COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: City Debt Policy POLICY
NUMBER EFFECTIVE
DATE
PAGE
220-05 2/07/201711/12
/2024
1 of 1014
ADOPTED BY: Resolution No. 2014-012 DATED: January 1/14, /2014 AMENDED BY: Resolution NoNos. 2017-029 (2/07/2017); 2024-____ (11/12/2024)
BACKGROUND
The following policies have been developed to provide guidance in the issuance and management of debt by the City of Chula Vista. The main objectives are to establish conditions for the use of debt; to ensure that debt capacity and affordability are adequately considered; to minimize the City’s interest and issuance costs; to maintain the highest possible credit rating; to provide complete financial disclosure and reporting and; to maintain financial flexibility for the City.
Debt, properly issued and managed, is a critical element in any financial management program. It assists in the City’s effort to allocate limited resources to provide the highest quality of service to the public.
The City understands that poor debt management can have ripple effects that hurt other areas of the City. On the other hand, a properly managed debt program promotes economic growth and enhances the vitality of the City of Chula Vista (also referred to as, “City”) for its residents and businesses.
This Debt Policy will also applyapplies to any debt issued by the Successor Agency, the Chula Vis ta Public Financing Authority, the Chula Vista Municipal Financing Authority or, any Mello -Roos Community Facilities District formed by the City, or any other entity for which the City Council serves as the governing body, as applicable.
The Debt Policy has been developed to provide guidance in the issuance and management of debt by the City of Chula Vista or its related entities and is intended to comply with Government Code Section 8855(i), effective on January 1, 2017.
PURPOSE
To establish a formal City debt policy.
The purpose of the Debt Policy is to set forth the principles and objectives that should guide the City’s decisions in the responsible issuance and management of debt by the City. The main objectives are to establish conditions for the use of debt; to ens ure that debt capacity and affordability are adequately considered; to minimize the City’s interest and issuance costs; to maintain the highest possible credit rating; to provide complete financial disclosure and reporting ; and to maintain financial flexib ility for the City. In addition, t he Debt Policy is intended to comply with the requirements of California Government Code Section 8855(i), requiring any issuer of public debt to provide to the California Debt and Investment Advisory Commission (CDIAC), no later than thirty days prior to the sale of any debt, a report of the proposed issuance, including certification that the issuer has adopted local debt policies concerning the use of debt and that the proposed debt issuance is consistent with those policies.
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: City Debt Policy POLICY
NUMBER EFFECTIVE
DATE
PAGE
220-05 2/07/201711/12
/2024
2 of 1014
ADOPTED BY: Resolution No. 2014-012 DATED: January 1/14, /2014 AMENDED BY: Resolution NoNos. 2017-029 (2/07/2017); 2024-____ (11/12/2024) POLICY
GENERAL POLICIES
The Finance Team
All debt issued byof the City of Chula Vista or its related entities shall be issued under the direction of the City Manager or Director of Finance /Treasurer, with the Mayor and City Council providing final approval at a public meeting. The City Manager or Finance Director of Finance /Treasurer will determine the composition of the “Finance Team” involved in each issuance. The Finance Team mayshall consist of both City Staff and outside finance professionals. The Finance Director of Finance/Treasurer shall decide which City Staff and outside professionals, when utilized, to include on the Finance Team. Critical outside finance professionals include:
Underwriter: markets For negotiated sales, the Underwriter purchases the City’s debt and sells debtit to investors.
FinancialMunicipal Advisor: independent financial expert providing financial advice to the City on all aspects of debt.
Bond Counsel: legal counsel that prepares the resolutions, ordinances, agreements and other legal documents required.
Disclosure Counsel: provides legal advice on all disclosure documents and issues in connection to the financing. May be same entity that provides Bond Counsel services. Trustee: typically, a commercial bank or trust company responsible for the collection and repayment of principal and interest to bondholders, as well as administering the investment of reserve funds, accounting and disbursement of bond proceeds. DistrictSpecial Tax Consultant: provide special district expertise, statistics, data analysis, and disclosure support in the issuance of Special District debt . (e.g. Mello -Roos Community Facilities District and assessment district debt).
Selection of Outside Professionals
When identifying members The selection of the Financing Team , the selection of underwriters and financial consultants providing professional services shall be based upon qualifications, experience, and cost; typically, through a formal Request for Proposal ((“RFP)”) Process. Procurement of other services related to the issuance of debt shall be through a competitive bidding process whenever reasonable.
Depending on circumstances it may be advantageous for the City to participate in a pooled debt issuance with a number of local agencies where issue costs are shared and the underwriters and/or financial consultantsFinancing Team are pre -selected by the managing organization. Due to the overall cost savings involved, progr ams such as the California Statewide Communities Development Authority’s “Tax and Revenue Anticipation Note” program are options for the City to consider.
Use of Debt
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: City Debt Policy POLICY
NUMBER EFFECTIVE
DATE
PAGE
220-05 2/07/201711/12
/2024
3 of 1014
ADOPTED BY: Resolution No. 2014-012 DATED: January 1/14, /2014 AMENDED BY: Resolution NoNos. 2017-029 (2/07/2017); 2024-____ (11/12/2024) The City typically issues debt to fund long-term capital improvement projects and to refinance existing debt for debt service cost savings or other benefits. The City develops an annual capital improvement program ( “CIP”) budget. The City will consider the use of debt financing primarily for capital improvement projects (included in the CIP) when the project’s useful life will exceed the term of the financing and when ongoing resources are identified sufficient to fund the debt service requirements.
The CIP shall provide the basis for determining long -term capital needs of the City and may b e supplemented with longer term capital plans or master plans when appropriate. As necessary, the Finance Department shall work with the various City departments to develop financial forecasts related to the CIP to identify the optimal method to finance th e program, including pay-as-you-go (“pay-go”) and/or the issuance of debt obligations.
Some exceptions to this CIP -driven focus are the issuance of debt such as Pension Obligation Bonds, where the financial benefits areto pay the pension liability are estimated to be significantly greater than the costs and where the benefits are determined to be a financially prudent option; and short -term instruments such as tax and revenue anticipation notes, which are to be used for prudent cash management purposes. Bonded debt should not be issued for projects with minimal public benefit or support, or to finance normal operating expenses.
If a department has any project which is expected to use debt financing, the department director is responsible for expeditious ly providing the Finance Department with reasonable cost estimates, including specific revenue accounts that will provide payment for the debt service. This will allow the Finance Department to do an analysis of analyze the project’s potential impact on th e City’s debt capacity and limitations.
While the preferred means of financing projects is the pay-go method of using current revenues to pay for capital projects because it avoids financing costs, the City would be able to undertake capital projects under this method only if sufficient cash accumulates. Prudent use of debt financing rather than pay-go funding of capital projects distributes the cost of a project over its useful life, facilitates better allocation of resources , and increase s financial flex ibility. Debt can also be used in conjunction with pay -go financing to pay only a portion of the project using debt if insufficient funds are available from non - debt sources.
Below are the conditions under which debt may be a better choice for the City:
Low interest rates. Low interest rates mean a lower total cost of borrowing.
Soft construction market. The community can benefit if the City uses debt to build more assets while construction costs are low.
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: City Debt Policy POLICY
NUMBER EFFECTIVE
DATE
PAGE
220-05 2/07/201711/12
/2024
4 of 1014
ADOPTED BY: Resolution No. 2014-012 DATED: January 1/14, /2014 AMENDED BY: Resolution NoNos. 2017-029 (2/07/2017); 2024-____ (11/12/2024) The asset has a long useful life. Assets that last a long time will benefit residents far into the future. It is fair for these future residents to help pay the cost of the asset by paying for some of the debt.
The City forecasts show that debt is affordable. Debt adds a long -term cost to the budget.
However, the affordability of debt may be a more equitable method of funding the capital needs at the outset, and paying for the obligation over the long-term.
Use of debt is consistent with legal and other li mits. Applicable federal, state and local law and this policy (unless any provision of this policy is waived by City Council) describe limits that the City must observe.
Bonded debt should not be issued for projects with minimal public benefit or support, or to finance normal operating expenses.
There are many cases where debt is not the right financing tool. Below are important cases where debt should not be used:
Paying for ongoing public services. Ongoing public services benefit current residents, but debt will be paid by future residents.
Life of the debt is longer than the life of the capital asset it funds. If the debt lasts longer than the capital asset, then future residents will pay for an asset that they do not benefit from. Cost of issuing debt is too high. The City has to pay certain costs and fees to issue debt. These costs may outweigh the benefits that debt provides, especially for small capital projects.
Relationship of Debt to Capital Improvement Program and Budget
The City intends to issue debt for the purposes stated in this Debt Policy and to implement policy decisions incorporated in the City’s capital budget and the capital improvement plan.CIP.
The City shall strive to fund the upkeep and maintenance of its i nfrastructure and facilities due to normal wear and tear through the expenditure of available operating revenues. The City shall seek to avoid the use of debt to fund infrastructure and facilities improvements that are the result of normal wear and tear, unless a specific revenue source has been identified for this purpose, such as Gas Tax.
The City shall integrate its debt issuances with the goals of its capital improvement program CIP by timing the issuance of debt to ensure that projects are available when needed in furtherance of the City’s public purposes.
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: City Debt Policy POLICY
NUMBER EFFECTIVE
DATE
PAGE
220-05 2/07/201711/12
/2024
5 of 1014
ADOPTED BY: Resolution No. 2014-012 DATED: January 1/14, /2014 AMENDED BY: Resolution NoNos. 2017-029 (2/07/2017); 2024-____ (11/12/2024)
The City shall seek to issue debt in a timely manner to avoid having to make unplanned expenditures for capital improvements or equipment from its general fundGeneral Fund.
Policy Goals Related to Planning Goals and Objectives
The City is committed to financial planning, maintaining appropriate reservesreserve levels and employing prudent practices in governance, management and budget administration. The City intends to issue debt for the purposes stated in this Debt Policy and to implement policy decisions incorporated in the City’s annual operating budget.
It is a policy goal of the City to protect taxpayers, ratepayers and constituentsresidents by utilizing conservative financing methods and techniques so as to obtain the highest practical credit ratings (if applicable) and the lowest practical borrowing costs.
The City will comply with applicable state and federal law as it pertains to the maximum term of debt and the procedures for levying and imposing any related taxes, assessments, rates and charges.
Except as described under the caption “DEBT ISSUANCE” below, when refinancing debt, it shall be the policy goal of the City to realize, whenever possible, and subject to any overriding non -financial policy considerationspracticable, minimum net present value debt service sa vings equal to or greater than 5% of the refunded principal amount.
TYPES OF DEBT INSTRUMENTS
In order to maximize the financial options available to benefit the public, it is the policy of the City to allow for the consideration of issuing all generally accepted types of debt, including, but not exclusive toexclusively, the following:
General Obligation (GO) Bonds : General O bligation Bonds are suitable for use in the construction or acquisition of i mprovements to real property that benefit the public at -large.
Examples of projects include libraries, parks, and public safety facilities. AllUnder current State law and the City Charter, GO bonds require a 2/3 vote of the electorate in order to pass. Revenue Bonds : Revenue Bonds are limited-liabilityspecial obligations tied to a specific enterprise revenue stream where the projects financed clearly benefit or relate to the enterprise.
An example of projects that would be financed by a Revenue Bond would be improvements to the sewer system, which would be paid back with money raised from the property owner’s sewer bills. Generally, no voter approval is required to issue this type of obligation but any rate setting process for the enterprise must comply wit h propositionProposition 218 regarding rate adjustments.
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: City Debt Policy POLICY
NUMBER EFFECTIVE
DATE
PAGE
220-05 2/07/201711/12
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6 of 1014
ADOPTED BY: Resolution No. 2014-012 DATED: January 1/14, /2014 AMENDED BY: Resolution NoNos. 2017-029 (2/07/2017); 2024-____ (11/12/2024) Lease Revenue Bonds / (LRB)/Certificates of Participation (COP) : Lease Revenue Bonds (LRB)LRBs and COPs are commonly used to allow the City to finance projects. The LRBs and the COPs are secured by a lease from the City pursuant to which lease payments are made and budgeted for annually in an appropriation typically from the General Fund. These lease financings do not constitute indebtedness under the State Constitution or the City Charter and do not require voter approval.
Special Assessment/Special District Debt : the City will consider requests from developers for the use of debt financing secured by property -based assessments or special taxes in order to provide for necessary infrastructure for new development only under strict guidelines adopted by the City Council, which may include minimum value -to-lien ratios and maximum tax burdens. Examples of this type of debt are Assessment Districts (AD) and Community Facilities Districts (CFD) or more commonly (also known as Mello -Roos Districts.). In order to protect bondholders as well as and limit reputational risk to the City’s credit rating, all City, the Rate and Method of Apportionment (RMA) documents of Special Tax for any City CFD must include provisions that will result in maximum projected annual special tax revenues equal to butof not less than 110% of the projected annual gross debt service on any bonds of the CFD. The City will also comply with all State guidelines regarding the issuance of special district or special assessment debt. For further information, refer to the City of Chula Vista Policy No. 505-04, last updated October 24, 2023, titled “ Statement of Goals and Policies Regarding the Establishment of Community Facility Districts.”.
Industrial Development Bonds –: Industrial Development Bonds (IDBs) are tax -exempt securities which can fund manufacturing businesses or energy development projects which provides a public benefit. While the authorization to issue IDBs is provided by a state statute, the tax-exempt status of these bonds is derived from federal law (IRS Code Section 103(b) (2).)). Tax Allocation Bonds –: Tax Allocation Bonds are special obliga tions that are secured by the allocation of tax increment revenues that were generated by increased property taxes in the designated redevelopment area. Tax Allocation Bonds are not debt of the City. Due to changes in the law affecting California Redevel opment agencies with the passage of ABX1 26 as codified in the California Health and Safety Code, the City of Chula Vista Redevelopment Agency (RDA) was dissolved as of February 1, 2012, and its operations substantially eliminated but for the continuation of certain enforceable RDA obligations to be administered by the City of Chula Vista Successor Agency. The terms of ABX 1ABX1 26 requiresrequire successor agencies to perform all obligations with respect to enforceable debt obligations, which include Tax Allocation Bonds.
Multi-Family Mortgage Revenue Bonds –: The City Housing Authority is authorized to issue mortgage revenue bonds to finance the development, acquisition and rehabilitation of multi - family rental projects. The interest on the bonds can be exempt from Federalfederal and Statestate taxation. As a result, bonds provide below market financing for qualified rental projects. In addition, the bonds issued can qualify projects for allocations of Federalfederal low-
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: City Debt Policy POLICY
NUMBER EFFECTIVE
DATE
PAGE
220-05 2/07/201711/12
/2024
7 of 1014
ADOPTED BY: Resolution No. 2014-012 DATED: January 1/14, /2014 AMENDED BY: Resolution NoNos. 2017-029 (2/07/2017); 2024-____ (11/12/2024) income housing tax credits, which can provide a significant portion of the funding necessary to develop affordable housing. For further information, refer to the Chula Vista Housing Authority – Multi-Family Administrative Bond Policies.
HUD Section 108 Loan Guarantee Program –: The U.S. Department of Housing and Urban Development (HUD) Section 108 Loan Guarantee Program allows cities to use their annual Community Development Block Grant (CDBG) entitlement grants to obtain federally guaranteed funds large enough to stimulate or pay for ma jor community development and economic development projects. The program does not require a pledge of the City’s General Fund, only of future CDBG entitlements. By pledging future CDBG entitlement grants as security, the City can borrow at favorable inter est rates because of HUD’s guarantee of repayment to investors.
Pension Obligation Bonds –: Pension Obligation Bonds (POB) are bonds (usually taxable) which are issued to finance an unfunded pension liability of the entity. Small-Equipment Lease Financing. The City may employ small equipment lease financing at the request of City departments after analysis and due -diligence review by the Finance Department. Requests from City departments must demonstrate the need (e.g., legal, environmental, cash flow) for small equipment lease financing, and the City departments must provide projected drawdown schedules showing that borrowed funds will be spent in accordance with requirements of the Internal Revenue Service (IRS), if applicable. State and Federal Loans. From time -to-time, the State and the federal government offer loan programs for specified types of projects which may be at subsidized interest rates. The City may obtain such loans to be repaid from the revenues of the enterprise to which the fi nanced project relates or from the City’s General Fund, as applicable. Such loans may be structured as installment sale agreements, lease revenue bonds or such structure as the City may deem appropriate to comply with applicable law.
DEBT AFFORDABILITY AND LIMITATIONS
Debt capacity and affordability will be determined by conducting various analyses prior to the issuance of bonds. The analysis of debt capacity should cover a broad range of factors including but not limited to the following:
Statutory or constitutional limitations affecting the amount that can be issued, such as legally authorized debt limits and tax or expenditure ceilings. Other legal limitations, such as coverage requirements or additional bonds tests imposed by bond covenants.
Evaluation of trends relating to the government’s financial performance, such as revenues and expenditures, net revenues available after meeting operating requirements, reliability of revenues expected to pay debt service and unreserved fund balance levels. Debt service as a percentage of total General Fund Revenuesrevenues.
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: City Debt Policy POLICY
NUMBER EFFECTIVE
DATE
PAGE
220-05 2/07/201711/12
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8 of 1014
ADOPTED BY: Resolution No. 2014-012 DATED: January 1/14, /2014 AMENDED BY: Resolution NoNos. 2017-029 (2/07/2017); 2024-____ (11/12/2024)
TheAssessed valuation of property within the City.
With respect to General Fund -backed obligations, the City will attempt to limit the total amount of annual debt service payments payable by the General Fund to no more than 10% of estimated total General Fund revenues . Under state law, general obligation bonds shall not exceed 15% of total assessed valuation within the City. In addition, in analyzing the affordability of debt to be repaid from the General Fund, the City should take into consideration other long -term costs which are also paid from the General Fund, such as pension and other benefit costs.
With respect to general obligation bonds, state law and the City’s Charter limit the amount of general obligation bonds to be issued to 15% or less of total assessed valuation within the City.
With respect to enterprise financings, in accordance with bond covenants, the revenues generated by the applicable enterprise must be sufficient to maintain the required coverage levels.
With respect to small-equipment lease financings, consideration sh ould be given to the burden on the fund expected to repay the financing and the impact on the General Fund, if any.
An analysis using current market rates and conservative projections showing compliance with the debt affordability limitations included in this Debt Policy shall be conducted before the issuance of any debt with a maturity longer than two years from date of issue.
Data showing direct and overlapping debt levels for the City of Chula Vista and surrounding agencies that affect the residents of the City shall be compiled for inclusion in the Annual Comprehensive Annual Financial Report (CAFR) of the City.
DEBT STRUCTURING
In order to maximize financial flexibility in a constantly-changing debt market, the City shall be allowed to structure its debt issuances using generally accepted methods for municipalities.
The guiding principal shall be to structure debt issuances so that the City’s overall costs are minimized while still maintaining or increasing the City’s credit rating. Allowable str uctures include, but are not limited to the issuance of:
Serial and/or Term Bonds: Serial Bonds are those in an issue that mature in consecutive years, whereas Term Bonds come due in a single maturity but are paid in part each year from sinking fund installments.
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: City Debt Policy POLICY
NUMBER EFFECTIVE
DATE
PAGE
220-05 2/07/201711/12
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ADOPTED BY: Resolution No. 2014-012 DATED: January 1/14, /2014 AMENDED BY: Resolution NoNos. 2017-029 (2/07/2017); 2024-____ (11/12/2024) Fixed and Variable Rate Debt : Fixed rate debt is when an interest rate on a security does not change for the remaining life of the security, where Variablevariable rate debt or “floating rate” changes at intervals according to market conditions or a predetermined index or formula. Capital Appreciation/Zero Coupon Bonds: Capital Appreciation/Zero Coupon Bonds are bonds sold at an original issue discount on which no periodic interest payments are made prior to maturity. Interest compounds semiannu ally at a stated interest rate. At maturity the original principal amount plus all accreted interest is paid to the investor. Bonds with Capitalized Interest: Bonds with capitalized interest have a portion of the proceeds of an issue set aside to pay interest on the bonds for a specified period of time. Senior and Junior Lien Structures: Senior Lienlien bonds have a priority claim against pledged revenues, while Junior Lienjunior lien bonds have a subordinate claim against pledged revenues or other security.
Debt service should be structured so that annual combined principal and interest payments do not dramatically vary year over year. This provides resulting in greater budget stability. Limited exceptions from level debt service will be allowed for individual debt issues when level debt service is unsuitable; for instance in the case of some refunding of debt , or when a policy decision is made to use variable rate debt.
Redemption provisions should generally be included in most issuances, providing they are structured in a reasonable and cost -efficient manner as determined by the Director of Finance/Treasurer, or designee. Redemption options include but are not limited to:
Redemption options include but are not limited to:
Optional Redemption: a call or prepayment provision option that is givinggiven to the issuer, often only on or after a specified date.
Mandatory Redemption: a call or prepayment provision requiring the issuer to redeem or call the bond “in-whole” which is all at once, or “ in part” which is only a portion on a scheduled basis.
Credit enhancement, such as letters of credit or bond insurance, may be purchased when the cost of enhancement is more than recovered by the debt service savings created. Entering into a financing utilizing letters of credit or insurance must be planned for and determined to be feasible by the Director of Finance/Treasurer, or designee.
Maximum Maturity
Debt obligations shall have a maximum maturity of the earlier of:
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: City Debt Policy POLICY
NUMBER EFFECTIVE
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220-05 2/07/201711/12
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ADOPTED BY: Resolution No. 2014-012 DATED: January 1/14, /2014 AMENDED BY: Resolution NoNos. 2017-029 (2/07/2017); 2024-____ (11/12/2024) the reasonably estimated useful life of the Capital Improvementscapital improvements being financed; or,
thirty years; or,
in the event they are being issued to refinance outstanding debt obligations , the final maturity of the debt obligations being refinanced, unless a longer term is recommended by the Finance Team.
Such other terms which meet the financing goals of the debt issuance.
The term of any debt issued should not exceed the useful life the asset is funding. The average weighted bond maturities of all debt should be 25 years or less.
DEBT ISSUANCE
The City will strive to minimize borrowing costs by:
Seeking the highest credit rating possible;
Maintaining transparency and excellent communications with credit rating agencies regarding the City’s fiscal condition;
Purchasing bond insurance or taking action to upgrade the City’s current credit rating.
It shall be the policy of the City to allow the issuance of debt through public sale or private placement, and via competitive or negotiated sales underwriting methods. Consistent with the goal of minimizing costs, competitive sale shall be evaluated and utilized unless the Director of Finance/Treasurer decides that a negotiated sale is warranted. Factors that may impact this decision include:
Issuer/Issue Recognition : competitive sales are easier for an issuer that investors and underwriters are familiar with. If extensive marketing is needed to educate the market about the issuer or the specific credit to be sold, a negotiated sale maybe more appropriate. Similarly, even if the issuer is well-known, if the issue itself has a “story” that needs to be told, a negotiated sale may be needed to enhance the marketing and acceptance of the debt. Issue Size: very large or very small deals may benefit from a negotiated sale over a competitive sale.
Debt Type: GO bonds and other well-known and accepted debt structures are generally suitable for competitive sales. Others such as CFDs, variable rate , or innovative structures may benefit from a negotiated sale.
Credit Ratings: issuers with high credit ratings and insured bonds lend themselves to competitive sales. UninsuredUnrated or lower rated issues are often more suitable for negotiated sales. Market Conditions and Sale Timing: during periods of stable interest rates, market timing is not as critical. However, during times of market uncertainty when conditions are volatile, the flexibility of a negotiated sale may allow an issuer to adjust timing of the sale date and capture
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: City Debt Policy POLICY
NUMBER EFFECTIVE
DATE
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220-05 2/07/201711/12
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ADOPTED BY: Resolution No. 2014-012 DATED: January 1/14, /2014 AMENDED BY: Resolution NoNos. 2017-029 (2/07/2017); 2024-____ (11/12/2024) additionalbecomes more critical. Bond refundings are often very interest rate sensitive in terms of potential level of savings or the general feasibility of the refunding. A negotiated sale provides more flexibility in terms of t he structure and timing of the bond sale and may be more appropriate when issuing refunding bonds and when interest rates are volatile.
Refunding bonds are issued to retire all or a portion of an outstanding bond issue, typically to refinance at a lower i nterest rate and reduce debt service payment costs. Alternatively, a refunding transaction may be undertaken for reasons other than to achieve cost savings, such as to restructure debt service payments, to change the type of debt instruments being used, or to eliminate undesirable covenants. In any event, a present value savings analysis shall be prepared that identifies the financial effects of any refunding being considered.
The City will seek to issue refunding bonds with the minimum goal of 5% net present value savings of the par valueprincipal amount of the proposedrefunded bonds. Anything less than an anticipated 5% savings will require additional analysis discussing the benefits of the refunding due to the cost associated with refunding debt., which may include benefits to the City apart from debt service savings (including, but not limited to, eliminating restrictive or burdensome covenants or restructuring debt to shorten/lengthen the term of the debt) . Consideration shall be given to the benefit of delaying a refunding in a declining interest rate environment to capture maximum savings at the least cost.
A periodic review of the City’s outstanding debt will be perfor med by the Finance Department to identify potential refunding opportunities.
DEBT MANAGEMENT PRACTICES
Internal Control Procedures
When issuing debt, in addition to complying with the terms of this Debt Policy, the City shall comply with any other applicable policies regarding initial bond disclosure, continuing disclosure, post - issuance compliance, and investment of bond proceeds. The Director of Finance/Treasurer shall be the Officer of the City charged with primary responsibility for administering and implementing these internal control procedures.
The City will periodically review the requirements of and will remain in compliance with the following:
• any Any continuing disclosure undertakings under Rule 15c2 -12 of the Securities and Exchange Commission (SEC).,),
• anyAny federal tax compliance requirements, including without limitation arbitrage and rebate compliance, related to any prior bond issues, and and
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: City Debt Policy POLICY
NUMBER EFFECTIVE
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ADOPTED BY: Resolution No. 2014-012 DATED: January 1/14, /2014 AMENDED BY: Resolution NoNos. 2017-029 (2/07/2017); 2024-____ (11/12/2024) • theThe City’s investment policies as they relate to the investment of bond proceeds. With respect to LRBs or COPs which involve the leasing of City property, the restrictions on the use of the leased property as set forth in the financing leases.
Disclosure
The City will comply with SEC Rule 15(c) 2-12 and provide timely disclosure of relevant information on an annual basis as well as any event notices as required. The City will fulfill its obligations as covenanted in all the Continuing Disclosure Agreementscontinuing disclosure undertakings associated with any active issuance.outstanding debt obligations. Documents are distributed through the Electronic Municipal Market Access (EMMA) website which can be viewed at any time by the public.
The City recognizes the importance of accuracy in disclosure documents and will strive to provide full and complete disclosure. To ensure accuracy of stated facts, directors of any department that originally provided or produced any data appearing in a disclosurean offering document for the City’s debt will provide a written statement certifying the accuracy of their department’s data along with a statement denying knowledge of a ny misstatements or material omissions in the remainder of the disclosure document. The City has adopted disclosure policies and procedures which set forth in greater detail the City’s processes with respect to producing information for offering documents and continuing disclosure filings.
The City will determine on a case-by-case basis whether or not to retain the services of an independent disclosure counsel.
Arbitrage
In the past, agencies took advantage of their ability to borrow at tax-exempt rates and invest the proceeds at higher rates, thus earning positive arbitrage. Since 1986, the federal tax code requires issuers of long- term, tax -exempt debt to rebate positive arbitrage to the federal government . under certain circumstances. The City will diligently monitor its compliance with all federal arbitrage regulations.
Due to the complex nature of arbitrage calculations, the City may elect to h ire an outside expert consultant to perform this function.
Compliance with Tax Law Provisions
The City will diligently monitor its compliance with all bond legal covenants, as well as Federalfederal and Statestate requirements, with the assistance of its Finance Team and consultants. Furthermore, recognizing that the smallest of mistakes can lead to the appearance of conflicts of interest or wrongdoing, which in turn may lead to severe consequences, including crimi nal charges, the City will make every effort to ensure its debt financing conduct is above reproach.
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: City Debt Policy POLICY
NUMBER EFFECTIVE
DATE
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220-05 2/07/201711/12
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ADOPTED BY: Resolution No. 2014-012 DATED: January 1/14, /2014 AMENDED BY: Resolution NoNos. 2017-029 (2/07/2017); 2024-____ (11/12/2024) Investment of Bond Proceeds
The City shall comply with Federalall federal, state, and State regulations governing indenture restrictions, if any, regarding the use and investment of bond proceeds. Each issue shall detail allowable investments within the authorizing resolution or Trust Agreements,applicable financing documents, to which the City will adhere to. Where not specifically spelled out, the City will apply the City investment policy guiding principal commonly referred to as “SLY ”;:” Safety, Liquidity, and Yield, in that order of priority.
Records Retention
The City will retain records sufficient to demonstrate compliance with the requirements of federal and State law necessary to preserve the tax-exempt nature of any City Bonds or other debt for the period required by law, presently understood to be the life of the debt obligations or any succeeding refunding obligations plus 3 years.
Other Provisions
Bond proceeds, reserve, and repayment funds, should have separate accounting from operating or other funds, at a level distinct enough to facilitate arbitrage compliance calculations and ease of debt service and expenditure tracking. Whenever reasonably possible, proceeds of debt will be held by a third-party trustee and the City will submit written requisitions for such proceeds. The City will submit a requisition only after obtaining the signature of the City Manager or the Director of Finance/Treasurer.
The maximum size of a debt service reserve funded from tax -exempt bond proceeds allowed under federal tax law, is the lesser of (1) ten percent (10%) of the issuance amount (par); (2) one-hundred- twenty-five percent (125%) of the average annual debt service; or (3) maximum annual debt service.
The City shall have the option to issue debt with a debt service reserve fund that is less than the maximum allowable or without a reserve.
The City Manager or the Director of Finance/Treasurer shall have the authority to determine whether to establish a debt service reserve fund, the size of any debt service reserve fund, and the investments to be purchased within the reserve. Factors to consider include the cost of a debt service reserve fund over the life of the bonds compared to expected interest earnings, and bond pricing and credit rating impacts.
A debt service reserve may be funded with a surety policy when economically feasible, as determined by the Director of Finance/Treasurer.
If any part of this Debt Policy conflict with Federalfederal or Statestate laws, or the City of Chula Vista Municipal Code, or Charter, such provisions will take precedence over this Debt Policy.
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: City Debt Policy POLICY
NUMBER EFFECTIVE
DATE
PAGE
220-05 2/07/201711/12
/2024
14 of
1014
ADOPTED BY: Resolution No. 2014-012 DATED: January 1/14, /2014 AMENDED BY: Resolution NoNos. 2017-029 (2/07/2017); 2024-____ (11/12/2024)
RELATIONSHIP TO OTHER POLICIES
The City has adopted a Policy No. 505-04, last updated October 24, 2023, titled “ Statement of Goals and Policies Regarding Establishment of Community Facility Districts” for the Use of The Mello-Roos Community Facilities Act of 1982, included as Exhibit A hereto. Special Tax Bonds issued on behalf of a CFD will also comply with these policy requirements., as applicable.
WAIVERS OF DEBT POLICY
There will be circumstances from time to time when strict adherence to a provision of this Deb t Policy is not possible or not in the best interest of the City. If the City Manager or Director of Finance/Treasurer has determined that a waiver of one or more provisions of this Debt Policy should be considered by the City Council, it will include in the agenda bill the rationale for the waiver and the impact of the waiver on the proposed debt issuance and on taxpayers, if applicable.
Upon a majority vote of the City Council, one or more provisions of this Debt Policy may be waived for a debt financing.
The failure of a debt financing to comply with one or more provisions of this Debt Policy shall in no way affect the validity of any debt issued by the City in accordance with applicable laws.