Table of Contents: Chapter 8

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802 DEBT MANAGEMENT POLICY

802.1 General Obligation Bonds

802.1.1 Public Vote. The City is authorized to issue General Obligation Bonds payable from ad valorem taxes to finance capital improvements and equipment upon a public vote, of the qualified voters. The Missouri constitution permits the City to incur general obligation indebtedness for City purposes not to exceed 10% of the assessed valuation of taxable tangible property; and to incur general obligation indebtedness not exceeding an additional 10% for acquiring right-of way; constructing and improving streets, sanitary sewers, and storm sewers; and purchasing or constructing waterworks plants.

802.1.2 Use. General obligation, property tax-supported bonding should be used to finance only those capital improvements and long-term assets, which have been determined to be essential to the maintenance or development of the City.

802.1.3 Debt Fund Balance. The City should maintain a General Debt and Interest Fund balance which is at least 50% of the average annual debt service.

802.2 Revenue Bonds

802.2.1 Public Vote. The City is also authorized to issue Revenue Bonds to finance capital improvements to its combined water and sewerage system, airport and sanitary landfill facilities. These types of Revenue Bonds require a simple majority vote.

802.2.2 Use. Revenue Bonds do not carry the full faith and credit of the City in servicing bond indebtedness, and such bonds are not considered in determining the legal debt margin resulting from the 20% limitation described above. However, if any taxes are pledged or dedicated to the payment of revenue bonds (sales taxes, property taxes etc.) the bonds must be voted as general obligation bonds, the debt limit must be observed, and all bonds must be paid off within 20 years.

Revenue supported bonds should be used to limit potential dependence on property taxes for those projects with available revenue sources, whether self-generated or dedicated from other sources.

802.2.3 Feasibility. Adequate financial feasibility studies should be performed for each project to provide assurances as to the selfliquidating nature of the project or adequacy of dedicated revenue sources.

802.3 Municipal Building Authority Corporations

802.3.1 Definition. Internal Revenue Service ruling 63-20 allows the City to create not-for-profit corporations. Through these corporations, the City can issue tax exempt bonds for the lease purchase of equipment and facilities without the voter approval required for the issuance of general obligation bonds"”the City's obligation under a one-year annually renewable lease is not an "indebtedness" according to the Missouri Constitution.

802.3.2 Use. Lease financing is appropriate whenever the introduction of leased equipment and/or a capital improvement results in verifiable operating savings that, properly discounted, outweigh the lease financing costs.

802.3.3 Feasibility. Adequate financial feasibility studies should be performed for all innovative financing proposals such as lease and lease-purchase agreements, tax increment financing, pool participation, and special assessment projects.

802.4 Long-term Debt

Long-term borrowing will be confined to construction of capital improvements and acquisition of capital equipment too large to be financed from current revenues. Proceeds from long-term debt should only be used for construction project costs, acquisition of other capital assets, bond issue costs, debt service reserve requirements, and refunding of outstanding bond issues and will not be used for current, ongoing operations.

802.5 Term of Debt

Debt will be extinguished within a period not to exceed the expected useful life of the capital project or equipment.

802.6 Monitoring

The City should actively monitor its investment practices to ensure maximum returns on its invested bond funds while complying with Federal arbitrage guidelines. The Finance Department should continually monitor outstanding debt issues to verify compliance with debt covenants.

802.7 Financial Advisor

The City shall retain the services of a Financial Advisor to assist the City in identifying capital financing alternatives and planning its debt program. The financial advisor's role in the debt issuance will vary depending on whether bonds are issued through a competitive or negotiated method of sale. The financial advisor should have no affiliation with the underwriting of a particular issue of the City. The financial advisor and or employees of the financial advisor shall not have made political contributions to any candidate for public office in the City for a period of two years preceding their selection as financial advisor.

802.8 Method of Bond Sale

When appropriate, new debt issues will be offered utilizing the competitive bid process. In a competitive sale, the financial advisor will assist in determining the structure and timing of the issue, prepare bond documents and rating agency presentations and evaluate the best bid and assist in the closing transaction.

802.9 Refunding of Existing Debt

802.9.1 The City will consider undertaking a refunding when one or more of the following three conditions exist:

1. The present value of all refunding costs, (including interest, call premium, bond counsel, financial underwriter spread/discount and other issuance costs) is less than the present value of the current interest. Net present value savings should approximate a minimum of three percent (3%).
2. The City wishes to restructure debt service.
3. The City wishes to eliminate old bond covenants that may have become restrictive.

802.9.2 Due the complex nature of a bond refunding, the City shall utilize the Negotiated Sale process of bringing the bonds to market. Under the negotiated sale process, the City will acquire the services of a financial underwriter.

802.10 Financial Underwriter

802.10.1 The financial underwriter shall determine their bid for the City's bonds by reviewing the pricing of comparable issues, talking to potential investors, identifying other similar issues that are likely to be in the market at the same time, and assessing the level of competition among various underwriting firms utilizing the Negotiated Sale process.

802.10.2 The financial underwriter and or employees of the financial underwriter shall not have made political contributions to any candidate for public office in the City, for a period of two years preceding their selection as financial underwriter.

802.11 Federal Arbitrage Compliance

802.11.1 Arbitrage is the difference between the yield on an issuer's taxexempt bond and the investment income earned on the proceeds. Arbitrage profits are earned when lower-yielding tax-exempt bond proceeds are invested in higher-yielding taxable securities.

802.11.2 Federal arbitrage restrictions imposed by the federal government prohibit an issuer from retaining arbitrage profits when investing bond proceeds at a yield that exceeds the yield on the bonds. The City will calculate or contract with a reputable firm to calculate, any arbitrage liability, and rebate such, to the U.S. Treasury in accordance with federal guidelines.