:.
"net interest cost" refers to the overall rate of interest to be paid by the issuer over the life of the
bonds.
Official Statement (Prospectus): A document published by the issuer in connection with`a primary
offering of securities that discloses material information on a new security issue including the purposes
of the issue, how the securities will be repaid, and the financial, economic and social characteristics of
the security for the bonds. Investors may use this information to evaluate the credit quality of the
securities.
Original Issue Discount Bonds: Bonds sold at a substantial` discount from their par value at the time of
the original sale.
Par Value: The face value or principal amount of a security.
Pension Obligation Bonds (POBs): Financing instruments used to pay some or all of the unfunded
pension liability of a pension plan. POBs are issued as taxable instruments over a 30-40 year term or by
matching the term with the amortization period of the outstanding unfunded actuarial accrued liability.
Preliminary Official Statement: A version Of the Official Statement prepared by or for an issuer of
municipal securities for potential customers prior to the availability of the final Official Statement. Under
SEC Rule 15c2-12, the difference between a Preliminary Official Statement and a final Official Statement
is that the final Official Statement includes "pricing information," i.e., offering price(s), interest rate(s),
selling compensation, aggregate principal amount, principal amount per maturity, delivery dates, any
other terms or provisions required by an issuer of such securities to be specified in a competitive bid,
ratings, other terms of the securities depending on such matters, and the identity of the underwriter(s).
Premium: The excess of the price at which a bond is sold over its face value. Present Value: The value of
a future amount or stream of revenues or expenditures.
Pricing Consultant: The Pricing Consultant provides a fairness letter to the City or its agent regarding the
pricing of a new issue of municipal securities.
Private Activity Bonds: A bond where bond proceeds are used for private purposes. If deemed a private
activity bond, the interest is not tax exempt unless the use of the proceeds meets certain requirements
of the Internal Revenue Code.
Private Placement: A bond issue that is structured specifically for one purchaser. Private placements are
typically carried out when a bond's credit characteristics or other structural terms preclude public
offerings. A private placement is considered to be a negotiated sale.
Refunding: Aprocedure whereby an issuer refinances an outstanding debt issue by issuing a new debt
issue.
Related Entities: Those independent agencies, joint power authorities, special districts, component
units, or other entities created by the City Council or by State law for which the City Council serves as
• r�
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
the governing or legislative body in his or her official capacity, or for which the City has agreed to
provideinitial or continuing disclosure in connections with the issuance of securities.
Rule 10b5: Rule adopted by the Securities and Exchange Commission that requires the disclosure of all
material facts and prohibits the omission of facts necessary to make statements not misleading.
Rule 15c2-12: Rule adopted by the Securities and Exchange Commission setting forth certain obligations
of (i) underwriters to receive, review and disseminate official statements prepared by issuers of most
primary offerings of municipal securities, (ii) underwriters to obtain continuing disclosure undertakings
from issuers and other obligated persons to provide ongoing annual financial information on a
continuing basis, and (iii) broker-dealers to have access to such continuing disclosure in order to make
recommendations of municipal securities in the secondary market.
Reserve Fund: A fund established by the indenture of a bond issue into which money is deposited for
payment of debt service in of ashortfall in current revenues.
Revenue Bond: A bond which is payable from a specific source of revenue and to which the full faith and
credit of an issuer isnot pledged. Revenue bonds are payable from identified sources of revenue, and do
not permit the bondholders to compel a jurisdiction to pay debt service from any other source. Pledged
revenues often are derived from the operation of an enterprise.
Secondary Market: The market in which bonds are sold after their initial sale in the new issue market.
Serial Bonds: Bonds of an issue that mature in consecutive years or other intervals and are not subject
to mandatory sinking fund provisions.
Special Tax Bonds: Bonds issued to fund eligible public improvements and paid with special taxes levied
in community facilities districts or infrastructure financing districts.
State Revolving Funds: The State Revolving Fund ("SRF") is a low interest financing program for the
construction of water and wastewater infrastructure projects.
Tax Allocation Bonds(TABs):'Bonds issued to fund eligible capital facilities located within a
Redevelopment Project Area. Bonds are secured by a portion of the property taxes collected within the
project area. The Downey Community Development Commission was dissolved as of February 1, 2012,
due to the passage of AB X1 26. Its operations were substantially eliminated, except that certain
enforceable obligations continue to be administered by the City as successor agency.
Tax and Revenue Anticipation Notes (TRANS): Short-term notes issued in anticipation of receiving tax
receipts and revenues at a future date. Proceeds allow the municipality to manage the periods of cash
shortfalls resulting from a mismatch between timing of revenues and timing of expenditures.
Term Bonds: Bonds that come due in a single maturity whereby the issuer may agree to make periodic
payments into a sinking fund for mandatory redemption of term bonds before maturity or for payment
at maturity.
True Interest Cost(TIC): Under this method of computing the interest expense to the issuer of bonds,
true interest cost is defined as the rate necessary to discount the amounts payable on the respective
CITY OF DOWNEY
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
principal and interest payment dates to the purchase price received for the new issue of bonds. Interest
e.._... e-- corn,_ .. J_r__-.._r f... TICI ...._...-utatio d........a figure s1.1ghtly d i IIle re nt. fro. m_.
Is assUrr�eU LU UC LUIIIIJl7U�BUCU SCIIBf�aIIIIUaIhI. IIL LVIII�UItl IIVIIJ pIVU ULC Q I1�UOG Jol6eloy unlcecnc i�v�.e
the "net interest cost" (NIC) method because TIC considers the time value of money while NIC does not.
Trustee: A bank retained by the issuer as custodian of bond proceeds and official representative of
bondholders. The trustee ensures compliance with the indenture. In many cases, the trustee also acts as
paying agent and is responsible for transmitting payments of interest and principal to the bondholders.
Underwriter: A broker-dealer that purchases a new issue of municipal securities from the issuer for
resale in a primary offering. The bonds may be purchased either through a negotiated sale with the
issuer or through a competitive sale.
• �r
COMPREHENSIVE DEBT POLICY
Established October 241, 2017
Last revision October 241, 2017
All debts applicable to this policy incurred on or after October 24, 2017 (date of adoption of the policy)
shall be listed herein