Agenda packet — Finance Committee, May 20, 2024 (part 3 of 3)

Downtown Sewer Trunk
This project will consist of two sections, the first section will rehabilitate 1,300 feet of 18-inch unlined reinforced concrete pipe and seven associated manholes; the second section will rehabilitate 800 feet of 21-inch unlined concrete pipe and four associated manholes.

Santa Rosa Trunk
This project will rehabilitate 3,300 feet of 27-inch unlined reinforced concrete pipe and 11 associated manholes.

DISCUSSION:

Due to the complexity of these projects, and to increase efficiencies, staff has requested the use of a consultant to provide engineering services for the Downtown Sewer Trunk Rehabilitation and Santa Rosa Sewer Trunk Rehabilitation Projects.

On June 13, 2023, by Resolution No. 2023-278, Council approved a Prequalified List of Consultants to Provide Water, Wastewater and Storm Drain Engineering Services for Various Capital Projects.

In accordance with Administrative Directive 3.1, Selection Procedures for Professional Consultants Who Provide Architectural and Engineering Services for Capital Projects, a Request for Proposal (RFP) was sent to the four (4) prequalified consultants.

On Feb 27, 2024, staff received and distributed two (2) proposals to a selection committee consisting of Utilities Engineering and Operations staff. The selection committee evaluated the proposals and determined Carollo Engineers (Carollo), of Walnut Creek, CA to be the most qualified and responsive. Carollo’s sealed proposal costs were opened after the selection ranking had been finalized; the proposal cost and scope were reviewed and negotiated to provide design and bid period services.

The scope of services to be provided under this agreement include:
 Project Management
 Field Investigations
 Permitting Assistance
 Development of Construction Documents
 Bid Phase Services
 Engineering Support During Construction
In accordance with Modesto Municipal Code 8-3.204(a) “Exceptions to Formal Bidding Requirements,” Agreements for Professional Services are exempt from the bidding requirements of Modesto Municipal Code 8-3.203 if competitive quotations or proposals have been sought informally from at least three (3) qualified entities. However, staff proceeded with the RFP process pursuant to Administrative Directive 3.1 and two (2) proposals were received as part of this solicitation. Staff recommends approval of the Engineering Services Agreements #8..
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Finance Committee, May 20, 2024
Engineering Services Agreements with Carollo Engineers
Downtown Sewer Trunk Rehabilitation
Santa Rosa Sewer Trunk Rehabilitation

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with Carollo for the Downtown Sewer Trunk Rehabilitation and the Santa Rosa Sewer Trunk Rehabilitation Projects.

FISCAL IMPACT:

Expenses associated with these Projects will be house in the following Non-Capital Projects:
101558 – Downtown Sewer Trunk Rehabilitation
101559 – Santa Rosa Sewer Trunk Rehabilitation
ANTICIPATED PROJECT EXPENDITURES:
101558 101559 Total
Construction $3,000,000 $3,000,000 $6,000,000
Construction Contingency $300,000 $300,000 $600,000
Construction Administration – City Staff $350,000 $350,000 $700,000 Engineering Services Agreement - Carollo $497,892 $437,434 $935,326 10% Additional Services, if Needed $49,790 $43,744 $93,534 Engineering/Design/Administration $75,000 $75,000 $150,000 Total $4,272,682 $4,206,178 $8,478,860
A budget adjustment in the amount of $8,431,782 from Wastewater Fund Reserves will be necessary to establish the expense budgets for the Downtown Sewer Trunk Rehabilitation and Santa Rosa Sewer Trunk Rehabilitation Projects.

CEQA/NEPA REQUIREMENTS:

Staff will be utilizing an on-call CEQA Environmental Planning and Compliance consultant to determine the environmental requirements associated with the Downtown Sewer Trunk Rehabilitation and Santa Rosa Sewer Trunk Rehabilitation Projects.

RECOMMENDED COMMITTEE ACTION:

Staff Recommendations:

Motion recommending an Engineering Services Agreement with Carollo Engineers, of Walnut Creek, CA, for the Downtown Sewer Trunk Rehabilitation Project in the amount of $497,892, plus $49,790 in additional services, if needed, for an Agreement total amount not to exceed $547,682; and forwarding to Council for approval.

Motion recommending an Engineering Services Agreement with Carollo Engineers, of Walnut Creek, CA, for the Santa Rosa Sewer Trunk Rehabilitation Project in the amount of $437,434, plus $43,744 in additional services, if needed, for an Agreement total amount not to exceed $481,178; and forwarding to Council for approval.

Motion recommending an amendment to the Fiscal Year 2023-24 Multi-Year Program Budget in the amount of $8,431,782 from Wastewater Reserves to fund the Downtown Sewer Trunk Rehabilitation and Santa Rosa Sewer Trunk Rehabilitation Projects and forwarding to Council for approval.

Approved by:

William Wong, Director of Utilities
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Finance Committee, May 20, 2024
Engineering Services Agreements with Carollo Engineers
Downtown Sewer Trunk Rehabilitation
Santa Rosa Sewer Trunk Rehabilitation

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Joseph P. Lopez, City Manager
Attachments:

1. Carollo – Downtown Sewer Trunk Rehabilitation Agreement & Exhibits

2. Carollo – Santa Rosa Sewer Trunk Rehabilitation Agreement & Exhibits #8..
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ENGINEERING SERVICES AGREEMENT

DOWNTOWN SEWER TRUNK REHABILITATION PROJECT
THIS AGREEMENT, made and entered into in the City of Modesto, State of California, this day of , 2024, (“Effective Date”) by and between the CITY OF MODESTO, a municipal corporation of the State of California, hereinafter referred to as "City", and CAROLLO ENGINEERS, INC., a Delaware corporation, hereinafter referred to as "Consultant".

This Agreement is made with regard to the following recitals:

A. The City has determined that Engineering Services are necessary for the Downtown Sewer Trunk Rehabilitation Project.

B. Consultant represents that it is qualified, willing and able to provide said services.

NOW, THEREFORE, in consideration of this agreement, and the mutual promises, covenants, and stipulations hereinafter contained, the parties agree as follows:

1. SCOPE OF SERVICES.

Consultant shall undertake and complete the preparation of the scope of work as set forth and described in the documents attached hereto and referred to as Exhibit "A" or "project". The Consultant shall perform the services as described in Exhibit "A" in a manner compatible with the standards of its profession and shall produce a fully complete project that is acceptable to City.

2. TERM OF AGREEMENT.

This Agreement is effective as of the date first written above and will continue in effect until City's acceptance of and payment for all services authorized by City and #8..
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performed by Consultant, unless terminated earlier in accordance with the provisions of the termination clause in this Agreement.

Consultant shall undertake and complete the preparation of the scope of work as set forth and described in the documents commonly referred to as “project” attached hereto as Exhibit "A" and made a part hereof. City hereby gives Consultant notice to proceed with the preparation of the project in the manner described in Exhibit "A", as of the Effective Date of this agreement. Consultant shall diligently proceed with the preparation of the project and agrees to complete said preparation within the time period set forth in Exhibit "A".

3. COMPENSATION.

Consultant agrees to accept a sum not to exceed FOUR HUNDRED NINETY-SEVEN THOUSAND EIGHT HUNDRED NINETY-TWO AND 00/100 DOLLARS ($497,892) (maximum compensation) as full remuneration for performing all services and furnishing all staffing and materials for Modesto in accordance with Exhibit "A" attached hereto and for performance by Consultant of all of its duties and obligations under this Agreement, except that additional services may be compensated as described below.

The Compensation shall be paid pursuant in the manner and at the times set forth below:

City shall pay Consultant on a time and materials basis for Consultant’s actual costs for all work called for in Exhibit “A” to this Agreement. All work to be performed under this Agreement shall be billed at the hourly rates set forth in Exhibit “B” attached hereto, Consultant shall submit monthly invoices to City which include detailed tasks, hours worked, and billable rates for all work completed, and detailed receipts for any out-of-pocket costs paid by Consultant in connection with work performed on this project. #8..
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Additional services may be authorized by the City Manager in an amount up to, but not to exceed ten percent (10%) of the agreed maximum compensation, or FORTYNINE THOUSAND SEVEN HUNDRED NINETY AND 00/100 DOLLARS ($49,790). In the event that additional services are deemed necessary, the Consultant shall provide a written request to the City Manager indicating the reason for additional work, scope and cost of such work. The City Manager shall provide a written response to the request, either approving or denying the additional expenditure. If additional services are requested and approved, they will be billed at the hourly rates set forth in Exhibit “B” and may not exceed the amount requested and approved in writing by the City Manager. In that event, the new total compensation shall not exceed FIVE HUNDRED FORTY-SEVEN THOUSAND SIX HUNDRED EIGHTY-TWO AND 00/100 DOLLARS ($547,682). If additional services in excess of this amount are deemed necessary by City Staff, an amendment to this Agreement will be required and must be approved by the City Council prior to commencing the work, as provided in Paragraph 9 of this agreement.

4. OBLIGATIONS OF CONSULTANT.

Throughout the term of this Agreement, Consultant shall possess, or secure all licenses, permits, qualifications and approvals legally required to conduct business.

In providing opinions of cost, financial analyses, economic feasibility projections, and schedules for potential projects, Consultant has no control over cost or price of #8..
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labor and material; unknown or latent conditions of existing equipment or structures that may affect operation and maintenance costs; competitive bidding procedures and market conditions; time or quality of performance of third parties; quality, type, management, or direction of operating personnel; and other economic and operational factors that may materially affect the ultimate project cost or schedule. Therefore, Consultant makes no warranty that the City’s actual project costs, financial aspects, economic feasibility, or schedules will not vary from Consultant’s opinions, analyses, projections, or estimates.

Consultant is not responsible for damage or delay in performance caused by events beyond the reasonable control of Consultant. In the event Consultant’s services are suspended, delayed or interrupted for the convenience of the City or delays occur beyond the reasonable control of Consultant, an equitable adjustment in Consultant’s time of performance and cost of Consultant’s personnel and subcontractors may be made.

5. OBLIGATIONS OF CITY.

The City shall furnish Consultant available studies, reports, and other data pertinent to Consultant’s services; obtain or authorize Consultant to obtain or provide additional reports and data as required; furnish to Consultant services of others required for the performance of Consultant’s services hereunder, and Consultant shall be entitled to use and rely upon all such information and services provided by the City or others in performing Consultant’s services under this agreement.

6. PERFORMANCE BY KEY EMPLOYEE.

Consultant has represented to City that Ryan Sellman, will be the person primarily responsible for the performance of the services referred to in this Agreement. City has entered into this Agreement in reliance on that representation by Consultant. Consultant #8..
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therefore agrees that ten percent (10%) or more of the time to be devoted to the project that is the subject of this Agreement will be that of the above-named person.

7. OWNERSHIP OF DOCUMENTS/TITLE TO DATA.

Ownership of Documents
All reports, drawings, designs, graphics, working papers and other incidental work or materials furnished hereunder shall become and remain the property of the City, and may be used by City as it may require without any additional cost to City. No reports shall be used by the Consultant for purposes other than this contract without the express prior written consent of City.

Documents, including drawings and specifications, prepared by Consultant pursuant to this assignment are not intended or represented to be suitable for reuse by the City or others for this Project or on any other project. Any reuse of completed documents or use of partially completed documents without written verification or concurrence by Consultant for the specific purpose intended will be at the City’s sole risk and without liability or legal exposure to Consultant.

Title to Data
If, as a part of the agreement, Consultant is required to produce data such as, but not limited to, drawings, plans, specifications, calculations, models, flow diagrams, visual aids and other related materials, the originals of all such data generated under this agreement will be delivered to City upon the completion or termination of services under the contract.

All materials, documents, data or information obtained from the City data files or any City medium furnished to Consultant in the performance of this Agreement will at all times remain the property of the City. Such data or information may not be used or copied for #8..
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direct or indirect use by Consultant after termination of this Agreement without written consent of the City.

8. NEWS AND INFORMATION RELEASE.

Consultant agrees that it will not issue any news releases in connection with either the award of this Agreement, or any subsequent amendment of or efforts under this Agreement, without first obtaining review and approval of said news releases from City through the City Manager.

9. INTEREST OF CONTRACTOR.

Consultant warrants that it presently has no interest and shall not acquire any interest, direct or indirect, which would conflict in any manner or degree with the performance of services required to be performed under this Agreement. Consultant warrants that, in performance of this Agreement, Consultant shall not employ any person having any such interest. Consultant agrees to file a Statement of Economic Interests with the City Clerk at the start and end of this contract if so required at the option of City.

10. AMENDMENTS.

Both parties to this Agreement understand that it may become desirable or necessary during the execution of this Agreement, for City or Consultant to modify the scope of services provided for under this Agreement. Any material extension or change in the scope of work shall be discussed with City and the change and cost shall be memorialized in a written amendment to the original contract prior to the performance of the additional work.

Until a change order is so executed, City will not be responsible to pay any charges Consultant may incur in performing such additional services, and Consultant shall not be required to perform any such additional services. #8..
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11. INDEPENDENT CONTRACTOR.

All acts of Consultant, its agents, officers, and employees and all others acting on behalf of Consultant relating to the performance of this Agreement, shall be performed as independent contractors and not as agents, officers, or employees of City. Consultant, by virtue of this Agreement, has no authority to bind or incur any obligation on behalf of City.

Consultant has no authority or responsibility to exercise any rights or power vested in the City.

No agent, officer, or employee of the City is to be considered an employee of Consultant. It is understood by both Consultant and City that this Agreement shall not under any circumstances be construed or considered to create an employer-employee relationship or a joint venture.

Consultant, its agents, officers and employees are and, at all times during the terms of this Agreement, shall represent and conduct themselves as independent contractors and not as employees of City.

Consultant shall determine the method, details and means of performing the work and services to be provided by Consultant under this Agreement. Consultant shall be responsible to City only for the requirements and results specified in this Agreement, and, except as expressly provided in this Agreement, shall not be subjected to City's control with respect to the physical action or activities of the Consultant in fulfillment of this Agreement. Consultant has control over the manner and means of performing the services under this Agreement.

Consultant is permitted to provide services to others during the same period service is provided to City under this Agreement. If necessary, Consultant has the responsibility for employing other persons or firms to assist Consultant in fulfilling the terms and obligations under this Agreement.

If in the performance of this Agreement any third persons are employed by Consultant, such persons shall be entirely and exclusively under the direction, supervision, and #8..
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control of Consultant. All terms of employment including hours, wages, working conditions, discipline, hiring, and discharging or any other term of employment or requirement of law shall be determined by the Consultant.

It is understood and agreed that as an independent contractor and not an employee of City neither the Consultant or Consultant's assigned personnel shall have any entitlement as a City employee, right to act on behalf of the City in any capacity whatsoever as an agent, or to bind the City to any obligation whatsoever.

It is further understood and agreed that Consultant must issue W-2 forms or other forms as required by law for income and employment tax purposes for all of Consultant's personnel.

As an independent contractor, Consultant hereby indemnifies and holds City harmless from any and all claims that may be made against City based upon any contention by any third party that an employer-employee relationship exists by reason of this Agreement.

12. ASSIGNMENT.

Neither this Agreement nor any portion thereof shall be subcontracted or assigned without the express prior written consent of the City in each and every instance.

13. PATENT/COPYRIGHT MATERIALS.

Unless otherwise expressly provided in the contract, Consultant shall be solely responsible for obtaining the right to use any patented or copyrighted materials in the performance of this Agreement. Consultant shall furnish a warranty of such right to use to City at the request of City.

14. NOTICES.

Notice required by this Agreement shall be given in writing and shall be deemed given and effective upon receipt provided that such are delivered in accordance with the #8..
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provisions of this Section. Notices shall be delivered either by: (a) personal delivery (including delivery by an overnight courier service which obtains confirmation of receipt); or (b) by facsimile, provided that such transmission is followed by delivery by an overnight courier service which obtains confirmation of receipt; or (c) postage prepaid, return receipt requested, certified mail; or (d) by electronic transmission subject to reasonable proof that the notice was both transmitted and received. Each such notice shall be sent to the parties at the address respectively set forth below or to such other address as a party may designate by written notice given in accordance with the provisions of this Section:

FOR CONSULTANT: Name: Carollo Engineers, Inc.

Address: 2880 Gateway Oaks Drive
Suite 300
Sacramento, CA 95833
Attention: Ryan Sellman
Phone: (916) 565-4888
Email: [email protected]
FOR CITY: Name: City of Modesto
Address: 1010 10th Street
Suite 4600
Modesto, CA 95354
Attention: Cristian Ciotau
Phone: (209) 577-5260
Email: [email protected]

15. INSURANCE REQUIREMENTS.

The Consultant shall provide at its own expense and maintain at all times the following insurance with insurance companies licensed in the State of California and shall provide evidence of such insurance to the City as may be required by the Risk Manager of the City. The policies or certificates thereof shall provide that, thirty (30) days prior to cancellation or reduction in the policy, notices of same shall be given to the Risk Manager of the City by certified mail, return receipt requested, for all of the following stated insurance policies. #8..
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In the event the certificates of insurance required hereunder do not provide for notice of cancellation to the certificate holder and/or additional insureds, the Consultant shall provide, and shall require its subcontractors to provide, as an express condition precedent to payment hereunder, an endorsement from their insurers providing that the additional insureds identified herein shall be provided 30 days notice of the cancellation on the policies of insurance required hereunder (10 days notice if the policies are cancelled for non-payment of premium). In addition, the named insured on all such policies shall provide to the additional insureds identified herein any notices of cancellation of said insurance policies within 5 business days of receipt of such notice. The Consultant shall, as a further express condition precedent to payment for work performed, affirm under penalty of perjury that the required insurance on the project remains in place and said insurance has not been cancelled.
(a) Worker's Compensation - in compliance with the statutes of the State of California, plus employer's liability with a minimum limit of liability of $1,000,000. (b) General Liability insurance with a minimum limit of liability per occurrence of $1,000,000 for bodily injury and property damage. If Commercial General Liability Insurance or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to this project/location or the general aggregate limit shall be twice the required occurrence limit. This insurance shall indicate on the certificate of insurance the following coverages and indicate the policy aggregate limit applying to: premises and operations; broad form contractual; independent consultants and subcontractors; products and completed operations as applicable.
(c) Automobile Liability insurance with a minimum limit of liability per occurrence of $1,000,000 for bodily injury and property damage. This insurance shall cover any automobile for bodily injury and property damage.
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(d) Professional Liability insurance with a minimum limit of $1,000,000 per claim and policy aggregate. If coverage is on a claims made basis it shall be maintained for at least three (3) years following completion of the work.

If at any time any of said policies shall be unsatisfactory to the City, as to form or substance, or if a company issuing such policy shall be unsatisfactory to the City, the Consultant shall promptly obtain a new policy, submit the same to the Risk Manager for approval and submit a certificate thereof as hereinabove provided. Upon failure of the Consultant to furnish, deliver or maintain such insurance and certificates as above provided, this Agreement, at the election of the City, may be forthwith declared suspended or terminated.

Failure of the Consultant to obtain and/or maintain any required insurance shall not relieve the Consultant from any liability under this Agreement, nor shall the insurance requirements be construed to conflict with or otherwise limit the obligations of the Consultant concerning indemnification. The City, its agents, officers, employees, and volunteers shall be named as an additional insured on all insurance policies required herein, except Workers' Compensation and Professional Liability. The Workers' Compensation insurer shall agree to waive all rights of subrogation against the City, its agents, officers, employees, and volunteers for losses arising from work performed by Consultant for the City. The Consultant's insurance policy(ies) shall include a provision that the coverage is primary as respects the City; shall include no special limitations to coverage provided to additional insured; and, shall be placed with insurer(s) with acceptable Best's rating of A:VII or with approval of the Risk Manager. The Consultant must deliver certificates evidencing existence of the insurance listed above to the City prior to the time the contract is signed.

CONSULTANT shall provide CITY with separate endorsements evidencing proof of the CITY’s additional insured status as to both the general liability and #8..
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automobile liability insurance policies. In addition, CONSULTANT shall provide CITY with a Workers Compensation subrogation waiver by way of a separate endorsement. All endorsements referenced above must include the applicable policy number.

For any claims related to this project, the CONSULTANT’S insurance coverage shall be primary insurance as respects the Entity, its officers, officials, employees, and volunteers. Any insurance or self-insurance maintained by the Entity, its officers, officials, employees, or volunteers shall be excess of the CONSULTANT’S insurance and shall not contribute with it.

16. TERMINATION OF AGREEMENT.

Termination by City for Default of Consultant
Should Consultant default in the performance of this Agreement or materially breach any of its provisions, at its option, City may terminate this Agreement by giving written notification to Consultant. The termination date shall be the effective date of the notice. For the purposes of this section, material breach of this Agreement shall include, but not be limited to, any of the following: failure to perform required services or duties, willful destruction of City's property by Consultant, dishonesty or theft.

Termination by City for Convenience
The City may also terminate the Consultant's performance under the Agreement, either in whole or in part, at its own discretion, or when conditions encountered during the Work make it impossible or impracticable to proceed, or when the City is prevented from proceeding with the Agreement by act of God, by law, or by official action of a public authority, or upon a determination by the City that such termination is in the best interest and convenience of the City, or whenever the City is prohibited from completing the Work for any reason. The City shall provide no less than ten (10) calendar days written notice of its intent to terminate the Agreement for #8..
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convenience, and shall endeavor to provide the Consultant with consultation with the City prior to termination.

Post-Termination Procedure
Upon receipt of a written notice of termination pursuant to either of the foregoing paragraphs, the Consultant shall:
a. Cease its work as directed in the notice of termination as of the termination date and see to it that its employees, subconsultants and agents are notified of such termination and act as specified in the notice of termination;
b. Terminate all orders and Subcontractors except as necessary to complete any portion of the Work that is not terminated; c. If directed in writing by the City to do so, assign all right, title and interest in subcontracts and materials in progress to City, in which case the City will have the right at its discretion to settle, or pay any or all claims arising out of the termination of such subconsultants, but in no event shall recovery by any Consultant or subconsultant include lost profits for portions of the Work not completed or undertaken, including materials not delivered; d. Deliver or otherwise make available to the City all data, drawings, specifications, reports, estimates, summaries and such other information and material as may have been accumulated by the Consultant in performing the Work whether completed or in process; e. Settle outstanding liabilities and claims, subject to the approval of City;
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f. Complete performance of such part of the Work as has not been terminated;
g. Take such other actions as may be necessary, or as may be directed by the City for the protection and preservation of the Work and/or property related to the Work;
h. If City so requests, and at City's cost, Consultant shall provide sufficient oral or written status reports to make City reasonably aware of the status of Consultant's work on the project. i. The Consultant understands and agrees that City may, in City's sole discretion, refuse to pay Consultant for that portion of Consultant's services which were performed by Consultant on the project prior to the termination date and which remain
unacceptable and/or not useful to City as of the termination date.

City will pay Consultant an amount based on the percentage of satisfactory work completed in accordance with the notice of termination. The final payment to the Consultant after termination for convenience shall be limited to amounts due and owing under the Agreement at time of termination, including the following:
a. The cost of settling and paying valid claims arising out of the termination of the Work such as subconsultant agreements or contracts for materials;
b. The Agreement price allocable to the portion of the Work properly performed or goods supplied to the work site by the Consultant as of the date of termination, as determined in accordance with the notice of termination, reduced by any sums #8..
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previously paid to the Consultant.

Authorization to Terminate Agreement
Termination of the Agreement may be invoked by the City Manager, or his/her designee, subject to the right of the Consultant to appeal the City Manager, or his/her designee’s, decision to the City Council. The Consultant shall appeal by notifying the City Clerk in writing within ten (10) calendar days of receipt of written notification from City of termination of the Agreement. In the event that termination of this Agreement is upheld by the City Council, any cessation of payment of delay claims, extended claims, Eichleay claims, or any other claims for delay shall be retroactive to the date of termination selected by the City Manager, or his/her designee.

17. CERTIFIED PAYROLL REQUIREMENT.

For consultants performing field work on public works contracts on which prevailing wages are required: The Consultant shall comply with the provisions of Section 1776 of the California Labor Code, regarding payroll records, and shall require its subconsultants and subcontractors to comply with that section as may be required by law.

18. INDEMNITY.

The Consultant shall hold the City, its agents, officers, employees, and volunteers, harmless from and save, defend and indemnify them against any and all claims, losses, liabilities, judgments or damages from every cause, including but not limited to injury to person or property or wrongful death, including reasonable costs and expenses of defense of any judicial or administrative action, arising directly or indirectly out of any negligent or intentional act or omission of Consultant, or its agents, officers, employees, or volunteers relating to or during the performance of its obligations under this Agreement. In no event shall the cost to defend charged to the Consultant exceed the Consultant’s proportionate percentage of fault. #8..
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However, notwithstanding the foregoing, in the event one or more defendants is unable to pay its share of defense costs due to bankruptcy or dissolution of the business, the Consultant shall meet and confer with other parties regarding unpaid defense costs.

Consultant's obligation to defend, indemnify, and hold the City, its agents, officers, and employees harmless under the provisions of this paragraph is not limited to or restricted by any requirement in this Agreement for Consultant to procure and maintain a policy of insurance.

19. DISPUTE RESOLUTION.

All claims, controversies, or disputes arising out of, or relating to the formation of this Agreement, or the breach, termination execution, enforcement, interpretation, or validity of this Agreement, including the determination of the scope or applicability of this contract provision shall be determined by binding arbitration in Modesto, California by one arbitrator, except as otherwise specified in this Agreement. The American Arbitration Association shall administer the arbitration under its Arbitration Rules then in effect, subject to the modifications of those rules contained in this paragraph. This agreement to arbitrate shall be specifically enforceable under the prevailing law of any court having jurisdiction, and the award rendered by the arbitrator may be entered in any court having jurisdiction. The appropriate venue for any arbitration or court proceeding relating to or arising out of this provision shall be in Stanislaus County, California.

This paragraph is not intended to and does not waive the claim filing requirements found in California Government Code section 900 et seq. In the event that a timely and legally sufficient, arbitrable claim is filed by Consultant with City, and the claim is rejected in whole or in part by City, this paragraph shall result in the conclusive, final, and binding resolution of all the issues presented in the claim by Consultant so long as any issues presented #8..
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by the claim are arbitrable. Claims rejected by City or by operation of law, shall be submitted by Consultant to arbitration pursuant to the Arbitration Rules of the American Arbitration Association within ninety (90) days after mailing of the written rejection by City to Consultant.

Otherwise, the claim or claims shall be deemed waived in their entirety.

The “fast track’ rules of the American Arbitration Association shall apply to any claim or counterclaim less than ONE HUNDRED FIFTY THOUSAND AND 00/100 ($150,000.00) DOLLARS. In arbitration not proceeding under the “fast track” rules, the arbitrator shall have the power to order that depositions be taken and other discovery be made.

Both City and Consultant shall have the right, upon written notice, to take no more than three (3) depositions of the other as a matter of right in an arbitration proceeding under the “fast track” rules.

Whether or not City and Consultant may be engaged in interstate commerce, any controversy or dispute mentioned above shall be determined by, and the parties shall be bound by, the substantive law of the State of California, and not the Federal Arbitration Act at 9 USC Section 1 et seq.

The arbitrator may grant any remedy or relief deemed by the arbitrator just and equitable under the circumstances, whether or not such relief could be awarded in a court of law. The arbitrator shall be empowered to award monetary sanctions against a party for failure of cooperation in the arbitration. The arbitrator shall, in written award, allocate all the costs of the arbitration, including the fees of the arbitrator and the reasonable attorney fees of the prevailing party, against the party who did not prevail. The prevailing party shall be the party in whose favor the majority of the central issues in the case are resolved.

Notwithstanding anything in this provision to the contrary, the arbitrator shall have no power to award punitive damages or other damages not measured by the party’s #8..
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actual damages (excluding litigation costs and fees) against any party. This limitation of the arbitrator’s powers under this Agreement shall not operate as an exclusion of the issue of punitive damages from this Agreement to Arbitrate sufficient to vest jurisdiction in a court with respect to that issue.

Consultant shall include in all subcontracts a specification whereby the subcontractor consents to being joined in an arbitration between City and Consultant involving the work of the subcontractor to be joined. Consultant’s failure to do so shall be a breach of this Agreement.

The parties hereby waive any rights provided by Title 9.2 of the California Code of Civil Procedure, Section 1296. The arbitrator’s award shall be deemed final, conclusive and binding to the fullest extent allowed by California law.

20. ENTIRE AGREEMENT.

This Agreement and its exhibits contain the entire understanding between Consultant and City. Additional or new terms contained in this Agreement which vary from Consultant's proposal are controlling and are deemed accepted by Consultant by shipment of any article or other commencement of performance hereunder. All previous proposals, offers and communications relative to this Agreement, whether oral or written, are hereby superseded except to the extent that they have been incorporated into this Agreement. No future waiver of or exception to any of the terms, conditions, and provisions of this Agreement shall be considered valid unless specifically agreed to in writing by all the parties.

21. PARTIAL INVALIDITY.
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If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force without being impaired or invalidated in any way.

22. WAIVER.

The waiver by any party to this Agreement of a breach of any provision hereof shall be in writing and shall not operate or be construed as a waiver of any other or subsequent breach hereof unless specifically stated in writing.

23. AUDIT.

The City's duly authorized representative shall have access at all reasonable times to all reports, contract records, contract documents, contract files, and personnel necessary to audit and verify Consultant's charges to City under this Agreement.

Consultant agrees to retain reports, records, documents, and files related to charges under this Agreement for a period of four (4) years following the date of final payment for Consultant services. City's representative shall have the right to reproduce any of the aforesaid documents.

24. GOVERNING LAW.

This Agreement shall be governed according to the laws of the State of California.

25. HEADINGS NOT CONTROLLING.

Headings used in the Agreement are for reference purposes only and shall not be considered in construing this Agreement.

26. COMPLIANCE WITH LAWS.
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Consultant shall insure compliance with all safety and hourly requirements for employees, in accordance with federal, state, and county safety and health regulations and laws. Consultant shall fully comply with all applicable federal, state, and local laws, ordinances, regulations and permits.

27. CITY BUSINESS LICENSE.

Consultant will have a City of Modesto business license.

28. THIRD PARTIES.

The services to be performed by Consultant are intended solely for the benefit of the City. No person or entity not a signatory to this Agreement shall be entitled to rely on Consultant’s performance of its services hereunder, and no right to assert a claim against Consultant by assignment or indemnity rights or otherwise shall accrue to a third party as a result of this Agreement or the performance of Consultant’s services hereunder.

IN WITNESS WHEREOF, the City of Modesto, a municipal corporation, has authorized the execution of this Agreement by its City Manager and attestation by its City Clerk under authority of Resolution No. 2024- __ , adopted by the Council of the City of Modesto on the day of , 2024, and CAROLLO ENGINEERS, INC. has caused this agreement to be duly executed as of the Effective Date. #8..
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City of Modesto Scope of
Downtown Trunk Rehabilitaon (101558) Services
This project consists of rehabilitang approximately 3,300 Linear Feet of 27-inch RCP by using Cured-inPlace Pipe (CIPP). The rehabilitaon starts at approximately Needham Street and 9th Street, runs South East on 9th Street, to K Street, and then turns South West on K Street and ends at 7th Street and K Street.

TASK 1 – Project Management
This task includes project administraon and status meengs.

Task 1.01 – Project Administra
on
Carollo will administer the project and subconsultants to maintain the project schedule and budget. The project progress and budget status will be included in monthly progress reports that will be a5ached to billing invoices. The monthly progress report will include a list of key work acvies completed for the me period.

Task 1.02 – Project Kickoff Status Mee
ngs
The project kickoff meeng will be conducted to coordinate the project tasks between the City, subconsultants, and other agencies. Work will include preparing meeng agendas and minutes.

Ancipated project meengs include:
 Project kickoff meeng (City’s office).

Task 1.03 – Implement Quality Control Program
Carollo will implement a quality control program to review each deliverable submi5ed to the City. Each deliverable will be reviewed for both technical accuracy and overall quality of work.

Task 1 Deliverables
 Monthly billing and status reports (Total of 16)
 Project kickoff meeng agenda and minutes.

TASK 2 – Field Inves
ga
ons
Task 2.01 – Conduct Exis
ng U
lity Research
Carollo will perform exisng ulity research within the project area in accordance with the American Society of Civil Engineers (ASCE) 38-02 – Level “C” standard guidelines. Carollo will also develop ulity coordinaon le5ers and provide them to all known ulity owners.

Task 2.02 – Conduct Topographic Survey
This task will include the following topographic survey tasks. Our subconsultant, O’Dell Engineering, will conduct the following:
 Field Survey. The field survey will locate exisng features, such as:
- Rim and invert of the 11 manholes within the project limits. - Confirmaon of diameters of sewers entering and exing the above manholes. - Exisng ulity locaons.
- Edge of pavement limits.
- Nearby building planimetrics and limits.

EXHIBIT A
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City of Modesto Scope of
Downtown Trunk Rehabilitaon (101558) Services
- Topographic survey will be based on the City control monuments and benchmarks.

Horizontal controls will be based on the City control monuments (NAD83-1992 as idenfied on the City control survey map). Vercal control will be based on City benchmarks (NAVD-88 per City records).
 Topographic Map. The topographic map will include features idenfied in the field survey. Ulity structures will include rim elevaons and invert elevaons. Ulity pipe sizes and flow direcons will be noted based on field observaons. All mapping will be completed using the most recent version of AutoCAD.

Task 2.03 – Conduct Manhole Condi
on Assessment
The project will include condion assessment of a total of 11 manholes in areas where the pipeline is planned to be rehabilitated. A Level 2 inspecon will be performed by Naonal Plant Services NASSCO MACP-cerfied personnel. Inspecon reports will be provided to the City and results incorporated in the Basis of Design Report.

Task 2 Deliverables:
 Topographic survey (electronic files).
 Manhole condion assessment report and data (electronic files).

TASK 3 – Permi-ng Assistance
Task 3.01 – Encroachment Permit Coordina
on
Carollo will assist the City in obtaining draI permits for work within City and County right-of-way, Caltrans (since the 9th Street alignment passes under Highway 132 and the project may need bypass pump set up within Caltrans right of way), and the M&E Tracon Railroad right-of-way. Carollo will develop permit applicaon packages. The contractor will be responsible for obtaining permits and paying fees. Applicaon fees, if any, will be paid by the City. Per the RFP, the City is responsible for all aspects of environmental clearance; therefore, no hours have been budgeted for assisng the City with obtaining environmental clearance.

Task 3 Deliverables:
 Permit coordinaon and submi5al packages (electronic files).

TASK 4 – Develop Construc
on Documents
This task will develop a final plan, specificaons, and cost esmate (PS&E) submi5al package for the project. The City will provide Specificaons Division 00 and 01 and Carollo will provide the technical specificaons.

Task 4.01 – Develop 70 Percent PS&E Submi3al Package
Carollo will complete a 70 percent PS&E document submi5al under this task. Five copies of the plans (half-size), specificaons, and esmate will be provided to the City for review.

Task 4.02 – Conduct 70 Percent PS&E Review Mee
ng
Carollo will conduct a review meeng to discuss the design components of the 70 percent PS&E documents aIer the City review period. The review meeng will take place at the City’s offices. The review meeng will focus on key items such as bypass pumping for the project.

EXHIBIT A
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City of Modesto Scope of
Downtown Trunk Rehabilitaon (101558) Services
Task 4.03 – Develop 90 Percent PS&E Submi3al Package
Carollo will develop a 90 percent PS&E document submi5al under this task. Five copies of the plans (halfsize), specificaons, and esmate will be provided to the City for review. Carollo will incorporate comments from the 70 percent review into the 90 percent PS&E package and provide a comment response log to the City.

Task 4.04 – Conduct 90 Percent PS&E Review Mee
ng
Carollo will conduct a review meeng to discuss the 90 percent PS&E submi5al and any quesons that the City may have aIer the review period. The review meeng will be held at the City’s offices.

Task 4.05 – Develop Final PS&E Submi3al Package
Carollo will develop a final PS&E document submi5al and provide five copies of the plans (half-size), specificaons, and esmate to the City. This submi5al will be for final bid-ready documents. Carollo will incorporate comments from the 90 percent review into the final PS&E package and provide a comment response log to the City.

Task 4 Deliverables:
 70 percent PS&E submi5al package (five hard copies and one PDF file).  70 percent review meeng materials.
 70 percent review comment response log.
 90 percent PS&E submi5al package (five hard copies and one PDF file).  90 percent review meeng materials.
 90 percent review comment response log.
 Final PS&E submi5al package (five hard copies and one PDF file).

TASK 5 – Bid Phase Services
Task 5.01 – A3end Pre-Bid Mee
ng
Under this task, Carollo will a5end a pre-bid meeng to answer quesons and discuss the overall project intent. The City will facilitate this meeng and issue meeng minutes.

Task 5.02 – Answer Bidder Ques
ons/Provide Addenda
This task includes providing assistance to the City during the bidding period. The scope of work includes responding to bidders’ quesons, preparing addenda to the contract documents during the adversement period, and providing ongoing consultaon and interpretaon of the construcon documents.

Task 5 Deliverables:
 Addenda as required (assume one).

TASK 6 – Engineering Services During Construc
on
Task 6.01 – A3end Pre-Construc
on Conference
Carollo will a5end the pre-construcon conference and answer quesons as directed by the City. The City’s construcon manager (CM) will prepare meeng minutes. Carollo will review meeng minutes.

EXHIBIT A
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City of Modesto Scope of
Downtown Trunk Rehabilitaon (101558) Services
Task 6.02 – Review Contractor’s Submi3als
This task will include review and comment on the acceptability of the contractor’s submi5als for the City.

Carollo will review and respond to product and shop drawing submi5als provided by the contractor and forwarded by the CM. Review comments will be returned to the CM for processing and distribuon to the contractor and other pares. Per the RFP, a total of 50 submi5als are budgeted.

Task 6.03 – Respond to Requests for Informa
on (RFIs)
Carollo will respond to contractor’s RFIs. This scope also assumes the CM will consider and evaluate the validity of the RFIs, quesons, and modificaon requests prior to forwarding them to Carollo. Per the RFP, 25 RFIs are budgeted.

Task 6.04 – A3end Construc
on Mee
ngs and Site Visits
Carollo will a5end biweekly construcon meengs (teleconference ancipated), conduct site visits (a total of 5 site visits is ancipated) to monitor construcon progress, and remain available to expedite resoluons to project challenges.

Task 6.05 – Review Proposed Change Orders
Carollo will review changes in project scope and/or schedule, as requested by the CM. Carollo’s scope of work will include review of the contractor-furnished supporng informaon; discussions with contractor and CM in the field; and preparaon of technical documents—including supplemental drawings, specificaons, etc.—to assist the CM with preparaon of change orders.

Task 6.06 – Prepare Punch List
When the project has reached substanal compleon, Carollo’s design staff will walk the project site with the CM, City staff, and contractor and establish a list of items (punch list) to be completed before final compleon. This list will be issued to the CM to add to the CM’s punch list.

Task 6.07 – Provide Record Drawings
The contractor is required to provide the City and CM with a final set of marked-up design drawings.

AIer substanal compleon, Carollo will review the final version of the contractor’s as-built drawings compiled by the CM. Carollo will then prepare a set of record drawings based on the contractor’s markups in electronic format and deliver the electronic documents to the City. Record drawings will be prepared using Carollo’s standard record drawing format.

Task 6 Deliverables:
 Responses to submi5als and RFIs.
 One set of reproducible record drawings and digital files.

Assumpons:
 City will provide exisng documents and record drawings to be reviewed.  City will provide updated GIS files that show property lines throughout the City.  All permit fees are to be paid directly by the City or contractor.  City will manage and provide all bid package reproducon and delivery to prospecve bidders.  City to perform construcon inspecon and construcon management services.  Ulity potholing is not required.
 Construcon will be completed within 9 months

EXHIBIT A
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City of Modesto Scope of
Downtown Trunk Rehabilitaon (101558) Services
 Bypass pumping and traffic control will be performance-based specificaons.  Conformed documents are not required.
 The city will prepare all division 00 and 01 specificaons, per the RFP.

EXHIBIT A
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Principal-InCharge Technical Advisor QA/QC Project Manager Assistant Engineer Land Survey Condition Assessment Ryan Sellman Greg Gould Tim Taylor Reace Fisher Kathleen Manion Walnut Creek Las Vegas Sacramento Fresno Walnut Creek Walnut Creek Walnut Creek Walnut Creek $340 $349 $311 $311 $263 $224 $161 $143 $ 15.00 Modesto Hayward 10% 1 1.01 Project Administration 40 40 $ 12,440 $ 600 $ - $ 300 $ 13,340

1.02 Project Kickoff Meeting 4 20 8 32 $ 9,684 $ 480 $ - $ 10,1641.03 Quality Control Program 4 8 4 16 $ 5,128 $ 240 $ - $ 5,368 4 4 8 64 8 - - - 88 $ 27,252 $ 1,320 $ - $ - $ - $ 300 $ 28,872 2 2.01 Conduct Existing Utility Research 10 6 16 $ 4,688 $ 240 $ - $ 120 $ 5,0482.02 Conduct Topographic Survey 4 4 4 12 $ 3,192 $ 180 $ 48,100 $ 4,810 $ 200 $ 56,4822.03 Conduct Manhole Condition Assessment 4 4 8 $ 2,296 $ 120 $ 24,000 $ 2,400 $ 28,816 - - - 18 14 4 - - 36 $ 10,176 $ 540 $ 48,100 $ 24,000 $ 7,210 $ 320 $ 90,346 3 3.01 Encroachment Permit Coordination 2 2 16 22 42 $ 12,140 $ 630 $ - $ 12,770 2 2 - 16 22 - - - 42 $ 12,140 $ 630 - - - -$ $ 12,770
4 4.01 Develop 70% PS&E Submittal Package 2 8 10 46 64 38 154 24 346 $ 74,458 $ 5,190 $ - $ 250 $ 79,898

4.02 Conduct 70% PS&E Review Meeting 4 14 10 28 $ 8,344 $ 420 $ - $ 200 $ 8,964

4.03 Develop 90% PS&E Submittal Package 4 4 10 40 70 28 62 92 310 $ 66,126 $ 4,650 $ - $ 250 $ 71,026

4.04 Conduct 90% PS&E Review Meeting 2 14 10 26 $ 7,664 $ 390 $ - $ 200 $ 8,2544.05 Develop Final PS&E Submittal Package 2 4 18 22 16 46 60 168 $ 33,043 $ 2,521 $ - $ 250 $ 35,814 14 16 20 132 176 82 262 176 878 189,635 $ $ 13,171 $ - $ - $ - $ 1,150 $ 203,956 5 5.01 Attend Pre-Bid Meeting 2 12 8 22 $ 6,516 $ 330 $ - $ 200 $ 7,046

5.02 Answer Bidder Questions / Provide Addenda 2 24 12 16 54 $ 13,876 $ 810 $ - $ 14,686 4 - - 36 20 - 16 - 76 $ 20,392 $ 1,140 $ - $ - $ - $ 200 $ 21,732 6 6.01 Attend Pre-Construction Conference 4 12 4 20 $ 6,144 $ 300 $ - $ 200 $ 6,6446.02 Review Contractor's Submittals 4 8 36 84 132 $ 37,440 $ 1,980 $ - $ 39,4206.03 Respond to Requests for Information (RFIs) 4 2 18 32 16 72 $ 18,648 $ 1,080 $ - $ 19,7286.04 Attend Construction Meetings and Site Visits 4 22 48 74 $ 20,826 $ 1,110 $ - $ 400 $ 22,336

6.05 Review Proposed Change Orders 2 2 18 44 66 $ 18,548 $ 990 $ - $ 19,538

6.06 Prepare Punch List 2 14 26 42 $ 11,872 $ 630 $ - $ 200 $ 12,7026.07 Provide Record Drawings 12 32 40 84 $ 18,588 $ 1,260 $ - $ 19,848 20 12 - 132 270 - 56 - 490 132,066 $ $ 7,350 $ - $ - $ - $ 800 $ 140,216 44 34 28 398 510 86 334 176 1,610 391,661 $ $24,151 $48,100 $24,000 $7,210 $2,770 $ 497,892

CITY OF MODESTO
FINAL DESIGN FOR SEWER TRUNK REHABILITATION DOWNTOWN (101558) FEE ESTIMATE (04/22/2024)
Task Description
Carollo Engineers Subconsultants
Subconsultant
Markup
(10%)
Other Direct
Costs
(Mileage,
Printing, etc.)

PROJECT
TOTAL
Senior CAD
Technician
CAD
Technician
National Plant
Services
Project Management
Task 1 Total
Develop Construction Documents
Document
Processing Total
Hours
Labor
Cost
PECE 1
O'Dell Engineering
Task 2 Total
Permitting Assistance
Task 3 Total
Field Investigations
Task 4 TotalTask 5 Total
Engineering Services During Construction
Task 6 Total
Project Totals
Bid Phase Services
https://carolloh2o-my.sharepoint.com/personal/rsellman_carollo_com/Documents/Desktop/REV BY SRI Modesto Santa Rosa Fee 2_15_2024.xlsx 4/22/2024 EXHIBIT B #8..
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ENGINEERING SERVICES AGREEMENT

SANTA ROSA SEWER TRUNK REHABILITATION PROJECT
THIS AGREEMENT, made and entered into in the City of Modesto, State of California, this day of , 2024, (“Effective Date”) by and between the CITY OF MODESTO, a municipal corporation of the State of California, hereinafter referred to as "City", and CAROLLO ENGINEERS, INC., a Delaware corporation, hereinafter referred to as "Consultant".

This Agreement is made with regard to the following recitals:

A. The City has determined that Engineering Services are necessary for the Santa Rosa Sewer Trunk Rehabilitation Project.

B. Consultant represents that it is qualified, willing and able to provide said services.

NOW, THEREFORE, in consideration of this agreement, and the mutual promises, covenants, and stipulations hereinafter contained, the parties agree as follows:

1. SCOPE OF SERVICES.

Consultant shall undertake and complete the preparation of the scope of work as set forth and described in the documents attached hereto and referred to as Exhibit "A" or "project". The Consultant shall perform the services as described in Exhibit "A" in a manner compatible with the standards of its profession, and shall produce a fully complete project that is acceptable to City.

2. TERM OF AGREEMENT.

This Agreement is effective as of the date first written above and will continue in effect until City's acceptance of and payment for all services authorized by City and #8..
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performed by Consultant, unless terminated earlier in accordance with the provisions of the termination clause in this Agreement.

3. COMPENSATION.

Consultant agrees to accept a sum not to exceed FOUR HUNDRED THIRTY-SEVEN THOUSAND FOUR HUNDRED THIRTY-FOUR AND 00/100 DOLLARS ($437,434) (maximum compensation) as full remuneration for performing all services and furnishing all staffing and materials for Modesto in accordance with Exhibit "A" attached hereto and for performance by Consultant of all of its duties and obligations under this Agreement, except that additional services may be compensated as described below.

The Compensation shall be paid pursuant in the manner and at the times set forth below:

City shall pay Consultant on a time and materials basis for Consultant’s actual costs for all work called for in Exhibit “A” to this Agreement. All work to be performed under this Agreement shall be billed at the hourly rates set forth in Exhibit “B” attached hereto, Consultant shall submit monthly invoices to City which include detailed tasks, hours worked, and billable rates for all work completed, and detailed receipts for any out-of-pocket costs paid by Consultant in connection with work performed on this project. #8..
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Additional services may be authorized by the City Manager in an amount up to, but not to exceed ten percent (10%) of the agreed maximum compensation, or FORTYTHREE THOUSAND SEVEN HUNDRED FORTY-FOUR AND 00/100 DOLLARS ($43,744). In the event that additional services are deemed necessary, the Consultant shall provide a written request to the City Manager indicating the reason for additional work, scope and cost of such work. The City Manager shall provide a written response to the request, either approving or denying the additional expenditure. If additional services are requested and approved, they will be billed at the hourly rates set forth in Exhibit “B” and may not exceed the amount requested and approved in writing by the City Manager. In that event, the new total compensation shall not exceed FOUR HUNDRED EIGHTY-ONE THOUSAND ONE HUNDRED SEVENTY-EIGHT AND 00/100 DOLLARS ($481,178). If additional services in excess of this amount are deemed necessary by City Staff, an amendment to this Agreement will be required and must be approved by the City Council prior to commencing the work, as provided in Paragraph 9 of this agreement.

4. OBLIGATIONS OF CONSULTANT.

Throughout the term of this Agreement, Consultant shall possess, or secure all licenses, permits, qualifications and approvals legally required to conduct business.

Consultant warrants that it has all of the necessary professional capabilities and experience, as well as all tools, instrumentalities, facilities and other resources necessary to provide the City with the services contemplated by this Agreement. Consultant further warrants that it will follow the best current, generally accepted and professional practices to make findings, render opinions, prepare factual presentations, and provide professional advice and recommendations regarding this project.
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In providing opinions of cost, financial analyses, economic feasibility projections, and schedules for potential projects, Consultant has no control over cost or price of labor and material; unknown or latent conditions of existing equipment or structures that may affect operation and maintenance costs; competitive bidding procedures and market conditions; time or quality of performance of third parties; quality, type, management, or direction of operating personnel; and other economic and operational factors that may materially affect the ultimate project cost or schedule. Therefore, Consultant makes no warranty that the City’s actual project costs, financial aspects, economic feasibility, or schedules will not vary from Consultant’s opinions, analyses, projections, or estimates.

5. OBLIGATIONS OF CITY.

6. PERFORMANCE BY KEY EMPLOYEE.

Consultant has represented to City that Ryan Sellman, will be the person primarily responsible for the performance of the services referred to in this Agreement. City has #8..
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entered into this Agreement in reliance on that representation by Consultant. Consultant therefore agrees that ten percent (10%) or more of the time to be devoted to the project that is the subject of this Agreement will be that of the above-named person.

7. OWNERSHIP OF DOCUMENTS/TITLE TO DATA.

All materials, documents, data or information obtained from the City data files or any City medium furnished to Consultant in the performance of this Agreement will at all times remain the property of the City. Such data or information may not be used or copied for #8..
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direct or indirect use by Consultant after termination of this Agreement without written consent of the City.

8. NEWS AND INFORMATION RELEASE.

9. INTEREST OF CONTRACTOR.

10. AMENDMENTS.

11. INDEPENDENT CONTRACTOR.

Consultant has no authority or responsibility to exercise any rights or power vested in the City.

If in the performance of this Agreement any third persons are employed by Consultant, such persons shall be entirely and exclusively under the direction, supervision, and #8..
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control of Consultant. All terms of employment including hours, wages, working conditions, discipline, hiring, and discharging or any other term of employment or requirement of law shall be determined by the Consultant.

It is further understood and agreed that Consultant must issue W-2 forms or other forms as required by law for income and employment tax purposes for all of Consultant's personnel.

12. ASSIGNMENT.

Neither this Agreement nor any portion thereof shall be subcontracted or assigned without the express prior written consent of the City in each and every instance.

13. PATENT/COPYRIGHT MATERIALS.

14. NOTICES.

Notice required by this Agreement shall be given in writing and shall be deemed given and effective upon receipt provided that such are delivered in accordance with the #8..
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provisions of this Section. Notices shall be delivered either by: (a) personal delivery (including delivery by an overnight courier service which obtains confirmation of receipt); or (b) by facsimile, provided that such transmission is followed by delivery by an overnight courier service which obtains confirmation of receipt; or (c) postage prepaid, return receipt requested, certified mail; or (d) by electronic transmission subject to reasonable proof that the notice was both transmitted and received. Each such notice shall be sent to the parties at the address respectively set forth below or to such other address as a party may designate by written notice given in accordance with the provisions of this Section:

FOR CONSULTANT: Name: Carollo Engineers, Inc.

15. INSURANCE REQUIREMENTS.

The Consultant shall provide at its own expense and maintain at all times the following insurance with insurance companies licensed in the State of California and shall provide evidence of such insurance to the City as may be required by the Risk Manager of the City. The policies or certificates thereof shall provide that, thirty (30) days prior to cancellation or reduction in the policy, notices of same shall be given to the Risk Manager of the City by certified mail, return receipt requested, for all of the following stated insurance policies. #8..
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In the event the certificates of insurance required hereunder do not provide for notice of cancellation to the certificate holder and/or additional insureds, the Consultant shall provide, and shall require its subcontractors to provide, as an express condition precedent to payment hereunder, an endorsement from their insurers providing that the additional insureds identified herein shall be provided 30 days notice of the cancellation on the policies of insurance required hereunder (10 days notice if the policies are cancelled for non-payment of premium). In addition, the named insured on all such policies shall provide to the additional insureds identified herein any notices of cancellation of said insurance policies within 5 business days of receipt of such notice. The Consultant shall, as a further express condition precedent to payment for work performed, affirm under penalty of perjury that the required insurance on the project remains in place and said insurance has not been cancelled.
(a) Worker's Compensation - in compliance with the statutes of the State of California, plus employer's liability with a minimum limit of liability of $1,000,000. (b) General Liability insurance with a minimum limit of liability per occurrence of $1,000,000 for bodily injury and property damage. If Commercial General Liability Insurance or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to this project/location or the general aggregate limit shall be twice the required occurrence limit. This insurance shall indicate on the certificate of insurance the following coverages and indicate the policy aggregate limit applying to: premises and operations; broad form contractual; independent consultants and subcontractors; products and completed operations as applicable.
(c) Automobile Liability insurance with a minimum limit of liability per occurrence of $1,000,000 for bodily injury and property damage. This insurance shall cover any automobile for bodily injury and property damage.
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(d) Professional Liability insurance with a minimum limit of $1,000,000 per claim and policy aggregate. If coverage is on a claims made basis it shall be maintained for at least three (3) years following completion of the work.

CONSULTANT shall provide CITY with separate endorsements evidencing proof of the CITY’s additional insured status as to both the general liability and #8..
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automobile liability insurance policies. In addition, CONSULTANT shall provide CITY with a Workers Compensation subrogation waiver by way of a separate endorsement. All endorsements referenced above must include the applicable policy number.

16. TERMINATION OF AGREEMENT.

Termination by City for Convenience
The City may also terminate the Consultant's performance under the Agreement, either in whole or in part, at its own discretion, or when conditions encountered during the Work make it impossible or impracticable to proceed, or when the City is prevented from proceeding with the Agreement by act of God, by law, or by official action of a public authority, or upon a determination by the City that such termination is in the best interest and convenience of the City, or whenever the City is prohibited from completing the Work for any reason. The City shall provide no less than ten (10) calendar days written notice of its intent to terminate the Agreement for #8..
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convenience, and shall endeavor to provide the Consultant with consultation with the City prior to termination.

Post-Termination Procedure
Upon receipt of a written notice of termination pursuant to either of the foregoing paragraphs, the Consultant shall:
a. Cease its work as directed in the notice of termination as of the termination date and see to it that its employees, subconsultants and agents are notified of such termination and act as specified in the notice of termination;
b. Terminate all orders and Subcontractors except as necessary to complete any portion of the Work that is not terminated; c. If directed in writing by the City to do so, assign all right, title and interest in subcontracts and materials in progress to City, in which case the City will have the right at its discretion to settle, or pay any or all claims arising out of the termination of such subconsultants, but in no event shall recovery by any Consultant or subconsultant include lost profits for portions of the Work not completed or undertaken, including materials not delivered; d. Deliver or otherwise make available to the City all data, drawings, specifications, reports, estimates, summaries and such other information and material as may have been accumulated by the Consultant in performing the Work whether completed or in process; e. Settle outstanding liabilities and claims, subject to the approval of City;
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f. Complete performance of such part of the Work as has not been terminated;
g. Take such other actions as may be necessary, or as may be directed by the City for the protection and preservation of the Work and/or property related to the Work;
h. If City so requests, and at City's cost, Consultant shall provide sufficient oral or written status reports to make City reasonably aware of the status of Consultant's work on the project. i. The Consultant understands and agrees that City may, in City's sole discretion, refuse to pay Consultant for that portion of Consultant's services which were performed by Consultant on the project prior to the termination date and which remain
unacceptable and/or not useful to City as of the termination date.

17. CERTIFIED PAYROLL REQUIREMENT.

18. INDEMNITY.

The Consultant shall hold the City, its agents, officers, employees, and volunteers, harmless from and save, defend and indemnify them against any and all claims, losses, liabilities, judgments or damages from every cause, including but not limited to injury to person or property or wrongful death, including reasonable costs and expenses of defense of any judicial or administrative action, arising directly or indirectly out of any negligent or intentional act or omission of Consultant, or its agents, officers, employees, or volunteers relating to or during the performance of its obligations under this Agreement. In no event shall the cost to defend charged to the Consultant exceed the Consultant’s proportionate percentage of fault. #8..
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However, notwithstanding the foregoing, in the event one or more defendants is unable to pay its share of defense costs due to bankruptcy or dissolution of the business, the Consultant shall meet and confer with other parties regarding unpaid defense costs.

19. DISPUTE RESOLUTION.

This paragraph is not intended to and does not waive the claim filing requirements found in California Government Code section 900 et seq. In the event that a timely and legally sufficient, arbitrable claim is filed by Consultant with City, and the claim is rejected in whole or in part by City, this paragraph shall result in the conclusive, final, and binding resolution of all the issues presented in the claim by Consultant so long as any issues presented #8..
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by the claim are arbitrable. Claims rejected by City or by operation of law, shall be submitted by Consultant to arbitration pursuant to the Arbitration Rules of the American Arbitration Association within ninety (90) days after mailing of the written rejection by City to Consultant.

Otherwise, the claim or claims shall be deemed waived in their entirety.

Notwithstanding anything in this provision to the contrary, the arbitrator shall have no power to award punitive damages or other damages not measured by the party’s #8..
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actual damages (excluding litigation costs and fees) against any party. This limitation of the arbitrator’s powers under this Agreement shall not operate as an exclusion of the issue of punitive damages from this Agreement to Arbitrate sufficient to vest jurisdiction in a court with respect to that issue.

20. ENTIRE AGREEMENT.

21. PARTIAL INVALIDITY.
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If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force without being impaired or invalidated in any way.

22. WAIVER.

23. AUDIT.

24. GOVERNING LAW.

This Agreement shall be governed according to the laws of the State of California.

25. HEADINGS NOT CONTROLLING.

Headings used in the Agreement are for reference purposes only and shall not be considered in construing this Agreement.

26. COMPLIANCE WITH LAWS.
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Consultant shall insure compliance with all safety and hourly requirements for employees, in accordance with federal, state, and county safety and health regulations and laws. Consultant shall fully comply with all applicable federal, state, and local laws, ordinances, regulations and permits.

27. CITY BUSINESS LICENSE.

Consultant will have a City of Modesto business license.

28. THIRD PARTIES.

IN WITNESS WHEREOF, the City of Modesto, a municipal corporation, has authorized the execution of this Agreement by its City Manager and attestation by its City Clerk under authority of Resolution No. 2024- __ , adopted by the Council of the City of Modesto on the day of , 2024, and CAROLLO ENGINEERS, INC. has caused this agreement to be duly executed as of the Effective Date. #8..
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City of Modesto Scope of
Santa Rosa & Downtown Trunk Rehabilitaon (101559) Services This project consists of rehabilitang approximately 1,300 Linear Feet of 18-inch RCP by using Cured-inPlace Pipe (CIPP). This secon of rehabilitaon starts at approximately N. Conejo Avenue and Miller Road, runs East on Miller Road, to Phoenix Avenue. The second secon consists of rehabilitang approximately 800 linear feet of 21-inch concrete pipe by using CIPP. This secon or rehabilitaon starts near Yosemite Blvd and Groveland Street, runs south through Gallo Property to South Morton Blvd.

TASK 1 – Project Management
This task includes project administraon and status meengs.

Task 1.01 – Project Administra
on
Carollo will administer the project and subconsultants to maintain the project schedule and budget. The project progress and budget status will be included in monthly progress reports that will be a8ached to billing invoices. The monthly progress report will include a list of key work acvies completed for the me period.

Ancipated project meengs include:
 Project kickoff meeng (City’s office).

Task 1.03 – Implement Quality Control Program
Carollo will implement a quality control program to review each deliverable submi8ed to the City. Each deliverable will be reviewed for both technical accuracy and overall quality of work.

Task 1 Deliverables
 Monthly billing and status reports (total of 16)
 Project kickoff meeng agenda and minutes.

Task 2.02 – Conduct Topographic Survey
This task will include the following topographic survey tasks. Our subconsultant, O’Dell Engineering, will conduct the following:
 Field Survey. The field survey will locate exisng features, such as:
- Rim and invert of the 11 manholes within the project limits. This includes 7 manholes in the Santa Rosa Trunk Alignment and 4 in the Downtown Trunk Alignment. - Confirmaon of diameters of sewers entering and exing the above manholes. - Exisng ulity locaons.

EXHIBIT A
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City of Modesto Scope of
Santa Rosa & Downtown Trunk Rehabilitaon (101559) Services - Edge of pavement limits.
- Nearby building planimetrics and limits.
- Topographic survey will be based on the City control monuments and benchmarks.

Task 2.03 – Conduct Manhole Condi
on Assessment
The project will include condion assessment of a total of 11 manholes in areas where the pipeline is planned to be rehabilitated. This includes 7 manholes in the Santa Rosa Trunk Alignment and 4 in the Downtown Trunk Alignment. A Level 2 inspecon will be performed by Naonal Plant Services NASSCO MACP-cerfied personnel. Inspecon reports will be provided to the City and results incorporated in the Basis of Design Report.

Task 2 Deliverables:
 Topographic survey (electronic files).
 Manhole condion assessment report and data (electronic files).

TASK 3 – Permi-ng Assistance
Task 3.01 – Encroachment Permit Coordina
on
Carollo will assist the City in obtaining draL permits for work within CITY right-of-way, the UPRR Railroad right-of-way, and within the private property of E & J Gallo Spirits. Carollo will develop permit applicaon packages. The contractor will be responsible for obtaining permits and paying fees. Applicaon fees, if any, will be paid by the City. Per the RFP, the City is responsible for all aspects of environmental clearance; therefore, no hours have been budgeted for assisng the City with obtaining environmental clearance.

Task 3 Deliverables:
 Permit coordinaon and submi8al packages (electronic files).

TASK 4 – Develop Construc
on Documents
This task will develop a final plan, specificaons, and cost esmate (PS&E) submi8al package for the project. The City will provide Specificaons Division 00 and 01 and Carollo will provide the technical specificaons.

Task 4.01 – Develop 70 Percent PS&E Submi3al Package
Carollo will complete a 70 percent PS&E document submi8al under this task. Five copies of the plans (half-size), specificaons, and esmate will be provided to the City for review.

EXHIBIT A
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City of Modesto Scope of
Santa Rosa & Downtown Trunk Rehabilitaon (101559) Services Task 4.02 – Conduct 70 Percent PS&E Review Mee
ng
Carollo will conduct a review meeng to discuss the design components of the 70 percent PS&E documents aLer the City review period. The review meeng will take place at the City’s offices. The review meeng will focus on key items such as bypass pumping for the project.

Task 4.03 – Develop 90 Percent PS&E Submi3al Package
Carollo will develop a 90 percent PS&E document submi8al under this task. Five copies of the plans (halfsize), specificaons, and esmate will be provided to the City for review. Carollo will incorporate comments from the 70 percent review into the 90 percent PS&E package and provide a comment response log to the City.

Task 4.04 – Conduct 90 Percent PS&E Review Mee
ng
Carollo will conduct a review meeng to discuss the 90 percent PS&E submi8al and any quesons that the City may have aLer the review period. The review meeng will be held at the City’s offices.

Task 4.05 – Develop Final PS&E Submi3al Package
Carollo will develop a final PS&E document submi8al and provide five copies of the plans (half-size), specificaons, and esmate to the City. This submi8al will be for final bid-ready documents. Carollo will incorporate comments from the 90 percent review into the final PS&E package and provide a comment response log to the City.

Task 4 Deliverables:
 70 percent PS&E submi8al package (five hard copies and one PDF file).  70 percent review meeng materials.
 70 percent review comment response log.
 90 percent PS&E submi8al package (five hard copies and one PDF file).  90 percent review meeng materials.
 90 percent review comment response log.
 Final PS&E submi8al package (five hard copies and one PDF file).

TASK 5 – Bid Phase Services
Task 5.01 – A3end Pre-Bid Mee
ng
Under this task, Carollo will a8end a pre-bid meeng to answer quesons and discuss the overall project intent. The City will facilitate this meeng and issue meeng minutes.

Task 5 Deliverables:
 Addenda as required (assume one).

EXHIBIT A
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City of Modesto Scope of
Santa Rosa & Downtown Trunk Rehabilitaon (101559) Services TASK 6 – Engineering Services During Construc
on
Task 6.01 – A3end Pre-Construc
on Conference
Carollo will a8end the pre-construcon conference and answer quesons as directed by the City. The City’s construcon manager (CM) will prepare meeng minutes. Carollo will review meeng minutes.

Task 6.02 – Review Contractor’s Submi3als
This task will include review and comment on the acceptability of the contractor’s submi8als for the City.

Carollo will review and respond to product and shop drawing submi8als provided by the contractor and forwarded by the CM. Review comments will be returned to the CM for processing and distribuon to the contractor and other pares. Per the RFP, a total of 50 submi8als are budgeted.

Task 6.04 – A3end Construc
on Mee
ngs and Site Visits
Carollo will a8end biweekly construcon meengs (teleconference ancipated), conduct site visits (a total of 5 site visits is budgeted) to monitor construcon progress, and remain available to expedite resoluons to project challenges.

Task 6.07 – Provide Record Drawings
The contractor is required to provide the City and CM with a final set of marked-up design drawings.

ALer substanal compleon, Carollo will review the final version of the contractor’s as-built drawings compiled by the CM. Carollo will then prepare a set of record drawings based on the contractor’s markups in electronic format and deliver the electronic documents to the City. Record drawings will be prepared using Carollo’s standard record drawing format.

Task 6 Deliverables:
 Responses to submi8als and RFIs.
 One set of reproducible record drawings and digital files.

Assumpons:
 City will provide exisng documents and record drawings to be reviewed.  City will provide updated GIS files that show property lines throughout the City.

EXHIBIT A
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City of Modesto Scope of
Santa Rosa & Downtown Trunk Rehabilitaon (101559) Services  All permit fees are to be paid directly by the City or contractor.  City will manage and provide all bid package reproducon and delivery to prospecve bidders.  City to perform construcon inspecon and construcon management services.  Ulity potholing is not required.
 Construcon will be completed within 9 months.
 Bypass pumping and traffic control will be performance-based specificaons.  Conformed documents are not required.
 The city will prepare all division 00 and 01 specificaons, per the RFP.

EXHIBIT A
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Principal-InCharge Technical Advisor QA/QC Project Manager Assistant Engineer Land Survey Condition Assessment Ryan Sellman Greg Gould Tim Taylor Reace Fisher Kathleen Manion Walnut Creek Las Vegas Sacramento Fresno Walnut Creek Walnut Creek Walnut Creek Walnut Creek $340 $349 $311 $311 $263 $224 $161 $143 $ 15.00 Modesto Hayward 10% 1 1.01 Project Administration 40 40 $ 12,440 $ 600 $ - $ 300 $ 13,340

1.02 Project Kickoff Meeting 4 22 6 32 $ 9,780 $ 480 $ - $ 10,260

1.03 Public Outreach 4 8 4 16 $ 4,900 $ 240 $ - $ 5,140

1.04 Quality Control Program 4 8 4 16 $ 5,128 $ 240 $ - $ 5,368 8 4 8 74 10 - - - 104 $ 32,248 $ 1,560 $ - $ - $ - $ 300 $ 34,108 2 2.01 Conduct Existing Utility Research 12 4 16 $ 4,784 $ 240 $ - $ 120 $ 5,144

2.02 Conduct Topographic Survey 4 4 4 12 $ 3,192 $ 180 $ 33,300 $ 3,330 $ 200 $ 40,202

2.03 Conduct Manhole Condition Assessment 4 4 8 $ 2,296 $ 120 $ 20,000 $ 2,000 $ 24,416 - - - 20 12 4 - - 36 $ 10,272 $ 540 $ 33,300 $ 20,000 $ 5,330 $ 320 $ 69,762 3 3.01 Encroachment Permit Coordination 2 2 16 22 42 $ 12,140 $ 630 $ - $ 12,770 2 2 - 16 22 - - - 42 $ 12,140 $ 630 - - - -$ $ 12,770
4 4.01 Develop 70% PS&E Submittal Package 2 8 10 28 52 30 114 24 268 $ 57,472 $ 4,020 $ - $ 250 $ 61,742

4.02 Conduct 70% PS&E Review Meeting 4 12 4 20 $ 6,144 $ 300 $ - $ 200 $ 6,644

4.03 Develop 90% PS&E Submittal Package 4 4 10 32 58 18 70 92 288 $ 59,530 $ 4,320 $ - $ 250 $ 64,100

4.04 Conduct 90% PS&E Review Meeting 2 12 4 18 $ 5,464 $ 270 $ - $ 200 $ 5,9344.05 Develop Final PS&E Submittal Package 2 4 14 16 10 46 60 152 $ 28,864 $ 2,280 $ - $ 250 $ 31,394 14 16 20 98 134 58 230 176 746 157,474 $ $ 11,190 $ - $ - $ - $ 1,150 $ 169,814 5 5.01 Attend Pre-Bid Meeting 2 12 8 22 $ 6,516 $ 330 $ - $ 200 $ 7,046

5.02 Answer Bidder Questions / Provide Addenda 2 16 12 16 46 $ 11,388 $ 690 $ - $ 12,078 4 - - 28 20 - 16 - 68 $ 17,904 $ 1,020 $ - $ - $ - $ 200 $ 19,124 6 6.01 Attend Pre-Construction Conference 4 12 4 20 $ 6,144 $ 300 $ - $ 200 $ 6,644

6.02 Review Contractor's Submittals 4 8 32 78 122 $ 34,618 $ 1,830 $ - $ 36,4486.03 Respond to Requests for Information (RFIs) 4 2 16 32 16 70 $ 18,026 $ 1,050 $ - $ 19,0766.04 Attend Construction Meetings and Site Visits 4 16 42 62 $ 17,382 $ 930 $ - $ 400 $ 18,712

6.05 Review Proposed Change Orders 2 2 16 42 62 $ 17,400 $ 930 $ - $ 18,3306.06 Prepare Punch List 2 16 24 42 $ 11,968 $ 630 $ - $ 200 $ 12,798

6.07 Provide Record Drawings 12 32 40 84 $ 18,588 $ 1,260 $ - $ 19,848 20 12 - 120 254 - 56 - 462 124,126 $ $ 6,930 $ - $ - $ - $ 800 $ 131,85648 34 28 356 452 62 302 176 1,458 354,164 $ $21,870 $33,300 $20,000 $5,330 $2,770 $ 437,434

CITY OF MODESTO
FINAL DESIGN FOR SEWER TRUNK REHABILITATION SANTA ROSA AND DOWNTOWN (101559) FEE ESTIMATE (04/22/2024)
Task Description
Carollo Engineers Subconsultants
Subconsultant
Markup
(10%)
Other Direct
Costs
(Mileage,
Printing, etc.)

CITY OF MODESTO

COMMITTEE AGENDA REPORT
DATE OF MEETING:

May 20, 2024
Date: May 1, 2024
TO: Finance Committee
Nick Bavaro, Chair
Rosa Escutia-Braaton, Vice-Chair
David Wright, Member
THROUGH: Joseph P. Lopez, City Manager
FROM: DeAnna Christensen, Director of Finance
SUBJECT: Debt Management Policy Updates
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 as required. 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.

Changes this year are minor and are mostly formatting and grammatical in nature. #9..
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Finance Committee, May 20, 2024
Debt Management Policy Updates

Page 2 of 2 ends

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.

RECOMMENDED COMMITTEE ACTION:

Staff Recommendations:

Motion accepting the updates to the City’s Debt Management Policy and forwarding to Council for approval.

Approved by:

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

1. Debt Management Policy (FY25 With Edits)

2. Debt Management Policy (FY25 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, 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

CITY OF MODESTO

CITY COUNCIL POLICY
LATEST REVISION DATE: April 2023May
20, 2024
POLICY NUMBER: 1.036
CITY DEPARTMENT: Finance
SUBJECT: Debt Management Policy
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2 cannot be approved on a consent calendar).

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.

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 CIP.

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.

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, #9..
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3 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.

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 #9..
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4 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.

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 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:

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 #9..
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5 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.
• Taxable Debt is debt whose interest payments are taxable for federal income 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 (e.g., advance refundings).

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 maymaintain an ongoing commercial paper program to ensure flexibility and immediate access to capital funding when needed. The retirement of commercial paper notes is most commonly a result of the issuance of longterm 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 #9..
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6 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.

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 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. B. 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. B. 4.

Financial Derivative Products below. See also the 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 #9..
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7 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.

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 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.

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
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8 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 nor adversely affect the project identified by the bond documents.

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.

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 #9..
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9 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 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 Investors Service, S&P Global Ratings and Fitch Ratings, 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. 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.

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.
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10 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 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.

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.

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
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11 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.
• 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.

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).

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.

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 itsadministrative 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.

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 #9..
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13 paying agent services, printing, credit facilities, remarketing agent services, etc. • Advice, assistance and preparation for presentations with rating agencies, credit providers andinvestors.
• 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:
• 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.

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:
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14 • 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 an existing pre-qualified pool of underwriters or through 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.

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. #9..
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15 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.

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 requirements. For legal counsel such conflicts disclosure shall, at a minimum, comply with applicable conflicts 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 #9..
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16 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, 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. #9..
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17 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 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
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18 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 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.

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 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 #9..
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19 City is also required to file notices of certain events with the MSRB’s EMMAElectronic 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:
• 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 of 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:
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20 • 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).

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 #9..
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21 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 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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22 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 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.

Debt Service Reserve Fund- The fund in which moneys are placed which may be #9..
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23 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. the Secured Overnight Financing Rate (“SOFR”) or Securities Industry and Financial Markets Association (“SIFMA”) Index). 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 SOFRbased 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.
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24 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 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 when discounted to the present at a specific annual rate.

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.
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25 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 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 Policy. 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 Swap Policy.

The authorized Swaps contemplated in this 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.

CITY OF MODESTO

CITY COUNCIL POLICY
Latest Revision Date: April 2023
ADDENDUM: Interest Rate Swap Policy
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26 • Achieve appropriate asset/liability match
Create variable rate exposure through fixed-to-floating Swap.

Under no circumstances will Swaps be used for speculative purposes, e.g., to realize trading gains.

2. Authority for Entering into Swap Agreements
The purpose of this Swap Policy is to integrate the use of Swaps into the City’s overall Debt Policy, and other funds of the City where particular debt strategies, both long-term and shortterm, 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 Swap 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”

1. MMD™ is a trademark of Municipal Market Data, a Thompson Financial company. #9..
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27 scale or the Bloomberg Valuation Service (“BVAL”) AAA Muni Callable Curve. • 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. • 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?

2. The SIFMA Index is an index of more than 500 high-grade, tax-exempt, weekly reset Variable Rate Demand Obligation 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.
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28 • 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
A. Procurement
The City will not have a fixed policy with respect to the procurement of Swaps and other financial instruments authorized by this Swap 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. A municipal/swap advisor 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 Swap 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 S&P Global Ratings, 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.
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29 6. Swap Documentation
The City will use a 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 in the City’s adopted Debt 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 Policy. 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 failsure 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. #9..
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30 • 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).

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.
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31 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:

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..
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32 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 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.
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33 • The City shall An evaluateion of the performance of the swap relative to the rate on the bonds.
• The City shall A computeation of the effective cost of borrowing inclusive of all fees and costs associated with the underlying financing.

23.450(b)(1) or any successor regulation thereto (herein referred to as the “Representative Regulation”) (iii) each swap advisor provides 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 reliesy on the advice of its swap advisor with respect to transactions authorized pursuant to this Swap Policy and not rely on recommendations, if any, presented by any counterparty with respect to transactions authorized pursuant to this Swap Policy.

13. Monitoring and Reporting
At least once per year, normally as part of the City’s Annual Comprehensive Financial 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 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.

At the end of each fiscal year, the Director of Finance shall provide to the City Council all #9..
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34 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. #9..
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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.

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.

CITY OF MODESTO

CITY COUNCIL POLICY
LATEST REVISION DATE: May 20, 2024
POLICY NUMBER: 1.036
CITY DEPARTMENT: Finance
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.

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 #9..
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3 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.

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 #9..
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4 respective system, including the debt service for any new issuance, unless a different debt service coverage amount is allowed by existing bond covenants.

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.

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, #9..
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5 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.
• Taxable Debt is debt whose interest payments are taxable for federal income 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 (e.g., advance refundings).

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 maymaintain an ongoing commercial paper program to ensure flexibility and immediate access to capital funding when needed. The retirement of commercial paper notes is most commonly a result of the issuance of longterm 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. #9..
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6 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.

Financial Derivative Products below. See also the 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 #9..
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7 use of a particular derivative product. Derivative products will only be utilized with prior approval from the City Council.

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.

E. Debt Service Structure
Debt issuance shall be planned to achieve relatively rapid repayment of debt while still #9..
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8 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.

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 #9..
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9 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.

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.
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10 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 own account.

B. Negotiated Sale
The City recognizes that some securities are best sold through negotiation. Conditions #9..
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11 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.
• 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. 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, S&P Global Ratings, Fitch Ratings 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.
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12 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 itsadministrative 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.

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. #9..
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13 • Advice, assistance and preparation for presentations with rating agencies, credit providers andinvestors.
• Assisting in preparation of official statements and other financing documents. • Be available for other projects whenever needed.

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:
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14 • 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.

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. #9..
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15 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.

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 #9..
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16 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.

The Compliance Officer shall conduct periodic reviews, at least annually, or more often #9..
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17 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 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 #9..
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18 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.

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 EMMA system. #9..
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19 Upon the identification of the occurrence of a material event, the Dissemination Agent shall, in consultation with bond counsel, prepare, or cause 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.

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:
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20 • 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 ongoing 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.

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 #9..
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21 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 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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22 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 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.

There are three primary classifications of orders, which form the designation policy.

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.

Debt Service Reserve Fund- The fund in which moneys are placed which may be #9..
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23 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.

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

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