Agenda packet — Finance Committee, April 13, 2022 (part 2 of 2)

 Residential and commercial organic collection services  Processing, sorting, and recycling of organic waste
 Procurement of recycled paper content products by the City and vendors  Donation of material produced at the City’s Composting Facility in compliance with a citywide organic procurement target
 Inspections and enforcement related to organic collection and recycling  Public education and outreach
On June 22, 2021, by Resolution 2021-227, Council approved an agreement with R3 Consulting Group, Inc. to provide a gap analysis between the City’s solid waste program and SB 1383 mandates and recommendations for future action to ensure compliance.

DISCUSSION:

The City chose to coordinate with an independent consultant with expertise in implementing SB1383 requirements in lieu of developing a compliance plan internally, because SB 1383 mandates could lead to significant changes in waste collection, waste processing, administrative responsibilities, and cost of service. Including an independent consultant in this process ensures that the City receives an impartial recommendation for changes resulting from the State’s unfunded mandate that will impact Modesto’s residents and businesses.

R3 Consulting Group, Inc. has provided the attached report, “SB 1383 Collection Program and Compliance Options” detailing their analysis. The report includes the following collection options:

Option A: Two-container collection program, with a 96-gallon organic container that accepts yard, food, and paper waste, and a 96-gallon trash container that accepts other household trash. Commercial accounts would have the option of having a single bin that is sorted postcollection, or a designated organics bin, if they produce more than two yards of organic waste.

Option B: (Preferred Option) Three-container collection program, with a 96-gallon organic container that accepts yard, food, and paper waste, a 96-gallon recycling container that accepts glass, some metals and plastics, and clean recyclable paper, and a 96-gallon trash container that accepts other household trash. The trash container would be serviced weekly, and the recycling and organic containers would be serviced bi-weekly. Commercial accounts that produce organic waste or recyclables would need another commercial bin or, in some cases where less waste is produced, would need a 96-gallon organic and/or recyclable container.

Option C: Three-container collection program, with a 96-gallon organic container that accepts yard, food, and paper waste, a 96-gallon recycling container that accepts glass, some metals and plastics, and clean recyclable paper, and a 96-gallon trash container that accepts other household trash. The trash and organic containers would be serviced weekly, and the recycling container would be serviced bi-weekly. Commercial accounts that produce organic waste or recyclables would need another commercial bin or, in some cases where less waste is produced, would need a 96-gallon organic or recyclable container.

Option D: Three-container collection program, with a 96-gallon organic container that accepts yard, food, and paper waste, a 96-gallon recycling container that accepts glass, some metals and plastics, and clean recyclable paper, and a 96-gallon trash container that accepts other #2..
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household trash. All containers would be serviced weekly. Commercial accounts that produce organic waste or recyclables would need another commercial bin or, in some cases where less waste is produced, would need a 96-gallon organic or recyclable container.

SURVEY RESULTS:

City staff posted a Solid Waste and Collection Services Survey on the City’s website. The survey ran for three weeks. The Survey was sent directly via email to different associations within the cities, and it was posted on several social media outlets (Facebook, Instagram, Twitter, Next Door, and LinkedIn). The results of the survey are shown below:

Residents 843
Businesses 9
Multi Family 20
Total Responses 872
FISCAL IMPACT:

Accepting R3’s report and recommended waste collection method would coincide with a future rate increase for both residential and commercial garbage service. Originally, staff and R3 recommended option C. However, as a result of the survey feedback, 54% of residents favored Option B (Bi-weekly Green and Blue pickup). Therefore, staff is recommends proceeding with Option B as a one-year pilot study for the bi- weekly green can collection. Proceeding with this option would necessitate a 16% increase in the residential rate, and 16% increase in the commercial rate. This increase would fund the collection method change, as well as programs required by SB 1383 as detailed in the “SB 1383 Collection Program and Compliance Options,”.

This includes: education and outreach conducted by the City and haulers, organic waste processing to remove contamination, required improvements to the City’s Compost Facility, inspections and route reviews, enforcement programs for contamination or noncompliance, and food recovery programs.
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City staff recommends rate changes be phased in, according to the following schedule:

Option B: Residential
Three-Container (BiWeekly Green and BiWeekly Blue)
Option B: Commercial 1
CY
Three-Container (Weekly
Green and Bi-Weekly
Blue)
Current Rate $37.45 $54.09
Total Estimated Rate Increase $7.01 $10.14
Estimated July 1, 2022 Rate $40.21 $58.08
Rate Increase $2.76 $3.99
Estimated January 1, 2023 Rate $44.46 $64.23
Rate Increase $4.25 $6.15
Estimated Percentage Increase 18.71% 18.74%
Additionally, the Haulers will receive a fuel rate increase of $0.26 for the residential accounts and $0.33 for the commercial accounts. To calculate the residential fuel component, a factor of

0.26 gallons of diesel fuel per residence per month was used, and for the commercial fuel component, a factor of 0.075 gallons of diesel fuel per cubic yard was used. For this rate review, the average diesel fuel prices for 2021 were analyzed, and staff recommends a fuel adjustment for both residential and commercial maximum rates based on the prices of diesel fuel during that year.

The tables below shows how the rate increase will be distributed to the different programs:

Option B: 3-Container Program- Bi-weekly Organics and Recycling (Residential) Current Increase 07/01/22 Increase 01/01/23
Base Rate $ 31.13
Fuel Rate Adjustment $ 0.26
Compost Fee $ 1.70
SB 1383 Collection Fee $ 3.70
Hauler SB 1383 Fee $ 0.55
Organic Waste PreProcessing$ 0.30
City Implementation $ 0.50
Recycling Fees $ 0.46
Green Waste $ 5.01
Litter Abatement
Carpenter Road $ 0.70
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Geer Road $ 0.15
Total Increase $ 2.76 $ 4.25
Total Residential Garbage
Rate
$ 37.45 $ 40.21 $ 44.46
Option B: 3-Container Program- Bi-weekly Organics and Recycling (Commercial) Current Increase 07/01/22 Increase 01/01/23
Base Rate $ 41.53
Fuel Rate Adjustment $ 0.33
Compost Fee $ 2.48
SB 1383 Collection Fee $ 5.35
Hauler SB 1383 Fee $ 0.80
Organic Waste PreProcessing$ 0.45
City Implementation $ 0.73
Recycling Fees $ 0.63
Green Waste $ 10.18
Litter Abatement $ 0.59
Carpenter Road $0.95
Geer Road $ 0.21
Total Proposed Increase $ 3.99 $ 6.15
Total Commercial Garbage
Rate
$ 54.09 $ 58.08 $ 64.23
Approved by:

Bill Sandhu, Public Works Director
Joseph P. Lopez, City Manager
Attachments:

1. “SB 1383 Collection Program and Compliance Options”- Draft report submitting by R3 Consulting Group, Inc. on 2/2/22
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CITY OF MODESTO

COMMITTEE AGENDA REPORT
DATE OF MEETING:

April 13, 2022
Date: March 23, 2022
TO: Finance Committee
David Wright, Chair
Rosa Escutia-Braaton, Vice-Chair
Bill Zoslocki, Member
FROM: Joseph P. Lopez, City Manager
SUBJECT: Equipment Use and Broadcasting Agreement with Central Valley Media Center MyTV26
CONTACT: Stephan Christensen, Budget Manager, [email protected], 209-577-5390
DESCRIPTION:

Consider approving an Equipment Use and Broadcasting Agreement with Central Valley Media Center MyTV26 for the purchase and lease of a TelVue HyperCaster AIO B2000-4+ Digital Broadcast Server from TelVue Corporation, for an amount of $33,236 plus $3,324 in contingency (if needed) for a total amount not to exceed $36,560, amending the Fiscal Year 2021-22 Annual Operating Budget to increase the expenditure budget in the Public Educational and Governmental Fund cost center in the amount of $36,560 to fund the purchase of the server and authorizing the City Manager to negotiate and execute the final terms of the agreement with Central Valley Media MyTV26. (Funding Source: Public, Education, and Government (PEG) Funds)
STRATEGIC PLAN ELEMENT:

This item supports the City of Modesto 2020-2025 Strategic Plan focus on Governance and Service Delivery under Goal H: Achieve Financial Sustainability.

BACKGROUND:

MyTV26 is Modesto’s public access station and serves the communities of Modesto and the surrounding Stanislaus County area. The stations content can be viewed on Comcast channel 26 throughout Stanislaus County and also streams simultaneously at www.Mytv26.TV. The station has a target audience that includes all residents of Modesto and the communities of Stanislaus County. It provides various types of content to the community including, talk shows, Sunday programs for local faith-based organizations, an advertising platform for local businesses through sponsorships, cooking shows, and more. The City of Modesto also benefits from its relationship with MyTV26, as the station has televised city events including the Annual Fourth of July Celebration parade hosted by the Modesto Kiwanis Club. #3..
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Finance Committee, April 13, 2022
MOU for Broadcast Server and Broadcast Time with MyTV26

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MyTV26 provides a valuable telecommunications medium to the community in the form of a public access station. It provides an opportunity for residents to create content and to have access to content created by others in the community. MyTV26 is looking to partner in more meaningful ways with the various levels of local government in the community in order to enrich its broadcasting abilities and extend its reach to those that hope to take advantage of the station’s opportunities. The City of Modesto would be the first to formally partner with MyTV26 in an effort to both meet their goal to increase their reach across the local community to provide another means of delivery of messages and important information to our residents.

DISCUSSION:

The City has been working with MyTV26 to develop the first steps in their goal of strengthening collaboration with the local government agencies like the City and the County. As part of these initial steps, the City would like to bring forward to the City Council a recommendation to address one of the initial capital needs for the station.

MyTV26 currently houses its streaming equipment in the Stanislaus County Office of Education building. The broadcast server that is currently in use to stream all of station’s content is capable, but in need of an update to meet today’s streaming and content demands of its creators. Staff recommends entering into an Equipment Use and Broadcasting Agreement with MyTV26 that would define the terms for a purchase and use agreement in which the City would purchase a new broadcast server and then it would be used by MyTV26 at no cost to the station. The new broadcast server would allow MyTV26 to be seen on multiple platforms and give the station’s producers a larger audience for the content they create. This, in turn, will allow the community to receive important information for any content that our local government agencies might want to broadcast on the channel as well. The new broadcast server will also provide for automatic “Closed Captions” for the hearing impaired and translation subtitles for said content.

MyTV26 currently uses proprietary software from TelVue Corporation to run its streaming and broadcasting services. This software is only compatible with hardware from the same company which has resulted in the need to purchase a broadcast server from TelVue Corporation. The broadcast server that is recommended to be purchased is a TelVue HyperCaster AIO B2000-4+ Digital Broadcast Server which will include a five-year service plan.

TelVue Corporation specializes in broadcast technology and assists video broadcasters in automating channels, and expanding audiences across multiple screens. A bid waiver justification has been completed as Attachment A in this agenda report as this purchase will be conducted as a sole source purchase under the City’s purchasing policies.

The City’s Administrative Directive (AD) 7.5 – Purchasing Policy provides that small purchases valued from $3,501 to $50,000 must obtain three quotes unless an exception is granted by the Purchasing Manager that falls under the policy exception. This purchase falls under the exception of sole source or sole brand. Because TelVue is the original manufacturer, sole distributor, and single-source of maintenance and support of the TelVue HyperCaster AIO B2000-4+ Digital Broadcast Server, this purchase qualifies for an exemption as defined under AD 7.5.

As an additional part of this agreement, MyTV26 will provide the City with 3 hours per month for one year of broadcast time on the station. In addition, the station will also broadcast the #3..
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Finance Committee, April 13, 2022
MOU for Broadcast Server and Broadcast Time with MyTV26

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completed City Council meetings after they have finished their live broadcast and prior to the next City Council meeting. This will be a step towards growing the partnership between MyTV26 and the City as it will not only allow the City to have another platform to broadcast information to our citizens about City business and events, but it will also allow MyTV26 to expand its reach through promotion via City media platforms.

FISCAL IMPACT:

The City will make the use of Public, Education, Government (PEG) Funds to pay for the broadcast server that will be purchased in the amount of $33,236. A 10% contingency amount of $3,324 has been added to this amount for any potential increases to the purchase price for a total cost not to exceed $36,650.

Public, Education, Government Funds are funds that are generated from revenue received from the City’s current cable franchise owner Comcast of California. The revenue received is a fee to support PEG channel facilities in the amount of 1 percent of the gross revenues as defined in Public Utilities Code section 5860, of the State franchise holder.

PEG Fees collected on an annual basis can be used for capital costs associated with public, education, or government access facilities and equipment. For example, these funds have been used by the City, in coordination with the County, to upgrade the Tenth Street Place Chambers broadcast/video equipment which is used for the City Council and County Board of Supervisors for their respective meetings.

The City currently has sufficient fund balance in the PEG fund balance to cover this expenditure.

The fund balance currently has $1.4M available in reserves. A budget adjustment to the Public, Educational, and Governmental cost center expenditure budget will be required to appropriate the funds necessary in the amount of $36,650 for the purchase of the broadcast server.

Approved by:

Joseph P. Lopez, City Manager
Attachment:

1. Bid Waiver Form TelVue HyperCaster Broadcast Server
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Quote#: Q-016967
Quote Issued: 3/30/2022
Quote Expiration: 5/31/2022
_____________________________________________________________________________________________________________________________________________ www.telvue.com | 16000 Horizon Way, Suite 100, Mt. Laurel, NJ 08054 | Phone: 1-(800)-885-8886 | Email: [email protected] TelVue Quotation – Confidential TelVue Contact Information Prepared for:

Janeiro Freeda
Central Valley Media Center, Inc.
[email protected]
(209) 480-8951
Ship to address:
110 Santa Barbara Ave
Modesto, CA 95354
USA
Prepared by:

Denise Rolfe
TelVue Corporation
Email: [email protected]
Phone: (800) 885-8886
Fax: (856) 866-7411
Please use Fax No. to submit signed quote, or email
[email protected]
Special Terms
Trade in credit, plus applicable municipal discounting. Connect start up cost waived with system purchase. *Prior to signing the quote in indication of your acceptance as a purchase order, please confirm the billing contact information and shipping information above.
*If you have any questions please contact your TelVue contact (identified above).

Customer Acceptance
This quote is good for 30 days from date of issue or until any expiration date stated in the special terms field.

By signing below, customer accepts quote as purchase order on the above terms:

Printed Name: _______________________________ Title: ___________________________________ Signature: __________________________________ Date: __________________________________ Thank you for your business. The following page contains a quote for TelVue products and services. #3..
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Quote#: Q-016967
Quote Issued: 3/30/2022
Quote Expiration: 5/31/2022
_____________________________________________________________________________________________________________________________________________ www.telvue.com | 16000 Horizon Way, Suite 100, Mt. Laurel, NJ 08054 | Phone: 1-(800)-885-8886 | Email: [email protected] Hardware
Qty. Item Name Description TC
Elig.

List Price Discount Sales Price Unit Net
Price
Ext. Net
Price

1.00 HyperCaster AIO
B2000-4+
All-in-One Digital Broadcast
Video Server. 4 HD-SDI ports, 2
playback or encode I/Os
standard, expandable to 5, MAX
2 Playback. SDI & IP Switching,
Graphics, Scheduling &
Automation. 2RU, Redundant
Power, 5.5TB RAID5.
$14,950.00 10.00% $14,950.00 $13,455.00 $13,455.00
Third Party

1.00 Black Magic -

MINI-SDI-TO-ANALOG
Black Magic SDI to Analog
Mini-Converter./TPCL
$295.00 $295.00 $295.00 $295.00

1.00 Black Magic -

MICRO-HDMI-TO-SDI
Black Magic HDMI to SDI
Micro-converter./TPCL
$85.00 $85.00 $85.00 $85.00

1.00 InfoVue Standard Standard InfoVue Digital
Signage player, 1RU rack
mount, 120GB SSD storage,
HDMI output up to 1080p.

InfoVue Service License
required for access to cloud
InfoVue CMS and Weather.

Multi-user, Multi-zone, SD/HD,
data feed integration.
$1,950.00 10.00% $1,950.00 $1,755.00 $1,755.00
$15,590.00
Software
Qty. Item Name Description TC
Elig.

List Price Discount Sales Price Unit Net
Price
Ext. Net
Price
AIO Series

1.00 Loudness Pro Professional, real-time Loudness
Control plugin for ProVue and AIO
channels. Pro Broadcast and
Streaming presets including CALM.

Industry leading audio processing
engine from Linear Acoustic.
$995.00 10.00% $995.00 $895.50 $895.50

1.00 SmartCaption
LIVE
SmartCaption™ LIVE channel license
for real-time live closed captioning for
HyperCaster AIO, ProVue,
B100-SDI/ANA models. Includes 100
hours captioning. Requires base
Connect CMS account and captioning
minutes.
$1,950.00 10.00% $1,950.00 $1,755.00 $1,755.00
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Quote#: Q-016967
Quote Issued: 3/30/2022
Quote Expiration: 5/31/2022
_____________________________________________________________________________________________________________________________________________ www.telvue.com | 16000 Horizon Way, Suite 100, Mt. Laurel, NJ 08054 | Phone: 1-(800)-885-8886 | Email: [email protected] Software
Qty. Item Name Description TC
Elig.

List Price Discount Sales Price Unit Net
Price
Ext. Net
Price
$2,650.50
Cloud Services
Qty. Item Name Description TC
Elig.

List Price Discount Sales Price Unit Net
Price
Ext. Net
Price
Connect

1.00 Connect -
CMS
Includes Uploads, 100GB storage, 10
users. Access to MediaExchange to
license and download content, APIs.

Billed Annually. ./TPCL
$1,200.00 10.00% $1,200.00 $1,080.00 $1,080.00

1.00 Connect -
SmartCaption
- 100 Hrs
SmartCaption 100 hours of automatic
captioning for Connect Broadcast/MX,
CloudCast Streaming/OTT, and
HyperCaster/ProVue Live & Offline
workflows. Export as WebVTT, edit
with optional SmartCaption
Editor./TPCL
$1,500.00 $1,500.00 $1,500.00 $1,500.00

1.00 Connect -
SmartCaption
Editor
SmartCaption™ Closed Captioning
Editor for TelVue Connect™. Fast
and easy editing of auto generated or
uploaded captions. Billed Annually.

Requires Basic Connect CMS./TPCL
$1,000.00 $1,000.00 $1,000.00 $1,000.00

1.00 Connect -
Start Up
Hosted Video Contribution Service -
One-time Account Set-up./TPCL
$1,000.00 100.00% $1,000.00 $0.00 $0.00

1.00 Connect -
Video
Caption -
Translation
Video Caption Translation. Translate
closed-captioned video to any of 100+
languages. 5,000,000 characters of
translation that provided roughly 100
hours of typical meeting video./TPCL
$300.00 $300.00 $300.00 $300.00

1.00 iOS Mobile
App
Apple iOS Mobile App - One Time
Fee To Build App And Submit To
Apple App Store. Compatible with
TelVue CloudCast. There are no
guarantees that Apple will accept the
app for the store./TPCL
$2,950.00 10.00% $2,950.00 $2,655.00 $2,655.00
$6,535.00
Other
Qty. Item Name Description TC
Elig.

List Price Sales Price Unit Net
Price
Ext. Net
Price

1.00 Trade-In
Credit
Credit For Trade-in Equipment./B100 $0.00 $-1,000.00 $-1,000.00 $-1,000.00 #3..
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Quote#: Q-016967
Quote Issued: 3/30/2022
Quote Expiration: 5/31/2022
_____________________________________________________________________________________________________________________________________________ www.telvue.com | 16000 Horizon Way, Suite 100, Mt. Laurel, NJ 08054 | Phone: 1-(800)-885-8886 | Email: [email protected] Other
Qty. Item Name Description TC
Elig.

List Price Sales Price Unit Net
Price
Ext. Net
Price
$-1,000.00
Shipping & Handling
Qty. Item Name Description TC
Elig.

List Price Sales Price Unit Net
Price
Ext. Net
Price
AIO Series

1.00 HyperCaster
AIO B2000
Shipping
Shipping charge for HyperCaster-AIO
B2000./TPCL
$250.00 $250.00 $250.00 $250.00
Third Party

1.00 MISC-SHIP Shipping Charge - Black Magic
Converters
$0.00 $50.00 $50.00 $50.00
InfoVue

1.00 InfoVue Ship InfoVue Shipping./TPCL $50.00 $50.00 $50.00 $50.00 Sub-total $350.00
General Services
Qty. Item Name Description TC
Elig.

List Price Sales Price Unit Net
Price
Ext. Net
Price
Third Pty

1.00 InfoVue
Screenfeed
InfoVue Optional -Billed annually. Content
templates like news, weather, & video
installed in your InfoVue management
console by TelVue technicians.

Categories include news, weather, sports,
entertainment, financial data, flight
boards, traffic & more.
$0.00 $540.00 $540.00 $540.00
Cloud Svcs

1.00 InfoVue
Service
License
InfoVue Service License - Includes
extended hardware warranty, email and
phone support, software upgrades and
access to cloud-based InfoVue signage
application. Ongoing InfoVue Service
Licensing is required for access to the
InfoVue services.
$495.00 $495.00 $495.00 $495.00
Support
#3..
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Quote#: Q-016967
Quote Issued: 3/30/2022
Quote Expiration: 5/31/2022
_____________________________________________________________________________________________________________________________________________ www.telvue.com | 16000 Horizon Way, Suite 100, Mt. Laurel, NJ 08054 | Phone: 1-(800)-885-8886 | Email: [email protected] General Services
Qty. Item Name Description TC
Elig.

List Price Sales Price Unit Net
Price
Ext. Net
Price

1.00 TELVUE
CARE
Through
Year 5
TelVue Care warranties for 5 years
TelVue hardware and provides on-going
access to on-line software upgrades and
basic application feature enhancements.

A $500 reactivation fee will apply to a
lapsed TelVue Care warranty./TPCL
$0.00 $8,075.48 $8,075.48 $8,075.48
Sub-total $9,110.48
Total Item Count $19.00
Grand Total $33,235.98
A finance / late fee of 1% per month will be added to an unpaid balance each month thereafter. Purchases of equipment outside of the United States require advance payment or letter of credit.

Net 30 Days. 2% cash/1% net 15. Credit cards are accepted. #3..
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Quote#: Q-016967
Quote Issued: 3/30/2022
Quote Expiration: 5/31/2022
_____________________________________________________________________________________________________________________________________________ www.telvue.com | 16000 Horizon Way, Suite 100, Mt. Laurel, NJ 08054 | Phone: 1-(800)-885-8886 | Email: [email protected] Noted Service Options:

TelVue Care™ is quoted as 15% of the value at sale of TelVue Care™ eligible equipment for year 2 coverage, declining (straight line) to 7.5% in the 5th year coverage if prepaid.

Year 2 TelVue Care™: 2691.83
Year 3 TelVue Care™: 2243.19
Year 4 TelVue Care™: 1794.55
Year 5 TelVue Care™: 1345.91
#3..
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Quote#: Q-016967
Quote Issued: 3/30/2022
Quote Expiration: 5/31/2022
_____________________________________________________________________________________________________________________________________________ www.telvue.com | 16000 Horizon Way, Suite 100, Mt. Laurel, NJ 08054 | Phone: 1-(800)-885-8886 | Email: [email protected] TelVue Terms & Conditions
The products ("Products") and services ("Services") provided by TelVue Corporation (TELVUE) to you ("Customer") are subject to the following terms and conditions ("Terms and Conditions"). By placing an order with TELVUE, Customer agrees to be bound by these terms and conditions. These Terms and Conditions shall apply to all quotations and offers made and accepted by TELVUE. The Terms and Conditions contained herein are subject to change at any time by TELVUE in its sole discretion and without notice to any potential purchaser of the TelVue's products and services. No purchase order submitted under these quoted Terms and Conditions shall be deemed to create a binding contract until such time as TelVue accepts such purchase order. TelVue reserve the right to decline any purchase order based on this quote at its sole discretion. Customer agrees that these Terms and Conditions may in some instances conflict with some of the terms and conditions affixed to the purchase order or procurement document issued by the Customer. In that case, the Terms and Conditions contained herein shall govern and acceptance of Customer's order is expressly conditioned upon Customer's acceptance of these Terms and Conditions whether the Customer accepts the Terms and Conditions by written acknowledgment, implication, or acceptance and payment of Products or Services purchased. TELVUE's failure to object to provisions contained in any communication from Customer to the contrary shall not be deemed a waiver of the provisions of these Terms and Conditions. TELVUE will use commercially reasonable efforts to ship Products to Customer's address listed on the TELVUE Quote Form, and to provide Services to Customer's authorized users in accordance with the scheduled date specified by TELVUE. Customer acknowledges and agrees that delivery schedules are subject to change. TELVUE will notify Customer of any anticipated delay of thirty (30) or more days in delivery of the Products or Services purchased.

Products are delivered F.O.B. TELVUE shipping point. Customer shall pay all shipping charges, including without limitation, transportation charges and insurance premiums, and shall be responsible for all taxes, duties and other government assessments. Customer shall pay TELVUE for any product or service fee (collectively, "FEES") set forth on TELVUE's Quote Form. Payment shall be made in U.S. dollars in the U.S. where Customer has established credit, and the terms of payment will be "NET 30" -- thirty (30) days from invoice date unless otherwise indicated on the invoice. Any FEES not paid by Customer when due shall bear interest until paid at a rate of one and one-half percent (1.5%) per month (eighteen percent (18%) per annum), or the maximum rate permitted by law, whichever is less. Customer shall be responsible for the costs, including without limitation, attorneys' fees and court costs, incurred by TELVUE in connection with TELVUE's collection of any past-due FEES. Customer shall bear and be solely responsible for the payment of all taxes levied or assessed in connection with the Products and Services, if any, including without limitation, all sales, use, rental receipt, personal property, import and monthly or other taxes (but excluding taxes based solely upon TELVUE's income). In addition to any other remedy available to it, TELVUE may suspend or terminate the Services, in whole or in part, upon Customer's failure to timely pay the FEES without incurring any liability to Customer or others associated with Customer. All FEES paid and charges made prior to any termination as provided herein are nonrefundable. Termination of the Services shall not release Customer from any obligation to pay accrued charges on FEES. TELVUE may increase its FEES for any TELVUE-provided content and third-party software to the extent that its licensors raise their fees to TELVUE upon not less than thirty (30) days prior written notice to the Customer. If the increases exceed ten percent (10%) of the then current FEES, Customer may choose to delete the TELVUE-provided content or third-party software, as applicable. TELVUE reserves the right to begin charging Services FEES if the Services are not launched by Customer within one hundred twenty (120) days of the order date through no fault of TELVUE. Customer shall comply with all export laws and restrictions and regulations of the Department of Commerce or other United States or foreign agency or authority, and shall not export, or allow the export or re-export of the Products or any Confidential Information or any direct product thereof in violation of any such restrictions, laws or regulations, or to Afghanistan, the People's Republic of China or any Group Q, S, W, Y, or Z country specified in the then current Supplement No. 1 to Section 770 of the U.S. Export Administration Regulations (or any successor supplement or regulations); Customer shall obtain and bear all expenses relating to any necessary licenses and/or exemptions with respect to the export from the U.S. of all material or items deliverable by TELVUE to any location and shall demonstrate to TELVUE compliance with all applicable laws and regulations prior to delivery thereof by TELVUE. TELVUE warrants to Customer that the Products or Services offered by TELVUE pursuant to these Terms and Conditions shall conform to the specifications for such Products or Services mutually agreed to by the parties in writing at the time of shipment. The warranty period for hardware-based Products shall be twelve (12) months from the date of shipment. Customer's sole remedy for breach of the foregoing warranties shall be limited to Product replacement, or if replacement is inadequate, or in TELVUE's sole discretion impractical, to refund the purchase price. TELVUE PROVIDES THE PRODUCTS AND SERVICES "AS IS" AND MAKES NO WARRANTY THAT THE PRODUCTS OR SERVICES WILL BE UNINTERRUPTED, TIMELY, SECURE, OR ERROR FREE; NOR DOES TELVUE MAKE ANY WARRANTY AS TO THE

RESULTS THAT MAY BE OBTAINED FROM THE PRODUCTS OR SERVICES OR AS TO THE ACCURACY OR RELIABILITY OF ANY CONTENT OBTAINED THROUGH THE PRODUCTS OR SERVICES. EXCEPT AS SET FORTH HEREIN, OR IN A WRITTEN AGREEMENT BETWEEN THE

PARTIES THAT EXPRESSLY AMENDS TELVUE'S WARRANTY, AND SUBJECT TO APPLICABLE LAW, TELVUE MAKES NO OTHER, AND

EXPRESSLY DISCLAIMS ALL OTHER, REPRESENTATIONS, WARRANTIES, CONDITIONS OR COVENANTS, EITHER EXPRESS OR IMPLIED (INCLUDING WITHOUT LIMITATION, ANY EXPRESS OR IMPLIED WARRANTIES OR CONDITIONS OF FITNESS FOR A PARTICULAR

PURPOSE, MERCHANTABILITY, DURABILITY, TITLE, ACCURACY OR NONINFRINGEMENT) ARISING OUT OF OR RELATED TO THE

PERFORMANCE OR NONPERFORMANCE OF THE SERVICES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY RELATING TO THIRD

PARTY SERVICES, ANY WARRANTY WITH RESPECT TO THE PERFORMANCE OF ANY HARDWARE OR SOFTWARE USED IN PERFORMING #3..
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Quote#: Q-016967
Quote Issued: 3/30/2022
Quote Expiration: 5/31/2022
_____________________________________________________________________________________________________________________________________________ www.telvue.com | 16000 Horizon Way, Suite 100, Mt. Laurel, NJ 08054 | Phone: 1-(800)-885-8886 | Email: [email protected] SERVICES AND ANY WARRANTY CONCERNING THE RESULTS TO BE OBTAINED FROM THE SERVICES. THIS DISCLAIMER AND

EXCLUSION SHALL APPLY EVEN IF THE EXPRESS WARRANTY AND LIMITED REMEDY SET FORTH HEREIN FAILS OF ITS ESSENTIAL PURPOSE. To the extent that TELVUE data is transmitted over the Internet, Customer acknowledges and agrees that TELVUE has no control over the functioning of the Internet and TELVUE makes no representations or warranties of any kind regarding the performance of the Internet.

TELVUE and Customer are independent contractors in the performance of these Terms and Conditions, and each party is solely responsible for all of its employees and agents and its labor costs and expenses arising in connection therewith. Customer is responsible for and will indemnify TELVUE from any and all claims, liabilities, damages, debts, settlements, costs, attorney's fees, expenses and liabilities of any type whatsoever that may arise in connection with the purchase and use of Products or Services and on account of Customer's activities, or those of its employees or agents, including without limitation, providing unauthorized representations or warranties (or failing to effectively disclaim all warranties and liabilities on behalf of TELVUE) to its customers or breaching any term, representation or warranty of these Terms and Conditions.

Certain TELVUE Products and Services require a full-time Internet connection for proper operation. An Internet connection may also be required for remote TELVUE support. Customer is responsible for providing Internet access that meets TELVUE's requirements. Customer shall provide TELVUE with access to Customer's technical personnel, facilities, systems, databases and information as necessary or appropriate for TELVUE to perform its obligations under these Terms and Conditions. Customer shall be solely responsible for all content supplied by Customer. Customer represents and warrants to TELVUE that such content will not violate or infringe any copyright, patent, trademark, trade secret, confidentiality or other proprietary right of any third party. License granted to Customer is for the object code version of the Products or Services and TELVUE-provided content only. Customer has no rights to the source code for the Products or Services or any TELVUE-provided content. Customer shall not permit anyone under Customer's direction or control to, reverse engineer, disassemble, de-compile or remove any identifying mark of TELVUE or its licensors from the Products, Services or any TELVUE-provided content or attempt to do so. Customer may not modify, adapt, translate or create derivative works of the Products, Services or any TELVUE-provided content without TELVUE's express written consent. The Services are licensed as a single product. TELVUE-provided content may be used only in conjunction with the Services. TELVUE shall retain all Proprietary Rights in and to the aforementioned and to any discoveries, improvements, inventions (whether or not patentable), ideas or know how that is conceived, learned, or reduced to practices by TELVUE in the course of performance under these Terms and Conditions. Both parties agree that all system designs, computer programs, data, processes, trade secrets, inventions (whether or not patentable), algorithms, know-how, and ideas and all other business, marketing, technical and financial information they obtain from the other party constitute "Confidential Information" of the disclosing party if marked as such when disclosed in writing, or if disclosed orally, designated as such within 10 days of oral disclosure. Except as expressly and unambiguously allowed under these Terms and Conditions, TELVUE and Customer agree to hold in confidence and not use or disclose the other party's Confidential Information. The receiving party shall not be obligated for any information which it can document: is in or (through no improper action or inaction by the receiving party) enters the public domain (and is readily available without substantial effort), or was rightfully in its possession or known by it prior to receipt from the disclosing party, or was rightfully disclosed to it by another person without restriction, or was independently developed by it by persons without access to such information and without use of any Confidential Information of the disclosing party, or is required to be disclosed pursuant to local or federal statutes and/or regulations. These obligations shall continue for a period of three (3) years from disclosure. TELVUE WILL NOT BE LIABLE WITH RESPECT TO OR ARISING OUT OF ANY SUBJECT

MATTER OF THESE TERMS AND CONDITIONS UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR ANY

AMOUNTS IN EXCESS IN THE AGGREGATE OF THE AMOUNTS PAID TO TELVUE HERE UNDER OR ANY INCIDENTAL, INDIRECT, SPECIAL,

PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST OF PROFITS, BUSINESS REVENUES OR SAVINGS, LOST DATA OR COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES. TELVUE SHALL HAVE NO LIABILITY FOR ANY FAILURE OR DELAY DUE TO MATTERS BEYOND ITS REASONABLE CONTROL. THE ENTIRE RISK ARISING OUT OF THE USE AND/OR PERFORMANCE OF THE PRODUCTS OR SERVICES REMAINS WITH CUSTOMER. IN NO EVENT SHALL TELVUE OR ITS LICENSORS OR ANY

OF THEIR OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR AFFILIATES BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, DIRECT,

INDIRECT, SPECIAL, PUNITIVE, OR OTHER DAMAGES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF

BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR OTHER PECUNIARY LOSS) ARISING OUT OF USE OF

OR INABILITY TO USE ANY PRODUCTS OR SERVICE, EVEN IF TELVUE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR ARE OTHEWISE FORSEEABLE. IN THE EVENT A JURISDICTION DOES NOT PERMIT THE EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THESE LIMITATIONS SHALL APPLY TO THE MAXIMUM EXTENT PERMITTED BY LAW.

TelVue Hardware Warranty and TelVue Care Extended Warranty Terms and Conditions - TelVue Corporation (TelVue) will at its option, either repair, replace or upgrade software and/or firmware on any product manufactured by TelVue which proves to be defective in materials or workmanship or fails to meet the specifications which are in effect on the date of shipment or such other specifications as may have been expressly agreed upon in writing for a period of one (1) year from the date of original purchase. With optional TelVue Care, the equipment owner can extend these terms for up to four additional years. Certain products #3..
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Quote#: Q-016967
Quote Issued: 3/30/2022
Quote Expiration: 5/31/2022
_____________________________________________________________________________________________________________________________________________ www.telvue.com | 16000 Horizon Way, Suite 100, Mt. Laurel, NJ 08054 | Phone: 1-(800)-885-8886 | Email: [email protected] that are not manufactured but are resold by TelVue will carry the original OEM warranty for that product. In the case of a failure, the customer will be responsible for round trip shipping costs to TelVue and up to a $500 maximum factory repair service deductible. This warranty does not cover damage resulting from (i) use or installation other than in strict accordance with manufacturer’s written instructions, (ii) disassembly or repair by someone other than the manufacturer or a manufacturer-authorized repair center, (iii) misuse, misapplication or abuse, (iv) alteration, (v) lack of reasonable care or (vi) acts of God. A $500 reactivation fee will apply to a lapsed warranty for TelVue Care on equipment. TelVue Care is not transferrable without written permission from TelVue.

If any provision of these Terms and Conditions is held unenforceable by a court of competent jurisdiction, that provision shall be limited or eliminated to the minimum extent necessary so that the Terms and Conditions shall otherwise remain in full force and effect and enforceable. These Terms and Conditions shall be governed by and construed under the laws of the State of New Jersey and the United States without regard to the conflicts of laws provisions thereof and without regard to the United Nations Convention on Contracts for the International Sale of Goods. The parties agree that venue for any action of any kind shall be Burlington County, New Jersey. Any waiver or amendment to these Terms and Conditions shall be effective only if made in writing and signed by a representative of the respective parties, authorized to bind the parties. The prevailing party in any action to enforce these Terms and Conditions shall be entitled to recover costs and expenses, including, without limitation, attorneys' fees. Notices given under these Terms and Conditions shall be in writing and considered to be received upon the earlier of actual receipt or five (5) days after mailing if mailed postage prepaid by regular mail, or one (1) day after such notice is sent by major commercial rapid delivery courier or facsimile transmission. Any delay or failure by either party to exercise any right or remedy will not constitute a waiver of that party to thereafter enforce such rights.

INFOVUE - Terms & Conditions: InfoVue is sold under additional terms and conditions related to various optional information services available. These terms and conditions are contained on the TelVue web site. It is the responsibility of the Customer/User to review those terms and conditions and to ensure compliance with them. The terms and conditions for InfoVue can be found at:
http://www.telvue.com/wp-content/uploads/InfoVue-End-User-Licensing-Terms-and-Conditions-2015-5-4.pdf The information contained in this quote is confidential and proprietary to TelVue Corporation and may not be disclosed to third parties or duplicated, in whole or in part, without the prior consent of TelVue Corporation. #3..
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April 1, 2021
Sole Source Statement
To Whom it may concern:

TelVue's server software is proprietary and it runs on PC server hardware and video decoders specially selected by TelVue for optimal performance.

Our business model is straightforward: the TelVue servers are offered only by TelVue, because we don't release proprietary code separately from the hardware. It is our proprietary software for content management and scheduling that we alone service and support.

Paul Andrews, SVP - Marketing and Sales
TelVue Corporation
16000 Horizon Way
Mt. Laurel, NJ 08054
Email: [email protected]
#3..
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CITY OF MODESTO

COMMITTEE AGENDA REPORT
DATE OF MEETING:

April 13, 2022
Date: March 8, 2022
TO: Finance Committee
David Wright, Chair
Rosa Escutia-Braaton, Vice-Chair
Bill Zoslocki, Member
THROUGH: Joseph P. Lopez, City Manager
FROM: DeAnna Christensen, Director of Finance
SUBJECT: Debt Management Policy – Annual Review
CONTACT: Calogero Maniscalco, Senior Financial Analyst
[email protected], (209) 577-5219
DESCRIPTION:

Consider accepting the updates to the City’s Debt Management Policy and forwarding to Council for approval. (Funding Source: Not Applicable)
STRATEGIC PLAN ELEMENT:

This item supports the City of Modesto 2020-2025 Strategic Plan focus of Governance and Service Delivery under Goal H: Achieve Financial Sustainability.

BACKGROUND:

On August 2, 2006, the City Council adopted Resolution 2006-487 approving a Debt Management Policy (“Policy”) for the City of Modesto. The purpose of this Policy is to organize and formalize debt issuance-related policies and procedures for the City. The primary objectives of the City’s debt and financing-related activities are to maintain cost-effective access to the capital markets through prudent yet flexible policies; moderate debt principal and debt service payments through effective planning and project cash management; achieve the lowest cost of borrowing; and achieve the highest practical credit ratings.

DISCUSSION:

This Policy is to be reviewed and updated annually. Public Financial Management, Inc. (“PFM”), the City’s financial advisor, and Norton Rose Fulbright, the City’s bond counsel, have reviewed and proposed updates and changes to the Debt Management Policy. #4..
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Finance Committee, April 13, 2022
Debt Management Policy – Annual Review

Page 2 of 2 ends

A summary of major changes is as follows:

1. Section VIII.D. MAXIMUM ANNUAL DEBT SERVICE (“MADS”), this section was removed to avoid duplication with the Debt Service Coverage section.

2. Section VIII.I. MAXIMUM REPAYMENT RATIO, this is a new paragraph for this year and places a limit on the maximum repayment amount of an issuance to ensure the City of Modesto doesn’t enter into an excessive commitment.

3. Section XI. METHODS OF ISSUANCE, the opening paragraph in this section is extended to include information previously presented as its own section.

4. Section XI.D. ISSUANCE METHOD ANALYSIS was removed as the information was incorporated into the opening paragraph for Section XI.

5. ADDENDUM: INTEREST RATE SWAP POLICY, the section was updated to clarify that the references to “this policy” mean the Swap Policy and not the larger Debt Policy.

Other changes suggested are minor and are mostly formatting and grammatical in nature.

A copy of the proposed Debt Management Policy is attached (Attachment 1), with revisions indicated/underlined. An additional copy is attached (Attachment 2), with the same revisions accepted and integrated in the body of the text (a “clean” copy of the updated Policy).

Changes to the Debt Management Policy are subject to approval by the City Council at a legally noticed public meeting.

FISCAL IMPACT:

There is no immediate fiscal impact associated with this particular action.

Approved by:

DeAnna Christensen, Director of Finance
Joseph P. Lopez, City Manager
Attachments:

1. Debt Management Policy (FY22 With Edits)

2. Debt Management Policy (FY22 Clean Copy)
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1 I. INTRODUCTION
The purpose of this Policy is to organize and formalize debt issuance-related policies and procedures for the City of Modesto (the “City”) and to establish a systematic debt policy (the “Debt Policy” or the “Policy”). The debt policies and practices of the City are, in every case, subject to and limited by applicable provisions of state and federal law and prudent debt management principles.

II. DEBT POLICY OBJECTIVE
The primary objectives of the City’s debt and financing related activities are to maintain cost-effective access to the capital markets and other financing venues through prudent yet flexible policies:
 Moderate principal and debt service payments through effective planning and projected cash management;
 Achieve the lowest cost of borrowing; and
 Achieve the highest practical credit ratings.

III. SCOPE AND DELEGATION OF CITY
This Debt Policy shall govern, except as otherwise covered by the City of Modesto Investment Policy and the City of Modesto Interest Rate Swap Policy (copies of which are attached hereto), the issuance and management of all debt funded through the capital markets and private placements, including the selection and management of related financial and advisory services and products, and the investment of bond proceeds.

This Policy shall be reviewed and updated periodically as required. Any changes to the Policy are subject to approval by the City Council at a legally noticed and conducted public meeting. Overall policy direction of this Debt Policy shall be provided by the City Council.

Responsibility for implementation of the Debt Policy, and day-to-day responsibility for structuring, implementing, and managing the City’s debt and finance program, shall lie with the Director of Finance. The City Council’s adoption of the City Annual Budget does not, in and of itself, constitute authorization for debt issuance for any reason. This Debt Policy requires that the City Council specifically authorize each debt financing. Each financing shall be presented to the City Council, subject to City Council agenda review and approval (debt financings cannot be approved on a consent calendar).

CITY OF MODESTO

CITY COUNCIL
POLICY

Latest Revision Date: April 20221
Policy Number: 1.036
SUBJECT: DEBT MANAGEMENT POLICY

Formatted Table
Commented [CoM1]: Updated to latest format for Policies #4..
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2 While adherence to this Policy is required in applicable circumstances, the City recognizes that changes in the capital markets, agency programs and other unforeseen circumstances may from time to time produce situations that are not covered by the Policy and will require modifications or exceptions to achieve policy goals. In these cases, management flexibility is appropriate, provided specific authorization from the City Council is obtained.

IV. ETHICS AND CONFLICTS OF INTEREST
Officers and employees of the City involved in the debt management programexecution and management of the Debt Policy will not engage in any personal business activities that could conflict with proper and lawful execution and management of the debt management programDebt Policy, or which could impair their ability to make impartial decisions.

V. CAPITAL IMPROVEMENT PROGRAM INTEGRATION
The City’s multi-year Capital Improvement Program (“CIP”), which identifies the projects and the appropriate funding mechanisms to pay for them, shall be used in combination with the CIP Financial and Budget Policies and this Debt Policy to ensure the proper allocation and financing of eligible projects. The CIP and its related policies set priorities and strategies for allocating and tracking funding, while the Debt Policy provides policy direction and limitations for proposed financings. Debt issuance for capital projects shall not be recommended for City Council approval unless such issuance has been incorporated into the Capital Improvement ProgramCIP.

VI. STANDARDS FOR USE OF DEBT FINANCING
The City’s debt management programDebt Policy will promote debt issuance only in those cases where public policy, equity and economic efficiency favor debt over cash (pay-as-you-go) financing.

Long-term debt financing shall not be used to fund operating costs.

A. Credit Quality
Credit quality is an overriding consideration. All City debt management activities for new debt issuances will be conducted in a manner conducive to receiving the highest credit ratings possible consistent with the City’s debt management objectives, and to maintaining or improving the current credit ratings assigned to the City's outstanding debt by the major credit rating agencies.

B. Term of Financing
Debt can be used to provide funding for long-term capital projects. The debt repayment period should relate to the expected useful life for the facilities or equipment being financed, and should, as a general matter, be concurrent with the stream of benefits from these facilities. When the City finances capital projects by issuing bonds, the debt repayment period generally should not exceed the average useful life of the equipment, software and/or facilities being acquired or constructed, but in no case will the financing exceed 120% of the useful life of the project being financed. Inherent in its long-term debt policies, the City recognizes that future taxpayers will benefit from the capital investment and that it is appropriate that they pay a share of the asset cost. #4..
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3 C. Debt Financing Mechanism
The City will evaluate the use of all financial alternatives available, including, but not limited to: long-term debt, short-term debt, commercial paper, tax revenue and grant anticipation notes, private placement and inter-fund borrowing. The City will utilize the most cost advantageous financing alternative available while limiting the City’s risk exposure.

D. Ongoing Debt Administration and Internal Controls
The City shall maintain all debt-related records for as long as the associated debt is outstanding plus a term of three years. At a minimum, this repository will include all official statements, bid documents, ordinances, indentures, records relating to the expenditure of proceeds and the use of the project, records related to the investment of the proceeds of the bonds and the sources of payment, all returns filed with the IRS, trustee reports, etc. for all City debt. To the extent that official transcripts incorporate these documents, possession of a transcript will suffice (transcripts may be hard copy, stored on CD-ROM or other forms of electronic record). The City will collect all available documentation for outstanding debt and will develop a standard procedure for archiving transcripts for any new debt. The City will establish internal controls to ensure compliance with the Debt Policy, all debt covenants and any applicable requirements of the State and Federal Government Codes.

E. Rebate Policy and System
The City will accurately account for all interest earnings in debt-related funds. These records will be designed to ensure that the City is in compliance with all debt covenants, and with State and Federal laws. The City will maximize the interest earnings on all funds within the investment parameters set forth in each respective indenture, and as permitted by the City Investment Policy, subject to applicable limitations. The City will develop a system of reporting interest earnings that relates to and complies with Internal Revenue Code rebate requirements, yield limits and arbitrage.

F. Minimum Reserve Requirements for Water and Wastewater Funds The Water and Wastewater Funds are to maintain a working capital reserve equal to [not less than] 25% of their operating expenses plus one annual debt service payment on any State Revolving Fund (“SRF”) loans. This reserve is meant to ensure that adequate cash is on hand to meet current obligations of the funds as well as respond to unanticipated demands, such as unplanned repairs or renovations of the systems. This reserve is consistent with reserves established by other utilities for similar purposes.

G. Minimum Debt Service Coverage Ratio for Water and Wastewater Funds The City will seek to maintain debt service coverage on its senior lien Water and Wastewater revenue bonds at a level not less than one and a half times (1.5x) the maximum annual debt service for the aggregate outstanding senior lien bonds of the respective system, including the debt service for theany new issuance, unless a different debt service coverage amount is allowed by existing bond covenants. #4..
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4 VII. DEBT FINANCING
A. Purpose of Debt
When the City determines that the use of debt is appropriate, the following criteria will be utilized to evaluate the type of debt to be issued:

1. New Money Financing
New money issues are financings that generate funding for capital projects, equipment or enterprise software systems. Eligible capital projects for allocation of City funds include the acquisition, construction or major rehabilitation of capital assets.

2. Refunding Financing
Refunding bonds are issued to retire all or a portion of an outstanding bonddebt issue. Refunding issuances can be used to achieve present-value savings on debt service or to restructure the payment schedule, type of debt instrument used, or covenants of existing debt. The City must analyze the refunding issue on a presentvalue basis to identify economic effects before approval, as is further described in Section X. Refinancing Outstanding Debt below.

B. Type of Debt
When the City determines that the use of debt is appropriate, the following criteria will be utilized to evaluate the type of debt to be issued:

1. Long-Term Debt
The City may issue long-term debt when equipment, project, or software costs cannot be financed from current revenues. The proceeds derived from long-term borrowing will not be used to finance current operations or normal/current maintenance. Long-term debt will be structured such that the obligations generally do not exceed the average useful life of that which is being financed or the sunset date of any current, pledged revenues. And at no time will the financing exceed 120% of the expected average useful life of the asset being financed.  Current Interest Bonds are bonds that pay interest periodically and principal at maturity. They may be used for both new money and refunding transactions. Bond features may be adjusted to accommodate the market conditions at the time of sale, including changing dollar amounts for principal maturities, offering discount and premium bond pricing, modifying call provisions, utilizing bond insurance, as well as determining whether and how to fund a debt service reserve fund.
 Zero Coupon and Capital Appreciation Bonds pay interest only when principal matures. Interest continues to accrue on the unpaid interest, therefore representing a more expensive funding option. In the case of zerocoupon bonds, principal and interest, at one coupon rate, is repaid at maturity.

In the case of Capital Appreciation Bonds, the value of the bond accretes until maturity. These types of bonds should be used only when no other bond structure is available to address a certain structuring problem. If used, these bonds should mature no later than 20 years from issuance and should be callable.
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5 tax purposes to bondholders. The City will consider the issuance of taxable debt when it is necessary for federal tax reasons or if these bonds would lower the overall cost of the financing or help the City achieve refunding savings that could not otherwise be achieved with the issuance of tax-exempt debt.

BANs will be issued only when there is no better alternative to reduce the overall cost of a financing program.
 Tax and Revenue Anticipation Notes (“TRAN”) shall be issued only to address a timing mismatch between operating revenues and operating expenditures orand if the sizing of the issue shall fully conforms to Federal Internal Revenue Code IRS requirements and limitations.  Lines of Credit shall be considered as an alternative to other short-term borrowing options. The lines of credit shall be structured to limit concerns as to Internal Revenue Code compliance.
 Other short-term debt may also be considered and utilized when appropriate such as a Direct Purchase Loan from a bank or Floating Rate Notes.

3. Variable Rate Debt
To maintain a predictable debt service burden, the City may give preference to debt that carries a fixed interest rate. An alternative to the use of fixed rate debt is floating or variable rate debt. It may be appropriate to issue short-term or long-term variable rate debt to diversify the City’s debt portfolio, reduce interest costs, provide interim funding for capital projects and improve the match of assets to liabilities. Variable rate debt typically has a lower cost of borrowing than fixed rate financing and shorter interest rate reset periods in the range of 1 to 35 days. Under no circumstances will the City issue variable rate debt solely for the purpose of earning arbitrage. The City, however, may consider variable rate debt in certain instances.

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6 A) Variable Rate Debt Capacity. The City will maintain a conservative level of outstanding variable rate debt in consideration of general rating agency guidelines recommending a maximum of a 20% variable rate exposure, in addition to maintaining adequate safeguards against risk and managing the variable revenue stream, both as described below:
(1) Adequate Safeguards Against Risk. Financing structure and budgetary safeguards are in place to prevent adverse impacts from interest rate shifts; such structures could include, but are not limited to, interest rate swaps, interest rate caps and the matching of assets and liabilities. See Section VII. 4. Financial Derivative Products below. See also the, City of Modesto Interest Rate Swap Policy addendum.
(2) Variable Revenue Stream. The revenue stream for repayment is variable, and is anticipated to move in the same direction as market-generated variable interest rates, or the dedication of revenues allows capacity for variability. (3) As a Component to Synthetic Fixed Rate Debt. Variable rate bonds may be used in conjunction with a financial strategy, which results in synthetic fixed rate debt. Prior to using synthetic fixed rate debt, the City shall certify that the expected interest cost is at least 10 basis points (0.10%) lower than traditional fixed rate debt (including any ongoing fees in such calculation) as well as giving due consideration to other risks associated with such a structure that may raise the ultimate costs of a synthetic fixed rate structure. See Section VII. 4. Financial Derivative Products below. See also the, City of Modesto Interest Rate Swap Policy addendum.

4. Financial Derivative Products
Financial Derivative Products will be considered appropriate in the issuance or management of debt only in instances where it has been demonstrated that the derivative product will either provide a hedge that is expected to reduce the risk of fluctuations in expense or revenue, or alternatively where the derivative product is expected to reduce total project cost. The City shall maintain an Interest Rate Swap Policy (see attached) governing the use of derivative products. For derivatives other than interest rate swaps, the City will undertake an analysis of early termination costs and other conditional terms given certain financing and marketing assumptions. Such analysis will document the risks and benefits associated with the use of a particular derivative product. Derivative products will only be utilized with prior approval from the City Council. As noted below, private placements may require compliance with new disclosure requirements (see Section XV. F.

Continuing Disclosure below).

VIII. TERMS AND CONDITIONS OF BONDS
The City shall establish all terms and conditions relating to the issuance of bonds, and will control, manage, and invest all bond proceeds. Unless otherwise authorized by the City, the following shall serve as bond requirements.

A. Term
All capital improvements financed through the issuance of debt will be financed for a period generally not to exceed the average useful life of that which is being financed. At no time will the financing exceed 120% of the expected average useful life of the assets Formatted: Font: Bold
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7 being financed, and in no event should the final maturity exceed the lesser of thirty (30) years or when the revenue source is projected to sunset.

B. Capitalized Interest
The nature of the City’s revenue stream is such that funds are generally continuously available and the use of capitalized interest should not normally be necessary. However, certain types of financings may require the use of capitalized interest from the issuance date until the City has constructive use/benefit of the financed project. Unless otherwise required, the City will avoid the use of capitalized interest to obviate unnecessarily increasing the bond size. Interest shall not be funded (capitalized) beyond three (3) years or a shorter period when based upon project needs or if further restricted by statute. The City may require that capitalized interest on the initial series of bonds be funded from the proceeds of the bonds. Interest earnings may, at the City's discretion, be applied to extend the term of capitalized interest but in no event beyond 3 years, or less, if restricted by law.

C. Lien Levels
Senior and Junior Liens for each revenue source will be utilized in a manner that will maximize the most critical constraint, typically either cost or capacity, thus allowing for the most beneficial use of the revenue source securing the bond. Projects chosen for priority financing, based on funding availability and proposed timing, will generally be subject tofinanced on the most senior lien of the bond seriesrelevant credit.

D. Maximum Annual Debt Service (“MADS”)
Concerning revenue bonds, the MADS for any given year must not exceed a level at which the pledged net revenues are less than one and a quarter times (1.25x) the total debt service within any year unless allowed by existing bond covenants.

ED. Debt Service Coverage
For any new debt issuance secured by Water or Wastewater revenues, the City will seek to maintain pledged net revenues at a level no less than one and a half times (1.50x) the Mmaximum aAnnual dDebt sService for the aggregate outstanding senior lien bonds, including the debt service for the new issuance, unless a different debt service coverage amount is allowed by existing bond covenants. For other types of debt incurred by the City, the City will determine the appropriate minimum debt service coverage levels based upon the nature of the pledged revenues, rating considerations, and other relevant factors.

FE. Debt Service Structure
Debt issuance shall be planned to achieve relatively rapid repayment of debt while still matching debt service to the useful life of facilities. The City will amortize its debt within each lien to achieve overall level debt service or may utilize more accelerated repayment schedules after giving consideration to bonding capacity constraints. The City shall avoid the use of bullet or balloon maturities except in those instances where these maturities achieve one of the City’s stated goals, such as minimizing annual debt service or leveling annual existing debt service, among others.

GF. Call Provisions
In general, the City’s securities will include a call feature, which is no later than ten (10) years from the date of delivery of the bonds. The City will avoid the sale of non-callable Commented [SH3]: Do we need this section in addition to the Debt Service Coverage section following?
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8 bonds absent careful evaluation by the City with respect to the value of the call option. If the City were to issue taxable bonds, the City will carefully consider the financial impacts of a 10- year call, a make-whole call, or non-callable debt.

HG. Original Issue Discount & Deep Discount Bonds
An original issue discount and deep discount bonds will be permitted only if the City determines that such discount results in a lower true interest cost on the bonds and that the use of an original issue discount or deep discount bonds will not materially reduce the value of the bonds’ call provisions and adversely affect the project identified by the bond documents.

I. Multiple Series
In instances where multiple series of bonds are to be issued, the City shall make a final determination as to which allocations are of the highest priority.

H. Maximum Repayment Ratio
The maximum repayment ratio, wheredefined as total future debt service payments are divided by the principal amount of the bonds issued, shall be no more than within three to one (3:1) for each series of bonds. and for each authorization.

IX. CREDIT ENHANCEMENTS
The City will consider the use of credit enhancement on a case-by-case basis, evaluating the economic benefit versus cost for each case. Only when a clearly demonstrable savings can be shown shall enhancement be considered. The City will consider each of the following enhancements as alternatives by evaluating the cost and benefit of such enhancement. As noted below, the use of credit enhancements may result in additional continuing disclosure requirements described below (see Section XV. F. Continuing Disclosure below).

A. Bond Insurance
The City may purchase bond insurance when such purchase is deemed prudent and advantageous. The predominant determination shall be based on such insurance being less costly than the present value of the difference in the interest on insured bonds versus uninsured bonds.

B. Debt Service Reserves
When required, a reserve fund equal to the lesser of 10% of the original principal amount of the bonds, maximum annual debt service, or 125% of average annual debt service, and if permitted, 10% of par value of bonds outstanding, (the “Reserve Requirement”) shall be funded from the proceeds of each series of bonds, subject to federal tax regulations and in accordance with the requirements of credit enhancement providers and/or rating agencies. The City may purchase a reserve equivalent (e.g., a reserve fund surety policy) when such purchase is deemed prudent and advantageous. Such equivalents shall be evaluated in comparison to cash funding of reserves on a net present value basis, while also taking into account the creditworthiness of the surety provider and market acceptance.

C. Letters of Credit
The City may enter into a letter of credit agreement when such an agreement is required Formatted: Indent: Left: 1", Tab stops: 1.75", Left + Not at 1.79"
Commented [SH4]: what does this mean? is it referring to projects and determination of what is funded? or what is funded on what lien?
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9 by the market (e.g., in the case of variable rate demand bonds) or is deemed prudent and advantageous. Only those financial institutions with long-term ratings greater than or equal to that of the City, and minimum short-term ratings of P-1, A-1, F1, by Moody’s Investor Services, Standard & Poor’s and Fitch, respectively, may participate in City letter of credit agreements unless there are no other practicable options for the City.

X. REFINANCING OUTSTANDING DEBT
The City shall have the responsibility to analyze outstanding bond issues for refunding opportunities that may be presented by underwriting and/or municipal advisory firms. The City will consider the following issues when analyzing possible refunding opportunities:

A. Debt Service Savings
The City has established a minimum net present value savings threshold goal of 3% of the refunded bond principal, unless there are other compelling reasons for defeasance.

The present value savings will be net of all costs related to the refinancing. [Consider adding something in here about, iIf the debt to be defeasedrefinanced is not currently callable (i.e., in the case of forward delivery refundings, or advance refundings, etc.), also considering athe City will make a comparison to the projected savings if theit could City achieve if it instead waited to do auntil the debt becomes eligible for a current refunding]. The decision to defease debt that is not currently callable or to take savings on an upfront or deferred basis must be explicitly approved by the City Council.

B. Restructuring
The City will refund debt when in its best interest to do so. Refundings will include restructuring to meet unanticipated revenue expectations, terminate swaps, achieve cost savings, mitigate irregular debt service payments, release reserve funds or remove unduly restrictive bond covenants.

C. Term of Refunding Issues
The City will refund bonds within the term of the originally issued debt. However, the City may consider maturity extension, when necessary to achieve a desired outcome, provided that such extension is legally permissible. The City may also consider shortening the term of the originally issued debt to realize greater savings. The remaining useful life of the financed facility and the concept of intergenerational equity should guide this decision.

D. Escrow Structuring
The City shall utilize the least costly permitted securities available in structuring refunding escrows. The City will examine the viability of an economic versus legal defeasance on a net present value basis. Generally, the City should look to purchase State and Local Government Series (“SLGS”) securities from the federal treasury when structuring refunding escrows. The City may review the purchase of Open Market Securities (“OMS”) to fund a refunding escrow. In such a case, a certificate from a thirdparty agent, who is not a broker-dealer, is required stating that the securities were procured through an arms-length, competitive bid process (in the case of OMS), that such securities were more cost effective than SLGS, and that the price paid for the securities was reasonable within Federal guidelines. Under no circumstances shall an underwriter, agent, municipal advisor or financial advisor sell escrow securities to the City from its Formatted: Indent: Left: 0", Right: 0", Line spacing:
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10 own account.

E. Arbitrage
The City shall take all necessary steps to optimize refunding escrows and to avoid negative arbitrage. Any resulting positive arbitrage will be rebated as necessary according to Federal guidelines.

A. Competitive Sale
In a competitive sale, the City’s bonds shall be awarded to the bidder providing the lowest true interest cost as long as the bid adheres to the requirements set forth in the official notice of sale. Conditions under which a competitive sale would be preferred are as follows:
 Bond prices are stable and/or demand is strong.
 Market timing and interest rate sensitivity are not critical to the pricing. There are no complex explanations required during marketing regarding issuer’s projects, media coverage, political structure, political support, and funding or credit quality.
 The bond type and structure are conventional.
 Bond insurance is not needed, is included or pre-qualified (available).  Significant transaction size, generally larger than $10 million.  The City (or the issuing City enterprise) has strong credit ratings.  The City (or the issuing City enterprise) is well known to investors.

B. Negotiated Sale
The City recognizes that some securities are best sold through negotiation. Conditions under which a negotiated sale would be preferred are as follows:
 Interest rates are volatile.
 Demand is weak or supply of competing bonds is high.
 Market timing is important, such as for refundings.
 The City (or the issuing City enterprise) has lower or weakening credit rating.  The issuing City enterprise is not well known to investors.  Sale and marketing of the bonds will require complex explanations about the issuer’s projects, media coverage, political structure, political support, funding, or credit quality.
 The bond type and/or structural features are non-standard, such as for a forward delivery bond sale, issuance of taxable or variable rate bonds, or where there is the use of derivative products.
 Bond insurance is not available or not offered.
 Early structuring, investor outreach and other market participation by underwriters are desired.

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11  The par amount for the transaction is small (generally under $10 million) or significantly larger than normal (generally over $100 million).  Demand for the bonds by retail investors is expected to be high.  Participation from Disadvantaged Business Enterprise (“DBE”) firms is required or desired.

D. Issuance Method Analysis
The City shall evaluate the comparative costs of each method of issuance on a net present value basis, using the City’s investment rate as the appropriate measure of the discount rate. It should be noted, however, that cost may be only one of a number of factors considered in determining the most advantageous method of sale.

ED. Feasibility Analysis
Issuance of revenue bonds may be accompanied by a finding that demonstrates the projected revenue stream’s ability to meet future debt service payments.

XII. MARKET RELATIONSHIPS
A. Rating Agencies and Investors
The Director of Finance shall be responsible for maintaining the City’s relationships with Moody’s Investors Service, Standard & Poor’s, Fitch and any other major rating agency.

The City may, from time- to- time, choose to seek ratings from only one or two of these agencies as circumstances dictate. In addition to general communication, the Director of Finance shall meet with credit analysts prior to each rated competitive or negotiated sale and/or offer conference calls with agency analysts in connection with the planned sale as needed.

B. Other Jurisdictions/Conduit Financing
From time to time, the City may issue bonds on behalf of other public entities. While the City will make every effort to facilitate the desires of these entities, the Director of Finance will ensure that the highest quality financings are done and that the City is insulated from all manageable risks. The City may issue bonds through another issuing entity such as a Joint Powers Authority (“JPA”). The City may issue debt in this manner if it would result in the least costly method to issue debt (e.g. reduced costs of issuance).

The City will evaluate the timing of such issuance.

C. Fees
When appropriate, the City will charge an administrative fee equal to direct costs to reimburse its administrative costs incurred in debt issuance and ongoing reporting costs.

XIII. CONSULTANTS
Commented [SH5]: Delete? or incorporate general concept into the lead in under "XI. Method of Issuance" above?
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12 Periodically, the City may create an approved pool of qualified financing team members, such as municipal advisors or underwriters.

A. Selection of Financing Team Members
The Director of Finance will make recommendations to the City Manager for all financing team members, with the City Council providing final approval.

Municipal advisory services provided to the City shall include, but shall not be limited to the following:
 Evaluation of risks and opportunities associated with debt issuance.  Monitoring market conditions and opportunities.
 Evaluation of proposals submitted to the City by investment banking firms.  Structuring and pricing of debt.
 Preparation of request for proposals for other financial services such as trustee and paying agent services, printing, credit facilities, remarketing agent services, etc.
 Advice, assistance and preparation for presentations with rating agencies, credit providers and investors.
 Assisting in preparation of official statements and other financing documents.  Be available for other projects whenever needed.

The City also expects that its municipal advisor will provide the City with objective advice and analysis, maintain the confidentiality of City financial plans, and be free from any conflicts of interest.

C. Bond Counsel
City debt will include a written opinion by legal counsel affirming that the City is authorized to issue the proposed debt, that the City has met all constitutional and statutory requirements necessary for issuance, and a determination of the proposed debt’s federal income tax status. The approving opinion and other documents relating to the issuance of debt will be prepared by counsel with extensive experience in public finance and tax issues. The counsel will be selected by the City Attorney and subject to City Council approval.

The services of bond counsel may include, but are not limited to:
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13 obligations including whether the interest paid on the debt is tax exempt under federal and State of California law;
 Preparing all necessary legal documents in connection with authorization, sale, issuance and delivery of bonds and other obligations;
 Unless this task is assigned to disclosure counsel, as selected by the City separately from bond counsel, preparing the preliminary and final official statements and commercial paper memoranda;
 Participating in discussions with potential investors, insurers and credit rating agencies, if requested;
 Providing continuing advice, as requested, on the proper use and administration of bond proceeds under applicable laws and the indenture, particularly arbitrage tracking and rebate requirements;

D. Disclosure Counsel
The City may utilize a separate firm to serve as disclosure counsel as it deems necessary.

If cost effective, bond counsel may also serve as disclosure counsel.

XIV. UNDERWRITER SELECTION
A. Senior Manager Selection
The City shall have the right to select a senior manager for a proposed negotiated sale.

The criteria shall include but not be limited to the following:
 The firm’s ability and experience in managing similar and/or complex transactions.
 Demonstrated ability to structure debt issues efficiently and effectively.  Prior knowledge and experience with the City.
 The firm’s willingness to risk capital and demonstration of such.  The firm’s ability to reach a wide network of investors.  The firm’s ability to sell bonds at the lowest market interest rates.  Quality and experience of personnel assigned to the City’s engagement.  Financing and marketing plans presented.

B. Co-Manager Selection
Co-managers may be selected on the same basis as the senior manager. In addition to their qualifications, co-managers appointed to specific transactions will be a function of transaction size and the necessity to ensure maximum distribution of the City’s bonds.

C. Selling Groups
The City may establish selling groups in certain transactions. To the extent that selling groups are used, the City may make appointments to selling groups from within the an existing pre-qualified pool of underwriters or from outside the poolthrough another process, as the transaction dictates.

D. Underwriter’s Counsel
In any negotiated sale of City debt in which legal counsel is required to represent the underwriter, the lead underwriter will make the appointment subject to the City’s right to object to any such appointment approval. [Consider changing this to “right to object to any such appointment” instead of approval. If the City is approving underwriter’s Formatted: Normal, Indent: Left: 1.75", No bullets or
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14 counsel it may require additional disclosure.]
E. Underwriter’s Discount
The City will evaluate the proposed underwriter’s discount against comparable issues in the market. If there are multiple underwriters in the transaction, the City will determine the allocation of fees with respect to the takedown and management fee (if any). The determination of the size and allocation of the management fee will be based upon participation in the structuring phase of the transaction. Generally, the City will not pay for risk in its underwriter’s discount. All fees and allocation of the management fee will be determined prior to the sale date; a cap on management fee, expenses and underwriter’s counsel will be established and communicated to all parties by the City.

The senior manager shall submit an itemized list of expenses charged to members of the underwriting group. Any additional expenses must be substantiated.

G. Syndicate Policies
For each negotiated transaction, the Director of Finance will prepare review and approve syndicate policies that will describe the designation policies governing the upcoming sale. The Director of Finance shall ensure receipt of each member’s acknowledgement of the syndicate policies for the upcoming sale prior to the sale date.

H. Designation Policies
To encourage the pre-marketing efforts of each member of the underwriting team, orders for the City’s bonds will be net designated, unless otherwise expressly stated. The City shall require the senior manager to:
 Equitably allocate bonds to other managers and the selling group.  Comply with MSRB regulations governing the priority of orders, compliance with retail order requirements and allocations.
 Within 10 working days after the sale date, submit to the Director of Finance a detail of orders, allocations and other relevant information pertaining to the City’s sale.

I. Disclosure by Financing Team Members
All financing team members will be required to provide full and complete disclosure relative to agreements with other financing team members and outside parties. The extent of disclosure may vary depending on the nature of the transaction and for underwriters and municipal advisors shall, at a minimum, comply with applicable SEC and MSRB requirements. For firms acting as the City’s bond counsel, disclosure counsel, or municipal advisor, no agreements shall be permitted which could compromise the firm’s ability to provide independent advice which is solely in the City’s best interests or which could reasonably be perceived as a prohibited conflict of interest. All other conflicts must be disclosed to the City in accordance with applicable regulatory requirement. For legal counsel such conflicts disclosure shall, at a minimum, comply with applicable conflicts #4..
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15 disclosure requirements for attorneys in the state.

XV. POST-ISSUANCE COMPLIANCE
A. General
In conjunction with the issuance of a tax-advantaged obligation, bond counsel issues an opinion that is in part based on the reasonable expectation that the issuer will comply with federal tax law requirements to preserve the tax-advantaged status of the obligation. The issuer agrees to comply with these requirements through representations it makes in the tax compliance certificate. The purpose of this Post-Issuance Compliance section is to establish policies and procedures in connection with the issuance of obligations, so as to (a) maximize the likelihood that the City satisfies all applicable post-issuance requirements of federal income tax law needed to preserve the tax exempt status of bonds, (b) ensure that the City will take any appropriate remedial actions on a timely basis if a future event occurs that could affect the tax-exempt status of bonds, and (c) maximize the likelihood that the City complies with applicable federal securities laws, including any contractual obligations arising thereunder. The City reserves the right to use its discretion as necessary and appropriate to make exceptions or request additional provisions as circumstances warrant. The City also reserves the right to change these policies and procedures from time to time.

Issuers and borrowers are also required to disclose, on a periodic basis, financial information and certain other information that may impact their ability to service their debt. This ongoing reporting requirement is known as continuing disclosure. The requirements of continuing disclosures are directly applicable to underwriters and are set forth in Securities and Exchange Commission (“SEC”) Rule 15c2-12. The issuer makes representations in its official statements and other bond documents regarding its intent to comply as a matter of contract with the requirements of Rule 15c2-12.

B. Designation of Post-Issuance Compliance Officer
The City has established a Disclosure Working Group (“DWG”) consisting of the City’s Manager and Director of Finance. The DWG will establish appropriate written policies and procedures, which this document provides, and periodic training regarding continuing disclosure obligations to effect compliance with the federal securities laws. In connection with each primary offering subject to Rule 15c2-12, as well as annually and periodically when necessary in connection with its continuing disclosure filings required by contractual undertakings delivered in accordance with Rule 15c2-12,. Tthe DWG will notify its dissemination agent and others, as and when appropriate when developments and events affect the City that may give rise to a contractual obligation to provide additional disclosure or that may provide an opportunity for voluntary disclosure.

The Director of Finance, or his or her designee, shall be the Post-Issuance Compliance Officer (the “Compliance Officer”) for the City’s debt issuancesbonds (the “Bonds”). The Compliance Officer, if City staff, may designate such other personnel as may be necessary to assist in determining continuing compliance with all relevant law and regulations applicable to the continued favorable tax treatment of such indebtedness, and to comply with the record-keeping responsibilities outlined herein. At such time as the initial Compliance Officer is replaced or a new Compliance Officer is designated, the departing #4..
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16 Compliance Officer will ensure that such successor is fully briefed as to the status of the City’s outstanding indebtedness and the location of records relating to such indebtedness, and that such successor receives training and consultation(s) with bond or disclosure counsel as to his or her duties as Compliance Officer under this policyDebt Policy.

C. External Advisors
The City shall consult with bond counsel and other legal counsel and advisors, as needed, so long as any Bonds remain outstanding, to identify requirements and to establish procedures necessary or appropriate so that tax-exempt interest on the Bonds will continue to be excludable from gross income for federal income tax purposes. Those requirements and procedures shall include future compliance with applicable private activity bond tests, arbitrage rebate requirements and all other applicable post-issuance requirements of federal tax law throughout (and in some cases beyond) the term of bonds. The Compliance Officer shall conduct periodic reviews, at least annually, or more often as may be necessary, to determine that the City remains in compliance with all laws and regulations, including, without limitation, the matters set forth herein. The Compliance Officer annual review shall include matters that relate to the tax status of the Bonds, continuing compliance with covenants that relate to the tax status of the Bonds, and any new matters or public finance developments that relate to the tax status of the Bonds or continuing compliance with such requirements. The City may consult with bond counsel in conducting its review and may engage expert advisors (each a “Rebate Analyst”) to assist in the calculation of arbitrage rebate payable in respect of the investment of Bond proceeds in the manner more fully set forth in the Tax Certificate.

D. Uses and Investments of Funds and Accounts
Various funds and accounts are established as security for the Bonds. The Compliance Officer shall prepare regular, periodic statements regarding the investments and transactions involving bond proceeds, which shall comprise part of the records required to be kept. The Compliance Officer will also review the disbursement of bond proceeds from Trustee records or City records, as applicable, to ensure that bond proceeds are expended in accordance with their intended purpose. The Compliance Officer shall report to the Finance Director (if the officer is a designee of the Finance Director) and the City Manager any expenditure which violates the provisions of any ballot measure, authorizing resolution, or trust document. If any Debt Service Fund ever contains any balance after the principal payment of the Bonds is made each year, except for a reasonable carryover amount which is less than the greater of the earnings on the Debt Service Fund for the immediately preceding year ending on such principal payment date (a “Bond Year”), or 1/12 of the principal and interest payments on the Bonds for the immediately preceding Bond Year, then the Compliance Officer will contact bond counsel to ensure that such facts will not cause the Bonds to become arbitrage bonds, to formulate a plan to remediate such condition, if necessary, and to determine an allowable use for such excess moneys and/or to determine if any yield restrictions apply. If any Debt Service Reserve Fund is ever funded (i) in an amount more or less than the required balance but declining in future years as detailed in the Tax Certificate), or (ii) is invested at a yield that is higher than the yield of the Bonds, then the Compliance Officer will contact bond counsel to ensure that such facts will not cause the Bonds to become arbitrage bonds, to formulate a plan to remediate such condition and/or to determine if any yield restrictions apply. Generally, if the Debt Service Reserve Fund ever contains a higher balance than required (either through the accrual of interest, investment gains, maturity of securities, or reduction in the #4..
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17 Reserve Requirement) then the excess moneys should be dealt with as directed by the documents and approved by bond counsel. If any Construction Fund ever is invested at a yield higher than the yield of the Bonds or if moneys in the Construction Fund are not fully expended by three years after the original delivery date of the Bonds, then the Compliance Officer will contact bond counsel to ensure that such facts will not cause the Bonds to become arbitrage bonds, to formulate a plan for the investment and application of the remaining unexpended Bond Proceeds, which plan may include the redemption or defeasance of Bonds, and/or to determine if any yield restrictions apply.

E. Rebate Reporting
The use of bond proceeds and their investments must be monitored to ensure compliance with arbitrage restrictions. The City will cause arbitrage rebate calculations to be completed, or cause to be completed by an experienced firm the City has retained for this purpose related to any bond issues, with any positive rebate paid every five years and as otherwise required by applicable provisions of the Internal Revenue Code and regulations.

Therefore, the Director of Finance shall ensure that proceeds and investments are tracked in a manner that facilitates accurate, complete calculation, and timely rebates, if necessary.

F. Continuing Disclosure
Appointment. Unless otherwise provided in any Continuing Disclosure Agreement executed in connection with the Bonds pursuant to SEC Rule 15c2-12 (the “Continuing Disclosure Agreement”), the Compliance Officer shall also be the Dissemination Agent under such Continuing Disclosure Agreement. The Compliance Officer shall be responsible for and take all reasonable steps to ensure compliance with said Continuing Disclosure Agreement and shall monitor the operations of the Issuer for occurrence of any listed event (as set forth therein). For any Bonds for which it is designated to serve in such capacity, sShould the Compliance Officer no longer serve as Dissemination Agent, the City shall select an internal or external Dissemination Agent.

Responsibilities. The Dissemination Agent is responsible for the following (the “Continuing Disclosure Policies”):
 Serving as a “point person” for personnel to communicate issues or information that should be or may need to be included in any Continuing Disclosure Agreement;
 Identifying the officers and employees of the City who are most likely to first obtain knowledge of the occurrence of events that would require event filings;  Monitoring compliance by the City with the Continuing Disclosure Policies, including timely dissemination of the annual report and event filings as described below;
 Recommending changes to the Continuing Disclosure Policies to the City as necessary or appropriate;
 Following up with others to make sure that assigned tasks have been completed on a timely basis and making sure that the continuing disclosure annual report is filed on a timely basis; and
 Maintaining records documenting the City’s compliance with the Continuing Disclosure Policies and the Continuing Disclosure Agreement.

Filing Requirements. The City is required to file an annual report with the MSRB’s Electronic Municipal Market Access (“EMMA”) system each year. Such annual reports #4..
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18 are required to include certain updated financial and operating information and audited financial statements. The Dissemination Agent will establish or cause to be established a calendar reminder of the city’s continuing disclosure obligations on July 1 each year. The City is also required to file notices of certain events with the MSRB’s Electronic Municipal Market Access system. Upon the identification of the occurrence of a material event, the Dissemination Agent shall, in consultation with bond counsel, prepare, or caused to be prepared, a draft of the necessary notice (including compiling any materials or documents to be included with such notice) and shall notify such parties of the date by which such notice is to be filed. If it is not clear if the occurrence of an event constitutes an event thate requires notification, then the Dissemination Agent shall consult with bond counsel to determine whether the City is required to file a notice concerning such event.

For any public debt issues (subject to contractual obligations under SEC Rule 15c2-12) issued on or after February 27, 2019, the City is required to commit to make additional disclosure with respect to private loans or financing leases (not sold through an official statement) or derivatives or credit support agreements (collectively “financial obligations”). The additional events will need to be provided to the City’s Dissemination Agent, for further filing with EMMA, within ten (10) business days of their occurrence:
 Incurrence of a financial obligation of the City (and any obligated person, where applicable), if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation the City (and any obligated person, where applicable), any of which affect security holders, if material;
 Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the City (and any obligated person, where applicable), any of which reflect financial difficulties.

In addition, the Compliance OfficerDissemination Agent will be responsible for providing notice, in a timely manner, of a failure to provide any of the City’s required annual financial information by the date specified in the continuing disclosure undertaking. The inability to make timely filings must be disclosed and is a negative reflection. While there is reliance on timely audit and preparation of the City’s annual report, the Director of Finance will ensure the City’s timely filing of its annual report on EMMA as soon as it is available.

G. Voluntary Disclosure Requirements
In addition to preparing annual reports and event notices, the City may wish to keep investors informed by providing information that is not required to be provided under Rule 15c2-12 or its continuing disclosure undertakings. Examples of such types of information are investments, interim financial information, capital improvement plans, fund balance policies, etc. and financial forecasts. Because providing this information is voluntary, the Compliance Officer will monitor for events which may materially affect the financial condition or operations of the City, so that a determination can be made if the event should be disclosed. The below list is comprised of events and financial disclosure which the MSRB has suggested issuers may wish to voluntarily disclose. Some of these are not applicable to the City’s public debt issues and financial obligations, but the City may wish to consider providing some of these to the City’s Dissemination Agent for further filing with EMMA:
 Amendment to continuing disclosure undertaking;
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19  Change in obligated person (i.e., a person guaranteeing or supporting City debt):
 Notice to investors pursuant to bond documents;
 Certain communications from the Internal Revenue Service;  Secondary market purchases;
 Capital or other financing plan;
 Litigation/enforcement action;
 Change of tender agent, remarketing agent, or other on-going party;  Change in fiscal year/timing of annual disclosure or accounting standard;  Interim/additional financial information/operating data, budget;  Investment/debt/financial policy changes;
 Information provided to rating agency, credit/liquidity provider or other third party; and
 Consultant reports
Also, if the City maintains an Investor Relations website, or routinely posts City information packages, including interim financial information, capital improvement plans, etc. on its website, the City’s Compliance Officer should review and, in some cases, the Compliance Officer should reissue the posted material with an explanatory note (e.g., the interim financial information is presented on a cash, as opposed to accrual basis).

Currently, the City is not required to file interim financial information. In the future, if such filings are required in continuing disclosure undertakings, the City’s Compliance Officer will notify the Dissemination Agent for assistance when these filings become necessary.

H. Coordinating Continuing Disclosure with Primary Disclosure It is expected that the DWG will be responsible for collecting and reviewing information set forth in official statements prepared in connection with new bond offerings. Any Management’s Discussion and Analysis (“MD&A”) from the prior year’s audited financial statements will be reviewed to ensure that the unaudited information which was provided in that portion of the financial statements is updated to include added public debt and material financial obligations. Coordination with the City’s auditors will be essential, as well as careful review of the long-term debt notes in the financial statements and the checking of all bond ratings before each EMMA filing is made. Measures should be taken to assure information publicly available to investors is accurate. Further coordination between the DWG and the City’s website manager is essential before posting any financial information.

I. Website Disclosure
It is expected that the Compliance Officer will be responsible for monitoring website content and reviewing the information set forth on such website. Appropriate disclaimer language on the website will be considered in order to educate the viewer that specific information intended for investors can be found on the City’s EMMA page as well as the investor’s acknowledgement of the limitations of such reliance. Coordination between the DWG and City officials will occur before the release of any public statements about any financial condition of the City.

J. Training for Employees and Issuer Officials
For City officials, compliance with federal securities law should be considered as #4..
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20 important as compliance with local public meetings and records laws. To further this goal, the Compliance Officer shall call a meeting for an annual review or, if necessary, an interim review, of the continuing disclosure policies of the City, which all members of the DWG and additional invited officials and employees are expected to attend. The Compliance Officer shall be responsible for keeping a record of attendance. Furthermore, the members of the DWG and such invited officials and employees are expected to attend training sessions, at least annually, called by the Compliance Officer. Applicable policies and procedures will be updated by the City to reflect required changes on an as-needed basis.
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21 GLOSSARY
Arbitrage- The difference between the interest paid on the tax-exempt securities and the interest earned by investing the security proceeds in higher-yielding taxable securities.

IRS regulations govern arbitrage on the proceeds from issuance of municipal securities.

Balloon Maturity- A later maturity within an issue of bonds that contains a disproportionately large percentage of the principal amount of the original issue.

Bond Allocation Policies- Outline as to how an investor’s order is filled when a maturity in an underwriting syndicate is oversubscribed. The senior managing underwriter and issuer decide how the bonds will be allocated among the syndicate. There are three primary classifications of orders, which form the designation policy. The highest priority is given to Net Designated orders; the next priority is given to Group Net orders and Member orders are given the lowest priority (unless the Member orders are retail orders in which case it would be given the highest priority).

Bullet Maturity- Maturity for which there are no sinking fund payments prior to the stated maturity date.

Call Provisions- The terms of the bond contract giving the issuer the right to redeem all or a portion of an outstanding issue of bonds prior to their stated dates of maturity at a specific price, usually at or above par.

Capitalized Interest- A portion of the proceeds of an issue that is set aside to pay interest on the securities for a specific period of time. Interest is commonly capitalized for the construction period of the project.

Commercial Paper- Very short-term, unsecured promissory notes issued in either registered or bearer form, and usually backed by a line of credit with a bank.

Competitive Sale- A sale of securities by an issuer in which underwriters or syndicates of underwriters submit sealed bids to purchase the securities in contrast to a negotiated sale.

Continuing Disclosure- The principle that accurate and complete information material to the transaction which potential investors would be likely to consider material in making investment decisions with respect to the securities be made available on an ongoing basis.

Credit Enhancement- Credit support purchased by the issuer to raise the credit rating of the issue. The most common credit enhancements consist of bond insurance, direct or standby letters of credit, and lines of credit.
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22 Debt Service Reserve Fund- The fund in which moneys are placed which may be used to pay debt service if pledged revenues are insufficient to satisfy the debt service requirements.

Deep Discount Bonds- Bonds that are priced for sale at a substantial discount from their face or par value.

Derivatives- A financial product whose value is derived from some underlying asset value.

Designation Policies- Concerning a negotiated sale of bonds, the rules regarding how the takedown (sales commission) is allocated among the underwriters for each order put in for the bonds.

Direct Purchase Loan- A source of financing where the loan is purchased by a financial institution instead of being offered to the general public for purchase. The loan can bear interest at a fixed rate or on a variable rate tied to market index (i.e. SOFR or SIFMA).

This form of financing does not require a remarketing agent to set the variable rate. As such, a Direct Purchase Loan can be used to replace traditional forms of variable-rate debt.

Escrow- A fund established to hold moneys pledged and to be used to pay debt service on an outstanding issue.

Expenses- Compensates senior managers for out-of-pocket expenses including:
underwriters counsel, DTC charges, travel, syndicate expenses, dealer fees, overtime expenses, communication expenses, computer time and postage.

Floating Rate Notes (“FRN”)- A note with a variable interest rate sold either in the public market or directly to financial institutions. The adjustments to the interest rate are typically tied to a certain index like SOFR or SIFMA and are made periodically. The rate would continue to reset in the same manner through maturity. The SOFR-based floating rate note market typically does not require bank support and as a result, offers issuers an alternative to traditional floating rate debt.

Grant Anticipation Notes (“GAN”)- Short term notes issued by the government unit, usually for capital projects, which are paid from the proceeds of State or Federal grants of any type.

Letters of Credit- A bank credit facility wherein the bank agrees to lend a specified amount of funds for a limited term.

Management Fee- The fixed percentage of the gross underwriter’s spread which is usually only paid to the managing underwriter for the structuring phase of a transaction.

Members- Underwriters in a syndicate other than the senior underwriter.

Moody’s Median- Key financial, debt, economic and tax base statistics with median values for each statistic presented. Moody’s uses audits for both rated and unrated #4..
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23 agencies to ensure that the medians presented are representative of all agencies.

Negotiated Sale- A method of sale in which the issuer chooses one underwriter to negotiate terms pursuant to which such underwriter will purchase and market the bonds.

Original Issue Discount- The amount by which the original par amount of an issue exceeds its public offering price at the time it is originally offered to an investor.

Pay-As-You-Go- An issuer elects to finance a project with existing cash flow as opposed to issuing debt obligations.

Present Value- The current value of a future cash flow.

Private Placement- The original placement of an issue with one or more investors or financial institutions as opposed to being publicly offered or sold.

Rebate- A requirement imposed by the Tax Reform Act of 1986 whereby the issuer of the bonds must pay the IRS an amount equal to its profit earned from investment of bond proceeds at a yield above the bond yield calculated pursuant to the IRS code together with all income earned on the accumulated profit pending payment.

Tax and Revenue Anticipation Notes (“TRAN”)- Short-term notes issued by a government unit, usually for capital projects, which are paid from the proceeds of sales tax or other revenue sources.

Selling Groups- The group of securities dealers who participate in an offering not as underwriters but rather as those who receive securities less the selling concession from the managing underwriter for distribution at the public offering price.

Syndicate Policies- The contractual obligations placed on the underwriting group relating to distribution, price limitations and market transactions.

Underwriter- A dealer that purchases new issues of municipal securities from the Issuer and resells them to investors.

Underwriter’s Discount- The difference between the price at which the Underwriter buys bonds from the Issuer and the price at which they are reoffered to investors.

Variable Rate Debt- An interest rate on a security which changes at intervals according to an index or a formula or other standard of measurement as stated in the bond contract. #4..
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24 1. City of Modesto Philosophy Regarding Use of Interest Rate Swaps A. Introduction
Interest rate exchange agreements or interest rate swaps (“Swaps”) and related financial instruments and derivatives are may be appropriate interest rate management tools in certain circumstances. Properly used, Swaps can increase the City of Modesto’s (the “City”) financial flexibility and provide opportunities for interest rate savings. This policy (“Swap Policy”) shall be followed in conjunction with the City’s related debt issuance-related policies and procedures (the “Debt Policy”).

Swaps are appropriate to use when they achieve a specific financial objective consistent with the City’s overall Swap Policy and Debt Management policiesPolicy. Swaps may be used, for example, to lock-in a current market fixed rate or create additional variable rate exposure. Swaps may be used to produce interest rate savings or alter the pattern of debt service payments. Swaps may be used to cap, limit or hedge variable rate payments. Options granting the right to commence or cancel an underlying Swap are permitted to the extent the Swap itself is otherwise consistent with this policySwap Policy.

The authorized Swaps contemplated in this policy Swap Policy are intended to reduce the amount or duration of interest rate risk, or produce a lower cost of borrowing when used in combination with the issuance of bonds.

B. Rationales for Utilizing Interest Rate Swaps
The use of Swaps and related financial instruments should balance the City’s primary objectives of reducing the cost of capital, minimizing the City’s exposure to interest rate volatility, and gaining flexibility in structuring and managing its debt portfolio over time with the risks associated with these tools and instruments. Examples of how the City’s debt management objectives can be achieved through the use of Swaps and other financial instruments are described below:
 Reduce borrowing costs at the time of issuance
Create synthetic fixed rate debt through a floating-to-fixed Swap.  Actively manage interest rate risk
Lock-in current market rates through (forward starting) floating-to-fixed Swap.  Balance financial risk
Purchase of an interest rate cap.
 Achieve appropriate asset/liability match
Create variable rate exposure through fixed-to-floating Swap.

CITY OF MODESTO

CITY COUNCIL
POLICY

Latest Revision Date: April 20221
ADDENDUM: INTEREST RATE SWAP POLICY
Commented [CoM6]: Updated to latest format for Policies #4..
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25 Under no circumstances will Swaps be used for speculative purposes, e.g., to realize trading gains.

2. Authority for Entering iInto Swap Agreements
The purpose of this Swap Policy policy is to integrate the use of Swaps into the City’s overall debt Debtmanagement practicePolicy, and other funds of the City where particular debt strategies, both long-term and short-term, factor into these decisions. Swaps will not be used for speculation. The City Manager, in conjunction with the Director of Finance, shall be responsible for determining if and when it is in the City’s overall best financial interests to enter into a Swap or related financial instruments covered by this policySwap Policy.

The City shall comply with all applicable laws. The City must receive an opinion acceptable to the financial market from a nationally recognized law firm that the swap contract is a legal, valid, and binding obligation of the City and that entering into such a contract complies with applicable provisions of the City Charter and State statutes.

3. Permitted Instruments
The City may utilize financial instruments that (i) lower its interest expense, (ii) manage its financial risk or (iii) improve its financial condition.

The City shall not use financial instruments that (i) create substantial leverage or financial risk, (ii) lack adequate liquidity to terminate at market, (iii) provide insufficient price transparency to allow reasonable valuation on an ongoing basis, or (iv) are primarily speculative in nature.

The use of Swaps and other hedging products should produce a result not otherwise available in the cash market (i.e., lack of advance refunding/non-callable debt), or provide a higher level of net savings compared to conventional financing methods.

The City may expressly utilize the following financial instruments, after identifying the financial objective(s) to be realized and assessing the attendant risks:
 Current or forward starting floating-to-fixed rate swaps Designed to reduce a fixed interest rate below that which would otherwise be available through the use of traditional fixed rate debt.  Current or forward starting fixed-to-floating rate swaps Designed to create additional variable interest rate exposure.  Rate Locks
Cash-settled forward contracts based on indices such as the MMD™ 1 “AAA” scale.
 Interest Rate Caps, Floors or Collars
Financial contracts that limit exposure to interest rate volatility.  Options on Variable Rate Indices
Indices could include the Securities Industry and Financial Markets Association (“SIFMA”) Index2, Secured Overnight Financing Rate (“SOFR”)3, etc.

1. MMD™ is a trademark of Municipal Market Data, a Thompson Financial company.

2. The SIFMA Index is an index of more than 500 high-grade, tax-exempt, weekly reset VRDO issues.

3. SOFR is a taxable rate which is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, published daily by the Federal Reserve Bank. #4..
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26  Options on Swaps (“Swaptions”)
Methods used to control the commencement or cancellation of interest rate swaps.  Basis Swaps
Floating-to-floating rate swaps using different variable-rate indices, such as a swap from the SIFMA Index to a percentage of SOFR.

4. Swap Risk Analysis
The City shall require for each proposed financing an evaluation of all financial products with respect to the unique risks that they bear. A specific determination must be made that the proposed or expected benefits exceed the identified risks by an adequate margin over those available in the traditional cash market. At a minimum, the City shall perform an evaluation of the risks and what steps have been taken to mitigate any risks. The City shall retain a municipal/swap advisor to assist in assessing these risks. Questions that may arise include the following:
 Market or Interest Rate Risk
Does the transaction hedge (i.e., decrease or eliminate) or increase interest rate volatility?  Tax Risk
How is the transaction or its benefits affected by a future change in federal income tax policy?
 Termination Risk
Under what circumstances might the transaction be terminated? At what value?  Risk of Uncommitted Funding (Put Risk)
Does the transaction create additional financing dependent upon third- party participation (such as requiring a letter of credit, grant or other anticipation funding, etc.)?  Rollover Risk
Is the term of the Swap shorter than the term of the underlying hedged debt or financial instrument? Does the City anticipate entering into another Swap when the first Swap terminates?
 Legal Risk
Is the transaction expressly legally authorized?
 Counterparty Risk
What is the creditworthiness of the counterparty?
 Rating Agency Risk
Is the proposed transaction consistent with the City’s current ratings and ratings objectives?  Basis Risk
Is it anticipated that the projected Swap payments the City will receive closely match the debt service payments it will make?
 Index Risk
Does the transaction include provisions acceptable to the City regarding any change in indices used to calculate payments or obligations?
 Subsequent Business Conditions
Does the transaction or its benefits depend upon the continuation, or realization, of specific industry business conditions (e.g., unusual demand for state-specific variable rate debt)?  Operational Risk
Does the City have adequate systems, policies, and practices in place to monitor and manage the transaction over its term?

5. Swap Procurement and Execution
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27 A. Procurement
The City will not have a fixed policy with respect to the procurement of Swaps and other financial instruments authorized by this policySwap Policy. On a product-by-product basis, the City will have the authority to negotiate or competitively bid the procurement of financial instruments that have customized or specific attributes designed on its behalf. The Director of Finance will be responsible for determining the method of procurement for Swaps and related financial instruments. An independentA municipal/swap advisor [if you want to require independence then should define what that means and use consistently] shall be retained to assist the Director of Finance in evaluating the proposed pricing of Swaps or related financial instruments.

B. Swap Execution
The Director of Finance may recommend the use of financial derivative products if they:

1. Provide a specific benefit not otherwise available;

2. Produce greater expected interest rate savings than cash market alternatives;

3. Do not create substantial leverage or financial risk;

4. Result in an improved capital structure or better asset/liability match; and

5. Reasonably pass the Swap Risk Analysis required by Section 4. Swap Risk Analysis of this policySwap Policy.

C. Credit Rating Designations
For purposes of this Swap Policy, references to credit ratings will be based on those ratings issued by Moody’s Investors Service, and/or Standard & Poor’s Corporation, and/or Fitch Ratings. The credit ratings will reflect the designations assigned by each of these rating agencies utilized for comparable credit and will be listed for each rating agency utilized in the order shown in the preceding sentence.

6. Swap Documentation
The City will use standard International Swap and Derivatives Association, Inc. (“ISDA”) Master Agreement, including the Counterparty Schedule to the Master Agreement and a Credit Support Annex (utilizing such versions thereof as the Director of Finance shall determine), as supplemented and amended in accordance with the recommendations of the City’s financial/swap advisor and legal counsel. Each Swap entered into by the City shall include payment, term, security, collateral, default, remedy, termination and other terms, conditions and provisions as the Director of Finance may deem necessary or desirable.

A. Terms and Notional Amount of Swap Agreement
The City shall determine the appropriate term for Swaps on a case-by-case basis. The slope of the swap curve, the marginal change in swap rates from time to time along the swap curve, and the impact that the term of the Swap will have on the City’s overall financial (e.g., interest rate, market value, counterparty, etc.) exposure shall be considered in determining the appropriate term of any Swap agreement. In connection with the issuance or carrying of bonds, the term of the Swap agreement between the City and qualified swap counterparty shall not extend beyond the final maturity date of existing City debt, or in the case of a refunding transaction, beyond the final maturity of the refunding bonds. At no time shall the total net notional amount of all Swaps, excluding any offsetting Swaps exceed the total amount of outstanding applicable bonds. Variable rate debt exposure created through the use of Swaps will be consistent with the limitations set forth Formatted: Font: Bold
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28 in the City’s adopted Debt Management Policy. Terms and conditions of any Swap shall be negotiated by the Director of Finance in the best interests of the City subject to the applicable legal provisions and this Swap Ppolicy. The Swap agreements entered into between the City and each counterparty shall include payment, term, security collateral, default, remedy, termination, and other terms, conditions and provisions as the Director of Finance, in consultation with City legal counsel and its swap advisor, deems necessary or desirable.

Subject to the provisions contained herein, the City’s swap documentation and terms should include the following:
 The City will be able to terminate the swap without cause subject to market termination costs.
 The swap counterparty will only be able to terminate the swap if the City’s credit ratings fall below a certain pre-determined threshold and/or the City’s failure to perform, as required by the swap contract.
 Governing law for Swaps will be New York, but should reflect California authorization provisions.
 The specified indebtedness related to credit events in the Master Agreement should be narrowly drafted and refer only to specific debt of the issuing fund.  Eligible collateral should be limited to Treasuries, Federal Agencies and any other securities which, in the City’s sole discretion, shall be deemed reasonable and creditworthy.
 Collateral thresholds should be set on a sliding scale reflective of credit ratings.  Termination value should be set by “market quotation” methodology.  Whenever possible use a Credit Support Annex to document swap termination value collateralization procedures.
 Ratings downgrade triggers.

7. Policy on Swap Counterparties
The City shall only do business with highly rated counterparties, and will structure swap agreements to protect itself from credit deterioration. All Swap transactions shall contain provisions granting the City the right to optionally terminate a swap agreement at-market at any time over the term of the agreement.

A. Qualified Swap Counterparties
The City should not have an immutable credit standard. However, the City shall attempt to do business with highly rated counterparties the long-term ratings of which at the date of execution are at least “Aa” or “AA” by one or more Nationally Recognized Statistical Ratings Organizations (NRSRO) and no less than “A2” or “A” by one or more NRSRO. For lower rated counterparties, the City should seek credit enhancement in the form of:

1. Contingent swap counterparty providing support;

2. Collateral;

3. Ratings downgrade triggers; and,

4. Minimum rating threshold of “Baa3/BBB-/BBB-,” below which provisions will allow an assignment or trigger an additional termination event, with the counterparty as the affected party (i.e., the counterparty would pay market- based transaction costs). #4..
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29 In addition, the counterparty must have a demonstrated record of successfully executing swap transactions as well as creating and implementing innovative ideas in the swap market. The City shall be authorized to enter into interest rate swap transactions only with qualified swap counterparties.

8. Limitations on Counterparty Exposure
In order to diversify the City’s counterparty credit risk, and to limit the City’s credit exposure to any one counterparty, limits will be established for each counterparty based upon both the credit rating of the counterparty as well as the relative level of risk associated with each existing and proposed swap transaction. The guidelines shown in the following table provide general termination exposure guidelines with respect to whether the City should enter into an additional transaction with an existing counterparty. The City may make exceptions to the guidelines at any time to the extent that the execution of a swap achieves one or more of the goals outlined in these guidelines or provides other benefits to the City. In general, the maximum net termination exposure to any single counterparty should be set so that it does not exceed a prudent level as measured against the gross revenues, available assets or other financial resources of the City.

For example, if the City has two Swaps with one counterparty, and if the first Swap’s market value is positive $10 million and the second Swap’s market value is negative $20 million, then the City’s total net exposure to the counterparty is negative $10 million.

Such guidelines will also not mandate or otherwise force automatic termination by the City or the counterparty. Maximum net termination exposure is not intended to impose retroactively any terms and conditions on existing transactions. Such provisions will only act as guidelines in making a determination as to whether or not a proposed transaction should be executed given certain levels of existing and projected net termination exposure to a specific counterparty. Collateral posting guidelines are described in the collateral section below. The calculation of net termination exposure per counterparty will take into consideration multiple transactions, some of which may offset the overall exposure to the City.

Under this approach, the City will set limits on individual counterparty exposure based on existing as well as new or proposed transactions. The sum of the current market value and the projected exposure shall constitute the maximum net termination exposure. For outstanding transactions, current exposure will be based on the market value as of a recently completed swap valuation report provided by the City’s swap advisor. Projected exposure shall be calculated based on the swap’s potential termination value taking into account possible adverse changes in interest rates as implied by historical or projected measures of potential rate changes applied over the remaining term of the swap. For purposes of this calculation, the City shall include all existing and projected transactions of an individual counterparty and all transactions will be analyzed in aggregate such that the maximum exposure will be additive.

The exposure thresholds, which will be reviewed periodically by the City to ensure that they remain appropriate, will also be tied to long-term credit ratings of the counterparties and whether or not collateral has been posted as shown in the table below. If a counterparty has more than one rating, the lowest rating will govern for purposes of the calculating the level of exposure. If contingent swap counterparty or swap insurance is used to provide financial support for the primary counterparty, the rating of the support entity shall be used. A summary table is provided below:
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30 Credit Ratings
Maximum
Collateralized Net
Termination Value
Maximum
Uncollateralized
Net Termination Value
Maximum Net
Termination
Exposure
AAA N/A $30.0 million N/A
AA Category $30.0 million $20.0 million $30.0 million
A Category $20.0 million $10.0 million $20.0 million
Below A Category $10.0 million $5.0 million $15.0 million If the exposure limit is exceeded by counterparty, the City shall conduct a review of the exposure limit per counterparty. The City, in consultation with its bond counsel and swap advisor, shall explore remedial strategies to mitigate this exposure.

9. Benefit Expectation
Financial transactions, using Swaps or other derivative products, intended to produce the effect of a synthetic advance refunding, must generate at least 25% greater savings than the benefit threshold then in effect for fixed-rate bonds as determined by the City’s Director of Finance. (See Debt Management Policy Section X.A. Debt Service Savings). The higher savings target reflects the greater complexity and higher risk of derivative financial instruments.

In calculating the prospective savings against the target for implementing a fixed-to-variable swap, the cost of remarketing, in addition to the cost of credit and liquidity fees must be added to the variable rate representing the ten-year average of comparable variable rate securities.

10. Termination Provisions
All swap transactions shall contain provisions granting the City the right to optionally terminate a swap agreement at market at any time over the term of the agreement, but shall NOT grant this right to the counterparty. In general, exercising the right to terminate an agreement produces a benefit to the City, either through the receipt of a payment from a termination, or if the termination payment is made by the City, in conjunction with a conversion to a more beneficial (desirable) City debt obligation, as determined by the City.

11. Collateral
As part of any swap agreement, the City shall require collateralization or other credit enhancements to secure any or all swap payment obligations. As appropriate, the City, in consultation with its bond counsel and swap advisor, may require collateral or other credit enhancements to be posted by each swap counterparty under the following circumstances:
 Each counterparty to the City may be required to post collateral if the highest credit rating of the counterparty or parent falls below the “Aa/AA” category. Additional collateral for further decreases in credit ratings of each counterparty shall be posted by each counterparty in accordance with the provisions contained in the collateral support agreement to each counterparty with the City.
 Collateral shall be deposited with a third- party trustee, or as mutually agreed upon between the City and the counterparty.
 A list of acceptable securities that may be posted as collateral and the valuation of such Formatted: Font: Bold
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31 collateral will be determined and mutually agreed upon during negotiation of the swap agreement with each swap counterparty.
 The market value of the collateral shall be determined on at least a weekly basis.  The City shall determine the reasonable threshold limits for the initial deposit and for increments of collateral posting thereafter.
 The City shall determine on a case-by-case basis whether other forms of credit enhancement, such as swap insurance, are more beneficial in lieu of the posting of additional collateral.
 An evaluation of the performance of the swap relative to the rate on the bonds.  A computation of the effective cost of borrowing inclusive of all fees and costs associated with the underlying financing.

12. Conformance with Dodd-Frank
It is the intent of the City to conform this Swap Ppolicy to the requirements relating to legislation and regulations for over-the-counter derivatives transactions under Title VII of the Wall Street Transparency and Accountability Act of 2010, as supplemented and amended from time to time (herein collectively referred to as “Dodd-Frank”). Pursuant to such intent, it is the policy of the City that: (i) each swap advisor engaged or to be engaged by the City will function as the designated qualified investment representative of the City, sometimes referred to as the “Designated QIR”; (ii) each swap advisor agrees to meet and meets the requirements specified in Commodity Futures Trading Commission Regulation 23.450(b)(1) or any successor regulation thereto (herein referred to as the “Representative Regulation”) (iii) each swap advisor provide a written certification to the City to the effect that such swap advisor agrees to meet and meets the requirements specified in the Representative Regulation; and (iv) the City rely on the advice of its swap advisor with respect to transactions authorized pursuant to this Debt Swap Policy and not rely on recommendations, if any, presented by any counterparty with respect to transactions authorized pursuant to this Debt Swap Policy.

13. Monitoring and Reporting
At least once per year normally as part of the City’s Annual Comprehensive Financial Annual Report (“Annual Report”), or as requested by the City Council, the Director of Finance shall prepare information describing the various Swaps and financial arrangements entered into by the City pursuant to this policy Swap Policy that are in effect as of the date of the report’s publication.

The report shall include the following information:

1. A summary of key terms of the agreements, including notional amounts, interest rates, maturity and method of procurement.

2. The mark-to-market value of each agreement.

3. The full name, description, and credit ratings of each counterparty or the applicable guarantor.

4. The amounts that were required to be paid and received and any amounts that were actually paid and received.

5. A listing of any credit enhancement, liquidity facility, or reserves and an accounting of all costs and expenses associated with the credit enhancement, liquidity facility, or reserves.

6. The aggregate mark-to-market value and potential termination value for each swap by counterparty.

7. A discussion of other risks associated with each transaction. #4..
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32 At the end of each fiscal year, the Director of Finance shall provide to the City Council all information required for financial reporting under Government Accounting Standards Board (“GASB”) requirements as well as any other reporting or disclosure requirements. The City shall adhere to California Government Code Section 5922 and applicable GASB guidelines for reporting and disclosure guidelines for derivative products.
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1 I. INTRODUCTION
The purpose of this Policy is to organize and formalize debt issuance-related policies and procedures for the City of Modesto (the “City”) and to establish a systematic debt policy (the “Debt Policy” or the “Policy”). The debt policies and practices of the City are, in every case, subject to and limited by applicable provisions of state and federal law and prudent debt management principles.

III. SCOPE AND DELEGATION OF CITY
This Debt Policy shall govern, except as otherwise covered by the City of Modesto Investment Policy and the City of Modesto Interest Rate Swap Policy, the issuance and management of all debt funded through the capital markets and private placements, including the selection and management of related financial and advisory services and products, and the investment of bond proceeds.

CITY OF MODESTO

CITY COUNCIL
POLICY

Latest Revision Date: April 2022
Policy Number: 1.036
SUBJECT: DEBT MANAGEMENT POLICY

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2 While adherence to this Policy is required in applicable circumstances, the City recognizes that changes in the capital markets, agency programs and other unforeseen circumstances may from time to time produce situations that are not covered by the Policy and will require modifications or exceptions to achieve policy goals. In these cases, management flexibility is appropriate, provided specific authorization from the City Council is obtained.

IV. ETHICS AND CONFLICTS OF INTEREST
Officers and employees of the City involved in the execution and management of the Debt Policy will not engage in any personal business activities that could conflict with proper and lawful execution and management of the Debt Policy, or which could impair their ability to make impartial decisions.

VI. STANDARDS FOR USE OF DEBT FINANCING
The City’s Debt Policy will promote debt issuance only in those cases where public policy, equity and economic efficiency favor debt over cash (pay-as-you-go) financing. Long-term debt financing shall not be used to fund operating costs.

B. Term of Financing
Debt can be used to provide funding for long-term capital projects. The debt repayment period should relate to the expected useful life for the facilities or equipment being financed, and should, as a general matter, be concurrent with the stream of benefits from these facilities. When the City finances capital projects by issuing bonds, the debt repayment period generally should not exceed the average useful life of the equipment, software and/or facilities being acquired or constructed, but in no case will the financing exceed 120% of the useful life of the project being financed. Inherent in its long-term debt policies, the City recognizes that future taxpayers will benefit from the capital investment and that it is appropriate that they pay a share of the asset cost. #4..
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3 C. Debt Financing Mechanism
The City will evaluate the use of all financial alternatives available, including, but not limited to: long-term debt, short-term debt, commercial paper, tax revenue and grant anticipation notes, private placement and inter-fund borrowing. The City will utilize the most cost advantageous financing alternative available while limiting the City’s risk exposure.

F. Minimum Reserve Requirements for Water and Wastewater Funds The Water and Wastewater Funds are to maintain a working capital reserve equal to not less than 25% of their operating expenses plus one annual debt service payment on any State Revolving Fund (“SRF”) loans. This reserve is meant to ensure that adequate cash is on hand to meet current obligations of the funds as well as respond to unanticipated demands, such as unplanned repairs or renovations of the systems. This reserve is consistent with reserves established by other utilities for similar purposes.

G. Minimum Debt Service Coverage Ratio for Water and Wastewater Funds The City will seek to maintain debt service coverage on its senior lien Water and Wastewater revenue bonds at a level not less than one and a half times (1.5x) the maximum annual debt service for the aggregate outstanding senior lien bonds of the respective system, including the debt service for any new issuance, unless a different debt service coverage amount is allowed by existing bond covenants. #4..
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4 VII. DEBT FINANCING
A. Purpose of Debt
When the City determines that the use of debt is appropriate, the following criteria will be utilized to evaluate the type of debt to be issued:

2. Refunding Financing
Refunding bonds are issued to retire all or a portion of an outstanding debt issue.

Refunding issuances can be used to achieve present-value savings on debt service or to restructure the payment schedule, type of debt instrument used, or covenants of existing debt. The City must analyze the refunding issue on a present-value basis to identify economic effects before approval, as is further described in Section X.

Refinancing Outstanding Debt below.

B. Type of Debt
When the City determines that the use of debt is appropriate, the following criteria will be utilized to evaluate the type of debt to be issued:

2. Short-Term Debt
Short-term borrowing may be utilized for the temporary funding of operational cash flow deficits or anticipated revenues, where anticipated revenues are defined as an assured revenue source with the anticipated amount based on conservative estimates, or until the structure of the take-out financing is finalized. The City will determine and utilize the least costly method for short-term borrowing. The City may issue short-term debt when there is a defined repayment source or amortization of principal, subject to the following policies:
 Commercial Paper Notes may be issued as an alternative to fixed rate debt, particularly when the timing of funding requirements is uncertain. The City may maintain an ongoing commercial paper program to ensure flexibility and immediate access to capital funding when needed. The retirement of commercial paper is most commonly a result of the issuance of long-term bonds but they may also be retired with available cash.  Grant Anticipation Notes (“GAN”) are short-term notes that are repaid with the proceeds of State or Federal grants of any type. The City shall generally issue GANs only when there is no other viable source of funding for the project.
 Bond Anticipation Notes (“BAN”) are short-term notes issued prior to the issuance of long-term debt. BANs are most commonly retired, or taken-out, with long -term debt. BANs will be issued only when there is no better alternative to reduce the overall cost of a financing program.  Tax and Revenue Anticipation Notes (“TRAN”) shall be issued only to address a timing mismatch between operating revenues and operating expenditures and the sizing of the issue shall fully conform to Internal Revenue Code requirements and limitations.
 Lines of Credit shall be considered as an alternative to other short-term borrowing options. The lines of credit shall be structured to limit concerns as to Internal Revenue Code compliance.
 Other short-term debt may also be considered and utilized when appropriate such as a Direct Purchase Loan from a bank or Floating Rate Notes.

A) Variable Rate Debt Capacity. The City will maintain a conservative level of #4..
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6 outstanding variable rate debt in consideration of general rating agency guidelines recommending a maximum of a 20% variable rate exposure, in addition to maintaining adequate safeguards against risk and managing the variable revenue stream, both as described below:
(1) Adequate Safeguards Against Risk. Financing structure and budgetary safeguards are in place to prevent adverse impacts from interest rate shifts; such structures could include, but are not limited to, interest rate swaps, interest rate caps and the matching of assets and liabilities. See Section VII. 4. Financial Derivative Products below. See also the Interest Rate Swap Policy addendum. (2) Variable Revenue Stream. The revenue stream for repayment is variable, and is anticipated to move in the same direction as market-generated variable interest rates, or the dedication of revenues allows capacity for variability. (3) As a Component to Synthetic Fixed Rate Debt. Variable rate bonds may be used in conjunction with a financial strategy, which results in synthetic fixed rate debt. Prior to using synthetic fixed rate debt, the City shall certify that the expected interest cost is at least 10 basis points (0.10%) lower than traditional fixed rate debt (including any ongoing fees in such calculation) as well as giving due consideration to other risks associated with such a structure that may raise the ultimate costs of a synthetic fixed rate structure. See Section VII. 4. Financial Derivative Products below. See also the Interest Rate Swap Policy addendum.

A. Term
All capital improvements financed through the issuance of debt will be financed for a period generally not to exceed the average useful life of that which is being financed. At no time will the financing exceed 120% of the expected average useful life of the assets being financed, and in no event should the final maturity exceed the lesser of thirty (30) years or when the revenue source is projected to sunset.

B. Capitalized Interest
The nature of the City’s revenue stream is such that funds are generally continuously available #4..
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7 and the use of capitalized interest should not normally be necessary. However, certain types of financings may require the use of capitalized interest from the issuance date until the City has constructive use/benefit of the financed project. Unless otherwise required, the City will avoid the use of capitalized interest to obviate unnecessarily increasing the bond size. Interest shall not be funded (capitalized) beyond three (3) years or a shorter period when based upon project needs or if further restricted by statute. Interest earnings may, at the City's discretion, be applied to extend the term of capitalized interest but in no event beyond 3 years, or less, if restricted by law.

C. Lien Levels
Senior and Junior Liens for each revenue source will be utilized in a manner that will maximize the most critical constraint, typically either cost or capacity, thus allowing for the most beneficial use of the revenue source securing the bond. Projects chosen for priority financing, based on funding availability and proposed timing, will generally be financed on the most senior lien of the relevant credit.

D. Debt Service Coverage
For any new debt issuance secured by Water or Wastewater revenues, the City will seek to maintain pledged net revenues at a level no less than one and a half times (1.50x) the Maximum Annual Debt Service for the aggregate outstanding senior lien bonds, including the debt service for the new issuance, unless a different debt service coverage amount is allowed by existing bond covenants. For other types of debt incurred by the City, the City will determine the appropriate minimum debt service coverage levels based upon the nature of the pledged revenues, rating considerations, and other relevant factors.

E. Debt Service Structure
Debt issuance shall be planned to achieve relatively rapid repayment of debt while still matching debt service to the useful life of facilities. The City will amortize its debt within each lien to achieve overall level debt service or may utilize more accelerated repayment schedules after giving consideration to bonding capacity constraints. The City shall avoid the use of bullet or balloon maturities except in those instances where these maturities achieve one of the City’s stated goals, such as minimizing annual debt service or leveling annual existing debt service, among others.

F. Call Provisions
In general, the City’s securities will include a call feature, which is no later than ten (10) years from the date of delivery of the bonds. The City will avoid the sale of non-callable bonds absent careful evaluation by the City with respect to the value of the call option. If the City were to issue taxable bonds, the City will carefully consider the financial impacts of a 10-year call, a make-whole call, or non-callable debt.

G. Original Issue Discount & Deep Discount Bonds
An original issue discount and deep discount bonds will be permitted only if the City determines that such discount results in a lower true interest cost on the bonds and that the use of an original issue discount or deep discount bonds will not materially reduce the value of the bonds’ call provisions and adversely affect the project identified by the bond documents.

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8 H. Maximum Repayment Ratio
The maximum repayment ratio, defined as total future debt service payments divided by the principal amount of the bonds issued, shall be no more than three to one (3:1) for each series of bonds.

C. Letters of Credit
The City may enter into a letter of credit agreement when such an agreement is required by the market (e.g., in the case of variable rate demand bonds) or is deemed prudent and advantageous. Only those financial institutions with long-term ratings greater than or equal to that of the City, and minimum short-term ratings of P-1, A-1, F1, by Moody’s Investor Services, Standard & Poor’s and Fitch, respectively, may participate in City letter of credit agreements unless there are no other practicable options for the City.

A. Debt Service Savings
The City has established a minimum net present value savings threshold goal of 3% of the refunded bond principal, unless there are other compelling reasons for defeasance. #4..
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9 The present value savings will be net of all costs related to the refinancing. If the debt to be refinanced is not currently callable (i.e., in the case of forward delivery refundings, advance refundings, etc.) the City will make a comparison to the projected savings it could achieve if it waited until the debt becomes eligible for a current refunding. The decision to defease debt that is not currently callable or to take savings on an upfront or deferred basis must be explicitly approved by the City Council.

XI. METHODS OF ISSUANCE
The City will determine, on a case-by-case basis, whether to sell its bonds competitively or through negotiation. The City shall evaluate the comparative costs of each method of issuance on a net present value basis, using the City’s investment rate as the appropriate measure of the discount rate. It should be noted, however, that cost may be only one of a number of factors considered in determining the most advantageous method of sale. #4..
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10 A. Competitive Sale
In a competitive sale, the City’s bonds shall be awarded to the bidder providing the lowest true interest cost as long as the bid adheres to the requirements set forth in the official notice of sale. Conditions under which a competitive sale would be preferred are as follows:
 Bond prices are stable and/or demand is strong.
 Market timing and interest rate sensitivity are not critical to the pricing. There are no complex explanations required during marketing regarding issuer’s projects, media coverage, political structure, political support, and funding or credit quality.
 The bond type and structure are conventional.
 Bond insurance is not needed, is included or pre-qualified (available).  Significant transaction size, generally larger than $10 million.  The City (or the issuing City enterprise) has strong credit ratings.  The City (or the issuing City enterprise) is well known to investors.

C. Private Placement
From time to time the City may elect to privately place its debt. Such placement shall be considered if this method is demonstrated to result in a cost savings to the City or other benefits relative to other methods of debt issuance. As noted below, private placements may require compliance with disclosure requirements (see Section XV. F. Continuing Disclosure below).
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11 D. Feasibility Analysis
Issuance of revenue bonds may be accompanied by a finding that demonstrates the projected revenue stream’s ability to meet future debt service payments.

The City may, from time to time, choose to seek ratings from only one or two of these agencies as circumstances dictate. In addition to general communication, the Director of Finance shall meet with credit analysts prior to each rated competitive or negotiated sale and/or offer conference calls with agency analysts in connection with the planned sale as needed.

The City will evaluate the timing of such issuance.

C. Fees
When appropriate, the City will charge an administrative fee equal to direct costs to reimburse its administrative costs incurred in debt issuance and ongoing reporting costs.

XIII. CONSULTANTS
Periodically, the City may create an approved pool of qualified financing team members, such as municipal advisors or underwriters.

A. Selection of Financing Team Members
The Director of Finance will make recommendations to the City Manager for all financing team members, with the City Council providing final approval.

B. Municipal Advisor
The City shall utilize a municipal advisor to assist in its debt issuance and debt administration processes as prudent. The municipal advisor must be registered as a Municipal Advisor with the Securities and Exchange Commission (“SEC”) and Municipal Securities Rulemaking Board (“MSRB”). Selection of the City’s municipal advisor(s) shall be based on, but not limited to, the following criteria:
 Prior knowledge and experience with the City.
 Experience in providing consulting services to complex issuers.  Knowledge and experience in structuring and analyzing complex issues.  Experience and reputation of assigned personnel.
 Fees and expenses.
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12 Municipal advisory services provided to the City shall include, but shall not be limited to the following:
 Evaluation of risks and opportunities associated with debt issuance.  Monitoring market conditions and opportunities.
 Evaluation of proposals submitted to the City by investment banking firms.  Structuring and pricing of debt.
 Preparation of request for proposals for other financial services such as trustee and paying agent services, printing, credit facilities, remarketing agent services, etc.
 Advice, assistance and preparation for presentations with rating agencies, credit providers and investors.
 Assisting in preparation of official statements and other financing documents.  Be available for other projects whenever needed.

The services of bond counsel may include, but are not limited to:
 Rendering a legal opinion with respect to authorization and valid issuance of debt obligations including whether the interest paid on the debt is tax exempt under federal and State of California law;
 Preparing all necessary legal documents in connection with authorization, sale, issuance and delivery of bonds and other obligations;
 Unless this task is assigned to disclosure counsel, as selected by the City separately from bond counsel, preparing the preliminary and final official statements and commercial paper memoranda;
 Participating in discussions with potential investors, insurers and credit rating agencies, if requested;
 Providing continuing advice, as requested, on the proper use and administration of bond proceeds under applicable laws and the indenture, particularly arbitrage tracking and rebate requirements;
D. Disclosure Counsel
The City may utilize a separate firm to serve as disclosure counsel as it deems necessary.

If cost effective, bond counsel may also serve as disclosure counsel. #4..
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13 XIV. UNDERWRITER SELECTION
A. Senior Manager Selection
The City shall have the right to select a senior manager for a proposed negotiated sale.

C. Selling Groups
The City may establish selling groups in certain transactions. To the extent that selling groups are used, the City may make appointments to selling groups from within an existing pre-qualified pool of underwriters or through another process, as the transaction dictates.

E. Underwriter’s Discount
The City will evaluate the proposed underwriter’s discount against comparable issues in the market. If there are multiple underwriters in the transaction, the City will determine the allocation of fees with respect to the takedown and management fee (if any). The determination of the size and allocation of the management fee will be based upon participation in the structuring phase of the transaction. Generally, the City will not pay for risk in its underwriter’s discount. All fees and allocation of the management fee will be determined prior to the sale date; a cap on management fee, expenses and underwriter’s counsel will be established and communicated to all parties by the City.

The senior manager shall submit an itemized list of expenses charged to members of the underwriting group. Any additional expenses must be substantiated.

F. Evaluation of Financing Team Performance
The City will evaluate each bond sale after its completion to assess the following: costs of issuance including underwriters’ compensation, pricing of the bonds in terms of the overall interest cost and on a maturity-by-maturity basis, and the distribution of bonds and sales credits. Following each sale, the municipal advisor shall provide a post-sale evaluation on the results of the sale to the City Council. #4..
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14 G. Syndicate Policies
For each negotiated transaction, the Director of Finance will review and approve syndicate policies that will describe the designation policies governing the upcoming sale. The Director of Finance shall ensure receipt of each member’s acknowledgement of the syndicate policies for the upcoming sale prior to the sale date.

I. Disclosure by Financing Team Members
All financing team members will be required to provide full and complete disclosure relative to agreements with other financing team members and outside parties. The extent of disclosure may vary depending on the nature of the transaction and for underwriters and municipal advisors shall, at a minimum, comply with applicable SEC and MSRB requirements. For firms acting as the City’s bond counsel, disclosure counsel, or municipal advisor, no agreements shall be permitted which could compromise the firm’s ability to provide independent advice which is solely in the City’s best interests or which could reasonably be perceived as a prohibited conflict of interest. All other conflicts must be disclosed to the City in accordance with applicable regulatory requirement. For legal counsel such conflicts disclosure shall, at a minimum, comply with applicable conflicts disclosure requirements for attorneys in the state.

B. Designation of Post-Issuance Compliance Officer
The City has established a Disclosure Working Group (“DWG”) consisting of the City’s Manager and Director of Finance. The DWG will establish appropriate written policies and procedures, which this document provides, and periodic training regarding continuing disclosure obligations to effect compliance with the federal securities laws. In connection with each primary offering subject to Rule 15c2-12, as well as annually and periodically when necessary in connection with its continuing disclosure filings required by contractual undertakings delivered in accordance with Rule 15c2-12, the DWG will notify its dissemination agent and others, as and when appropriate when developments and events affect the City that may give rise to a contractual obligation to provide additional disclosure or that may provide an opportunity for voluntary disclosure.

The Director of Finance, or his or her designee, shall be the Post-Issuance Compliance Officer (the “Compliance Officer”) for the City’s debt issuances (the “Bonds”). The Compliance Officer, if City staff, may designate such other personnel as may be necessary to assist in determining continuing compliance with all relevant law and regulations applicable to the continued favorable tax treatment of such indebtedness, and to comply with the record-keeping responsibilities outlined herein. At such time as the initial Compliance Officer is replaced or a new Compliance Officer is designated, the departing Compliance Officer will ensure that such successor is fully briefed as to the status of the City’s outstanding indebtedness and the location of records relating to such indebtedness, and that such successor receives training and consultation(s) with bond or disclosure counsel as to his or her duties as Compliance Officer under this Debt Policy.

C. External Advisors
The City shall consult with bond counsel and other legal counsel and advisors, as needed, so long as any Bonds remain outstanding, to identify requirements and to establish procedures necessary or appropriate so that tax-exempt interest on the Bonds will continue to be excludable from gross income for federal income tax purposes. Those requirements and procedures shall include future compliance with applicable private activity bond tests, arbitrage rebate requirements and all other applicable post-issuance requirements of federal tax law throughout (and in some cases beyond) the term of bonds. The Compliance Officer shall conduct periodic reviews, at least annually, or more often as may be necessary, to determine that the City remains in compliance with all laws and regulations, including, without limitation, the matters set forth herein. The Compliance Officer annual review shall include matters that relate to the tax status of the Bonds, continuing compliance with covenants that relate to the tax status of the Bonds, and any new matters or public finance developments that relate to the tax status of the Bonds or continuing compliance with such requirements. The City may consult with bond counsel in #4..
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16 conducting its review and may engage expert advisors (each a “Rebate Analyst”) to assist in the calculation of arbitrage rebate payable in respect of the investment of Bond proceeds in the manner more fully set forth in the Tax Certificate.

D. Uses and Investments of Funds and Accounts
Various funds and accounts are established as security for the Bonds. The Compliance Officer shall prepare regular, periodic statements regarding the investments and transactions involving bond proceeds, which shall comprise part of the records required to be kept. The Compliance Officer will also review the disbursement of bond proceeds from Trustee records or City records, as applicable, to ensure that bond proceeds are expended in accordance with their intended purpose. The Compliance Officer shall report to the Finance Director (if the officer is a designee of the Finance Director) and the City Manager any expenditure which violates the provisions of any ballot measure, authorizing resolution, or trust document. If any Debt Service Fund ever contains any balance after the principal payment of the Bonds is made each year, except for a reasonable carryover amount which is less than the greater of the earnings on the Debt Service Fund for the immediately preceding year ending on such principal payment date (a “Bond Year”), or 1/12 of the principal and interest payments on the Bonds for the immediately preceding Bond Year, then the Compliance Officer will contact bond counsel to ensure that such facts will not cause the Bonds to become arbitrage bonds, to formulate a plan to remediate such condition, if necessary, and to determine an allowable use for such excess moneys and/or to determine if any yield restrictions apply. If any Debt Service Reserve Fund is ever funded (i) in an amount more or less than the required balance but declining in future years as detailed in the Tax Certificate), or (ii) is invested at a yield that is higher than the yield of the Bonds, then the Compliance Officer will contact bond counsel to ensure that such facts will not cause the Bonds to become arbitrage bonds, to formulate a plan to remediate such condition and/or to determine if any yield restrictions apply. Generally, if the Debt Service Reserve Fund ever contains a higher balance than required (either through the accrual of interest, investment gains, maturity of securities, or reduction in the Reserve Requirement) then the excess moneys should be dealt with as directed by the documents and approved by bond counsel. If any Construction Fund ever is invested at a yield higher than the yield of the Bonds or if moneys in the Construction Fund are not fully expended by three years after the original delivery date of the Bonds, then the Compliance Officer will contact bond counsel to ensure that such facts will not cause the Bonds to become arbitrage bonds, to formulate a plan for the investment and application of the remaining unexpended Bond Proceeds, which plan may include the redemption or defeasance of Bonds, and/or to determine if any yield restrictions apply.

Therefore, the Director of Finance shall ensure that proceeds and investments are tracked in a manner that facilitates accurate, complete calculation, and timely rebates, if necessary. #4..
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17 F. Continuing Disclosure
Appointment. Unless otherwise provided in any Continuing Disclosure Agreement executed in connection with Bonds pursuant to SEC Rule 15c2-12 (the “Continuing Disclosure Agreement”), the Compliance Officer shall also be the Dissemination Agent under such Continuing Disclosure Agreement. The Compliance Officer shall be responsible for and take all reasonable steps to ensure compliance with said Continuing Disclosure Agreement and shall monitor the operations of the Issuer for occurrence of any listed event (as set forth therein). For any Bonds for which it is designated to serve in such capacity, should the Compliance Officer no longer serve as Dissemination Agent, the City shall select an internal or external Dissemination Agent.

Filing Requirements. The City is required to file an annual report with the MSRB’s Electronic Municipal Market Access (“EMMA”) system each year. Such annual reports are required to include certain updated financial and operating information and audited financial statements. The Dissemination Agent will establish or cause to be established a calendar reminder of the city’s continuing disclosure obligations on July 1 each year. The City is also required to file notices of certain events with the MSRB’s Electronic Municipal Market Access system. Upon the identification of the occurrence of a material event, the Dissemination Agent shall, in consultation with bond counsel, prepare, or caused to be prepared, a draft of the necessary notice (including compiling any materials or documents to be included with such notice) and shall notify such parties of the date by which such notice is to be filed. If it is not clear if the occurrence of an event constitutes an event that requires notification, then the Dissemination Agent shall consult with bond counsel to determine whether the City is required to file a notice concerning such event.

For any public debt issues (subject to contractual obligations under SEC Rule 15c2-12) issued on or after February 27, 2019, the City is required to commit to make additional disclosure with respect to private loans or financing leases (not sold through an official statement) or derivatives or credit support agreements (collectively “financial obligations”). The additional events will need to be provided to the City’s Dissemination Agent, for further filing with EMMA, within ten (10) business days of their occurrence:
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18  Incurrence of a financial obligation of the City (and any obligated person, where applicable), if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation the City (and any obligated person, where applicable), any of which affect security holders, if material;
 Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the City (and any obligated person, where applicable), any of which reflect financial difficulties.

In addition, the Dissemination Agent will be responsible for providing notice, in a timely manner, of a failure to provide any of the City’s required annual financial information by the date specified in the continuing disclosure undertaking. The inability to make timely filings must be disclosed and is a negative reflection. While there is reliance on timely audit and preparation of the City’s annual report, the Director of Finance will ensure the City’s timely filing of its annual report on EMMA as soon as it is available.

G. Voluntary Disclosure Requirements
In addition to preparing annual reports and event notices, the City may wish to keep investors informed by providing information that is not required to be provided under Rule 15c2-12 or its continuing disclosure undertakings. Examples of such types of information are investments, interim financial information, capital improvement plans, fund balance policies, etc. and financial forecasts. Because providing this information is voluntary, the Compliance Officer will monitor for events which may materially affect the financial condition or operations of the City, so that a determination can be made if the event should be disclosed. The below list is comprised of events and financial disclosure which the MSRB has suggested issuers may wish to voluntarily disclose. Some of these are not applicable to the City’s public debt issues and financial obligations, but the City may wish to consider providing some of these to the City’s Dissemination Agent for further filing with EMMA:
 Amendment to continuing disclosure undertaking;
 Change in obligated person (i.e., a person guaranteeing or supporting City debt):
 Notice to investors pursuant to bond documents;
 Certain communications from the Internal Revenue Service;  Secondary market purchases;
 Capital or other financing plan;
 Litigation/enforcement action;
 Change of tender agent, remarketing agent, or other on-going party;  Change in fiscal year/timing of annual disclosure or accounting standard;  Interim/additional financial information/operating data, budget;  Investment/debt/financial policy changes;
 Information provided to rating agency, credit/liquidity provider or other third party; and
 Consultant reports
Also, if the City maintains an Investor Relations website, or routinely posts City information packages, including interim financial information, capital improvement plans, etc. on its website, the City’s Compliance Officer should review and, in some cases, the Compliance Officer should reissue the posted material with an explanatory note (e.g., the interim financial information is presented on a cash, as opposed to accrual basis). #4..
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19 Currently, the City is not required to file interim financial information. In the future, if such filings are required in continuing disclosure undertakings, the City’s Compliance Officer will notify the Dissemination Agent for assistance when these filings become necessary.

J. Training for Employees and Issuer Officials
For City officials, compliance with federal securities law should be considered as important as compliance with local public meetings and records laws. To further this goal, the Compliance Officer shall call a meeting for an annual review or, if necessary, an interim review, of the continuing disclosure policies of the City, which all members of the DWG and additional invited officials and employees are expected to attend. The Compliance Officer shall be responsible for keeping a record of attendance. Furthermore, the members of the DWG and such invited officials and employees are expected to attend training sessions, at least annually, called by the Compliance Officer. Applicable policies and procedures will be updated by the City to reflect required changes on an as-needed basis.
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20 GLOSSARY
Arbitrage- The difference between the interest paid on the tax-exempt securities and the interest earned by investing the security proceeds in higher-yielding taxable securities.

IRS regulations govern arbitrage on the proceeds from issuance of municipal securities.

Balloon Maturity- A later maturity within an issue of bonds that contains a disproportionately large percentage of the principal amount of the original issue.

Bullet Maturity- Maturity for which there are no sinking fund payments prior to the stated maturity date.

Commercial Paper- Very short-term, unsecured promissory notes issued in either registered or bearer form, and usually backed by a line of credit with a bank.

Competitive Sale- A sale of securities by an issuer in which underwriters or syndicates of underwriters submit sealed bids to purchase the securities in contrast to a negotiated sale.

Credit Enhancement- Credit support purchased by the issuer to raise the credit rating of the issue. The most common credit enhancements consist of bond insurance, direct or standby letters of credit, and lines of credit.
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21 Debt Service Reserve Fund- The fund in which moneys are placed which may be used to pay debt service if pledged revenues are insufficient to satisfy the debt service requirements.