Staff Report - Revised Debt Management Policy for the City of Sacramento and Revised Supplemental on Disclosure — Sacramento City Council, November 1, 2022

City of Sacramento
City Council - 5PM Report
915 I Street Sacramento, CA 95814
www.cityofsacramento.org
File ID: 2022-01832 11/1/2022 Consent Item 4.

Revised Debt Management Policy for the City of Sacramento and Revised Supplemental Policy on Disclosure
File ID: 2022-01832
Location: Citywide
Recommendation: Adopt a Resolution approving the revised Debt Management Policy for the City of Sacramento and the revised Supplemental Policy on Disclosure Contact: Brian Wong, Debt Manager, (916) 808-5811, [email protected], Office of the City Treasurer
Presenter: None
Attachments:
1-Description/Analysis
2-Resolution
3-Exhibit A - Debt Management Policy
4-Exhibit B - Supplemental Policy on Disclosure
5-Debt Management Policy [Redline]
6-Supplemental Policy on Disclosure [Redline]
Description/Analysis
Issue Detail: The City’s Debt Management Policy and Supplemental Policy on Disclosure (the Policies) were most recently revised and approved on October 19, 2021. The Policies require periodic review by the City Treasurer’s Office to ensure regulatory compliance or to clarify objectives and guidelines for the issuance and management of City debt.

The recommended revisions to the Policies will clarify certain ambiguities and articulate certain sections that were not well developed.

Policy Considerations: Formal approval of a debt management policy and periodic updates of it are recognized as best practices by the Government Finance Officers Association and the California

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File ID: 2022-01832 11/1/2022 Consent Item 4.

Debt and Investment Advisory Commission.

Economic Impacts: Not applicable.

Environmental Considerations: Approval of the recommendation is not a “project” subject to CEQA because it: (a) has no potential to cause a significant effect on the environment; (b) approves a continuing administrative activity (general policy and procedure making) and is thus excluded from the definition of a “project“; and (c) concerns governmental fiscal activities that do not involve any commitment to any specific project that may result in a potentially significant physical impact on the environment. (14 Cal. Code Regs. §§ 15061(b)(3), 15378(b)(2), 15378(b)(4), and 15378(b)(5)).

Sustainability: Not applicable.

Commission/Committee Action: Not applicable.

Rationale for Recommendation: Approval of the Policies will clarify certain ambiguities.

Financial Considerations: Approval of the Policies has no direct or financial effect or costs. It allows for the continued issuance of debt, clarifies the guidelines for the responsibilities of issuing the City’s debt, and identifies the principles and objectives that should guide the City Council’s decisions to approve the issuance of debt.

Local Business Enterprise (LBE): Not applicable.

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RESOLUTION NO. 2022-

Adopted by the Sacramento City Council
November 1, 2022

RESOLUTION APPROVING A REVISED DEBT MANAGEMENT POLICY AND

A REVISED SUPPLEMENTAL POLICY ON DISCLOSURE

BACKGROUND

A. Debt financing of City projects can be a cost-effective means of providing key facilities and services. The City has a long history of issuing multiple types of debt and working with internal and external stakeholders, including City departments, developers, residents, businesses, and other governmental agencies, to achieve the most cost- effective financing option for necessary projects or capital improvements.

B. On August 24, 2010, the City Council adopted a Debt-Management Policy setting forth guiding principles for the City’s issuance and management of debt. The City Council amended the Debt-Management Policy on June 2, 2011, by adding a Supplemental Policy Statement on Disclosure. The Debt-Management Policy applies to debt issued by the City, the Sacramento City Financing Authority, the Sacramento Public Financing Authority, and the Redevelopment Agency Successor Agency.

C. On February 7, 2017, the City Council adopted Resolution No. 2017-0046 approving an amended Debt-Management Policy and an amended Supplemental Policy Statement of Disclosure (renamed as Supplemental Policy on Disclosure) to comply with Government Code section 8855, which required certain changes in debt policies adopted by local agencies.

D. On June 19, 2018, the City Council adopted Resolution No. 2018-0251 approving an amended Debt-Management Policy and an amended Supplemental Policy on Disclosure to comply with the federal Tax Cuts and Jobs Act of 2017, which eliminated advance refunding of tax-exempt debt.

E. On August 20, 2018, the Securities and Exchange Commission (the “SEC”) adopted amendments to SEC Rule 15c2-12 that enhance transparency in the municipal- securities market and became effective on February 27, 2019 (the “Amendments”).

The Amendments added the following events to the list of events for which an issuer or obligated person must provide notice to the bond market through the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access website:

 “Incurrence of a financial obligation of the obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a

financial obligation of the obligated person, any of which affect security holders, if material” (New ¶ (B)(5)(i)(C)(15) of SEC Rule 15c2-12).

 “Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the obligated person, any of which reflect financial difficulties” (New ¶ (B)(5)(i)(C)(16) of SEC Rule 15c2-12).

SEC Rule 15c2-12 further requires that an event notice be given no later than 10 business days after the reportable event occurs.

F. On April 23, 2019, the City Council adopted Resolution No. 2019-0122 approving an amended Debt-Management Policy that complies with the Amendments.

G. As part of the FY2019-20 budget-development meetings in May and June 2019, the City Council asked the City Treasurer to identify a reasonable benchmark that could be used to determine whether additional lease-revenue bonds that are supported by the general fund should be authorized.

H. The City Treasurer’s Office and the City Attorney’s Office, in consultation with Jones Hall, one of the law firms that serve as the City’s bond counsel, revised the City’s Debt- Management Policy (1) by adding a benchmark the City Council may use to determine whether additional lease-revenue bonds that are supported by the general fund should be authorized and (2) by clarifying ambiguous or vague language.

I. On July 23, 2019, the City Council approved Resolution No. 2019-0281 approving a revised Debt-Management Policy.

J. On December 10, 2019, the City Council approved Resolution No. 2019-0453 approving a revised Supplemental Policy on Disclosure.

K. On June 30, 2020, the City Council approved Resolution No. 2020-0189 approving a revised Debt-Management Policy and a revised Supplemental Policy on Disclosure.

L. On June 1, 2021, the City Council approved Resolution No. 2021-0156 approving a revised Debt-Management Policy and a revised Supplemental Policy on Disclosure.

M. On October 19, 2021, the City Council approved Resolution No. 2021-0314 approving a Debt-Management Policy and a revised Supplemental Policy on Disclosure.

N. The City Treasurer’s Office and the City Attorney’s Office have revised the City’s Debt Management Policy and the Supplemental Policy on Disclosure to further clarify certain ambiguities.

BASED ON THE FACTS SET FORTH IN THE BACKGROUND, THE CITY COUNCIL RESOLVES AS FOLLOWS:

Section 1. The revised Debt Management Policy attached as Exhibit A to this resolution is hereby approved.

Section 2. The revised Supplemental Policy on Disclosure attached as Exhibit B to this resolution is hereby approved.

Section 3. This resolution takes effect when adopted.

Table of Contents:

Exhibit A – Debt Management Policy
Exhibit B – Supplemental Policy on Disclosure
Debt Management Policy | Page 1

CITY OF SACRAMENTO

DEBT MANAGEMENT POLICY
Adopted by the City Council on November 1, 2022

1. Introduction

1.1 Background. The City of Sacramento (the “City”) has a long history of issuing multiple types of debt and working with various residents, businesses, developers, and government agencies to achieve the most-effective financing solutions for necessary capital projects and capital improvements. Debt issuance is one way of financing these projects and improvements in a cost-efficient manner while maintaining generational equity. With its limited fiscal resources, the City will continue to explore the issuance of debt as an equitable means of meeting its infrastructure needs.

1.2 Purpose. This Debt-Management Policy (this “Policy”) sets forth the principles and objectives that should guide the City’s decisions to issue debt, and it establishes guidelines for responsibly managing debt. The core objectives of this Policy include the following:
(A) Minimize costs of debt service and issuance.
(B) Maintain access to cost-effective borrowing.
(C) Achieve and maintain the highest practi cal credit ratings of the various bond and credit types as well as the City’s overall issuer-credit ratings. (D) Balance pay-as-you-go fi nancing with debt financing. (E) Ensure full and timely repayment of debt.
(F) Maintain full financial and non-fina ncial disclosure and reporting with respect to debt and associated credit ratings, as well as debt that matured or were refunded/defeased within the past three years.
(G) Ensure compliance with federal, state, and local laws and regulations. (H) Promote the City’s best interests and protect the City’s financial stability when deciding whether to approve debt and how to structure the debt. (I) Maintain internal-control procedures to ensure that the proceeds of each debt issuance are directed to the intended uses.
(J) Maintain a high-level of transparency to debt stakeholders and consistency in debt decision making.

1.3 Scope of Application. This Policy applies to debt issued or incurred by the City, the Sacramento City Financing Authority, the Sacramento Public Financing Authority, and the Redevelopment Agency Successor Agency; to debt the City issues through community facilities districts (“CFDs”); and to debt the City issues for third Debt Management Policy | Page 2
parties (i.e., conduit financing) (collectively, “City Debt”). From time to time, however, compelling or extraordinary circumstances may arise that require the City Council, at the recommendation of the City Treasurer or the Debt Manager within the City Treasurer’s Office (the “Debt Manager”), to make an exception to this Policy. While there may be exceptions to this Policy, such exceptions shall not impair existing City programs, services, or staffing levels as noted in section 3.1(A) of this Policy or impair the City’s ability to satisfy existing financial obligations.

Certain obligations of the City—such as Other Post-Employment Benefits and debt not involving the issuance of bonds or other long-term obligations—are not subject to this Policy.

2. Governing Authority, Points of Contact, and Responsibility

2.1 Authority. The City’s debt program for all City funds must be operated in conformance with applicable federal, state, and other legal requirements, including authorizing sections of the City Charter and the City Code, and the various covenants of the City’s outstanding debt obligations.

2.2 Delegation of Authority. The City Council assigns its responsibility for managing and coordinating all activities related to the structure, issuance, and post-issuance management of all City Debt to the City Treasurer’s Office.

2.3 Point of Contact. The City Treasurer and the Debt Manager are responsible for maintaining communication to the bond market on the City’s behalf, with a policy and practice of full and timely disclosure. This includes communication with rating agencies, bond insurers, investors, and other debt-related service providers about the City’s financial condition; the financial condition of enterprise funds that secure the repayment of enterprise revenue bonds; and the relevant financial information of CFDs that secure special-tax bonds, as applicable. As necessary, the City Treasurer or the Debt Manager will seek guidance from the City Attorney’s Office and the City’s disclosure counsel on the appropriateness of disclosing certain matters.

2.4 Responsibilities. Debt obligations may not be presented to the City Council for authorization without a joint assessment and recommendation by the City Manager’s Office and the City Treasurer’s Office, except as follows: bonds to be issued through CFDs may be presented to the City Council for authorization by the City Treasurer’s Office without a joint assessment and recommendation. City departments that propose debt-financed capital programs or small-equipment acquisitions must work in close coordination with the City Treasurer’s Office, the City Manager’s Office, the City Attorney’s Office, and the City’s Department of Finance by providing information to facilitate the feasibility analysis and due- diligence process before the issuance or incurrence of debt. In preparing and reviewing bond-issuance documents and other related matters, the following roles serve as general guidance. Roles for a particular financing may differ slightly.

Debt Management Policy | Page 3
(A) The City Treasurer’s Office—
(1) is responsible for determining the structure, timing, method of issuance (public vs. private placement, negotiated vs. competitive sale), and other terms of debt issuance;
(2) serves as the primary contact between the City and rating agencies, investors, and all other financial market participants; (3) manages non-attorney members of the financing team (see section 4.6 of this Policy, “Professional Assistance”);
(4) leads the development of a ll necessary financing documents; (5) presents the financing structure and financing documents to the City Council for approval;
(6) manages the investment of debt proceeds in the acquisition and construction funds, bond-reserve funds, capitalized interest funds, and escrow funds;
(7) manages compliance with post-i ssuance requirements, including continuing-disclosure requirements (in accordance with the Supplemental Policy on Disclosure), private-activity analysis and remediation, and arbitrage requirements; and
(8) conducts periodic reviews of this Policy and brings forward to the City Council any proposed amendments.
(B) The City Manager’s Office and appropr iate City Departments under the City Manager’s purview—
(1) identifies and prioritizes projects through the City’s multi-year capital- improvement program;
(2) identifies sources of funds for payment of debt service; (3) identifies sources of funds for project operations and maintenance; (4) participates in document preparation and review such as, but not limited to: the preliminary and final official statements, rating agency presentations, and investor roadshows;
(5) participates in conference calls or meetings regarding the debt, e.g., due-diligence reviews, rating-agency presentations, and investor relations;
(6) provides timely information as needed to comply with post-issuance requirements, including tracking expenditures of tax-exempt debt proceeds to comply with arbitrage requirements, private-activity analysis, and annual reporting requirements; and
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(7) notifies the City Treasurer’s Office before the City enters into (a) any agreements that qualify as “debt obligations” under SEC Rule 15c2-12, such as loans from non-City lenders, equipment leases, and grants; and (b) any amendments of such loans, leases, and grants. (C) The City Attorney’s Office—
(1) provides independent verification of the City’s compliance with all applicable laws and regulations with the assistance of outside legal counsel;
(2) selects, retains, and manages outside legal counsel to assist with debt financing (e.g., bond counsel, disclosure counsel);
(3) informs City staff and the Cit y Council regarding legal risk; (4) participates in document preparation and review; and (5) participates in conference calls or meetings regarding due-diligence review.
(D) The City Council—
(1) takes this Policy into account when it authorizes the issuance or incurrence of City Debt;
(2) reviews and approves this Policy and, if necessary, reviews and considers the approval of recommendations to amend this Policy brought forward by the City Treasurer’s Office; and
(3) reviews and, if appropriate, approv es supplemental policies that address various debt and financing instruments (if additional supplemental policies are adopted, then an amended version of Attachment A reflecting those policies must be attached to this Policy).

3. Capital Financing Considerations

3.1 Constraints. Except for debt issued through CFDs, new-money debt will affect the long-term affordability of all outstanding and planned new-money debt of the same credit type; the maintenance and operating costs of debt-financed improvements will also affect the City’s budget.
(A) The pledge of repayment implicit in the issuance of debt means that any future issuance of debt is limited; hence, when assessing the financial feasibility of financing a proposed project or acquisition, the City Council must consider (1) the total of all outstanding debt, including overlapping debt and the proposed new-money debt; (2) the City’s needs for special projects that benefit City constituents; (3) any feasibility report or analysis that has been prepared for the financing in accordance with section 3.3(A) or 3.3(B) below; (4) whether issuing debt to finance the proposed project or acquisition Debt Management Policy | Page 5
will necessitate reductions in the number and types of programs and services the City provides to constituents or reductions in the number of City employees; and (5) whether issuing such debt may impair the City’s ability to satisfy unfunded liabilities or other non-discretionary obligations. (B) Additionally, the necessary main tenance and operating costs of debt- financed projects will constrain the City’s budgetary flexibility and should be considered alongside debt capacity when evaluating any proposed financing. (C) Finally, debt issuances should be coor dinated with the City’s overall capital- improvement program and budget process to the extent possible.

3.2 Debt Capacity. The City’s ability to issue new-money debt is constrained by federal and state laws and regulations, the City Charter and the City Code, and the covenants of existing debt. The City Treasurer’s Office shall work to ensure that the City Council and the City Manager are aware of outstanding debt levels and of the ramifications if additional new-money debt is issued, including the additional financial constraints the City may face. As needed, the City Treasurer’s Office may perform debt-capacity analyses, with assistance by one of the City’s underwriters and one of the City’s municipal advisors, to evaluate the long-term effects of debt issuance in relation to the City’s objectives.

3.3. Feasibility. To ensure consistency with this Policy, the City Council shall not undertake or authorize the issuance or incurrence of debt—particularly new- money debt—without an assessment and re commendation of the City Manager’s Office and the City Treasurer’s Office.
(A) General-Fund or Lease-Revenue B onds. In conjunction with the City Treasurer’s Office, the City’s Department of Finance shall prepare, for each long-term financing that will be supported by the general fund, an internal feasibility analysis (formal or informal) of the effect on current and future budgets and the City’s overall credit ratings of the debt and the costs of operating the capital projects proposed to be financed. This analysis may be performed formally or informally and must also address the reliability of revenues to support debt service of outstanding general-fund obligation and general-fund lease revenue debt, as well as the proposed debt financing.

Total annual debt service for all general-fund obligation bonds and general- fund lease-revenue bonds, in each year they are outstanding, must not exceed 6% of annual budgeted general-fund revenues net of revenues that City departments generate by providing services directly chargeable to City residents and businesses. Examples of such department revenues include the Fire Department’s advanced life-support fee, the Police Department’s alarm-permitting fee, and the Community Development Department’s building permit and general plan fees. See the City Fee Database. (B) Special Revenues. In c onjunction with the City Treasurer’s Office, the City’s Department of Finance shall prepare, for each long-term financing that will be supported by special revenues (any special fund revenues held by the City Debt Management Policy | Page 6
other than enterprise fund revenues), an internal feasibility analysis (formal or informal) that identifies the effect of both the financing and the operating costs of the financed capital projects on the City’s current and future budgets and the City’s overall credit ratings. This analysis must also address the reliability of revenues that support debt service of outstanding special revenue debt, as well as the proposed debt financing. Projected revenues from the transient-occupancy tax (Sacramento City Code chapter 3.28) must equal or exceed 175% of annual debt service for senior obligations and 115% of annual debt service for subordinate obligations. The debt service coverage ratio of a CFD must equal or exceed 110% of the net special tax revenues (gross special tax revenues less priority administrative expenses) generated in each year the debt is outstanding.
(C) Enterprise Funds. The City Manager’s Office and the City Treasurer’s Office shall evaluate the affordability of new-money debt for enterprise funds.

Enterprise rate levels must fully cover debt-service requirements (including estimated debt service of the proposed new-money debt) and debt-service- coverage ratios as outlined in the applicable debt covenants, as well as the anticipated costs of operating, maintaining, and administering the capital improvements financed by the debt. At the time of debt issuance, the projected net system revenues of the enterprise fund should be sufficient to maintain a coverage ratio equal to or greater than 120% for parity obligations and 100% for aggregate parity, subordinate, and unsecured obligations. The ability to afford new debt for enterprise system improvements will be evaluated as an integral part of the City’s process for reviewing and setting rates for utilities services.
(D) Conduit Financing by a Joint-Powers Authority. The City may agree to the issuance of bonds by various joint-powers authorities (e.g., California Enterprise Development Authority, California Municipal Finance Authority, California Statewide Communities Development Authority). When the City is not the issuer of bonds for a project within the City, the City’s policy will be to require the issuer to assume full responsibility for issuance and on-going compliance of the bond issue with federal and state laws. City Treasurer’s Office staff will rely upon information and documentation provided by the joint-powers authority or the prospective borrower of a project that desires to obtain tax-exempt financing. The City reserves the right to ask follow-up questions and request additional information as part of the review it deems appropriate. When feasible, the City may hold the public hearing required by the Tax Equity and Fiscal Responsibility Act of 1982 (26 U.S.C. § 147(f)(2)) but is not required to do so.
(E) City-Issued Conduit Financing. In rare instances, the City Treasurer’s Office may determine that it is in the City’s best interest to issue debt on behalf of another governmental entity or a 501(c)(3) corporation within the City’s boundaries. In these instances, neither the City’s general fund, nor the City’s other funds, nor the City’s taxing power will be pledged for repayment of the Debt Management Policy | Page 7
debt. In addition, the City will rely on the financial analysis provided by the governmental entity or the 501(c)(3) corporation for purposes of due- diligence review before moving forward on the request to issue debt. The City reserves the right to conduct a reasonable due diligence process. The City’s preferred method is for a joint-powers authority, of which the City is already a member, to be the issuer of conduit debt.
(F) Small-Equipment Lease Financing. The City may move forward with a small- equipment lease financing at the request of City departments after analysis and due-diligence review by the City Manager’s Office, the City Department of Finance, and the City Treasurer’s Office. Requests from City departments must demonstrate the need (e.g., legal, environmental, cash flow) for small- equipment lease financing, and the City departments must provide realistic, projected drawdown schedules showing that borrowed funds will be spent in accordance with requirements of the Internal Revenue Service (the “IRS”).

The City Treasurer’s Office will determine whether additional disclosure will be required at the time the financing is entered into and will make the decision based on consultation with the City Attorney’s Office and the City’s disclosure counsel.

3.4 Capital Expenditure Considerations. The City will consider the following factors to evaluate pay-as-you-go financing versus debt financing for funding capital expenditures:
(A) Factors favoring pay-as-you-go.
(1) Projected revenues and fund bal ances are adequate and available to complete the proposed project, or the proposed project can be completed in phases.
(2) Utilizing projected revenues and fund balances to complete the financing of the proposed project may not necessarily materially impact metrics such as days cash on-hand or debt service coverage ratio, leading to a potential non-impairment of the outlook or ratings of any City Debt.
(3) Existing debt levels might adversely affect the City’s credit ratings or ratings outlook.
(4) Market conditions are unfavorable or present difficulties in marketing the proposed debt.
(5) The proposed project’s useful life is less than five years. (6) Debt financing would be the pr eferred method, but circumstances require delaying the financing.
(B) Factors favoring debt financing.

Debt Management Policy | Page 8
(1) Current and projected revenues available for debt service are sufficient and reliable so that financings can be marketed with investment-grade credit ratings.
(2) Market conditions present favorable interest rates and demand for the City’s financings.
(3) The proposed project is mandated by f ederal or state law, by court or administrative order, or by a settlement related to a lawsuit or administrative action, and current resources are insufficient or unavailable to fund the project fully within the time required. (4) The proposed project is immediately needed to meet or relieve capacity needs or emergency conditions, and current resources are insufficient to fund the project fully within the time required.
(5) Maintains generational equity.

4. Debt Issuance

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(2) Marks-Roos Bonds . Under the Marks-Roos Local Bond Pooling Act of 1985, codified at Government Code sections 6584 to 6599.3 (the “Marks-Roos Act”), governmental entities, in consort with or as part of a joint-powers authority, may use a “pooled” financing technique for a broad array of public capital improvements. The City has used the Marks-Roos Act to issue refunding bonds for CFDs as well as for three redevelopment project areas when new- money debt was issued concurrently. Voter approval is not required.
(3) Property and Business Improvement District Bonds. Under the Property and Business Improvement District Law of 1994, codified at Streets and Highways Code sections 36600 through 36671, bonds may be issued to finance capital improvements with repayment of the bonds from assessments levied on the real property or businesses that benefit from the improvements financed.
(4) General-Obligation Bonds. These bonds may be issued by governmental entities that have the legal authority to levy ad valorem property taxes and other charges at whatever rate and amount is necessary to pay the debt. Under article XVI, section 18, of the California Constitution, these bonds may only be issued with two-thirds voter approval.
(5) Enhanced Infrastructure Financing District Bonds. These bonds may be approved by a public financing authority (“PFA”) established for the purpose of managing the affairs of the EIFD. While the PFA will be comprised of members appointed by the City (City Council members and City Council’s public designees), the PFA oversees a separate legal entity. The requirements of the EIFD and issuing EIFD bonds are identified in Government Code sections 53398.5 to 53398.88.

In the event an EIFD desires the City to issue bonds, the Office of the City Treasurer may be asked to handle pre-issuance and issuance- related matters on behalf of an EIFD. The Office of the City Treasurer will manage the issuance of such EIFD bonds in accordance with this Policy in a manner conducive to obtain the lowest cost of borrowing possible.
(6) Certificates of Participati on and Lease-Revenue Bonds. These debt instruments are secured by a lease-leaseback arrangement between the City and another public entity. The City uses its general operating revenues (which are not expressly pledged) to pay rent owed under a lease. The payments are in turn used to pay debt service on lease- revenue bonds issued by a joint-powers authority or on certificates of participation executed and delivered by a trustee. Voter approval is not required because these debt instruments are not subject to the debt limit in article XVI, section 18 of the California Constitution. The City Council must annually appropriate funding for the payment of debt Debt Management Policy | Page 10
service associated with these types of debt instruments as part of the approval of the City’s budget.
(7) Revenue Bonds. These bonds are pay able from revenue generated by a City enterprise, such as water and wastewater utilities. Because debt service on revenue bonds is paid solely from enterprise revenues and is not secured by any pledge of tax or general fund revenues, these bonds are not subject to the debt limit in article XVI, section 18 of the California Constitution. Revenue bonds are used for the improvements to the enterprise and are paid by ratepayers that benefit from the service provided by the enterprise.
(8) State Revolving Fund Loans or Ot her Similar Debt Instruments. An example is the Infrastructure State Revolving Fund Program, which provides financing to public agencies and non-profit corporations sponsored by public agencies; the loan proceeds are used for a variety of infrastructure and economic-development projects. Often the cost of borrowing through the loan programs is lower than the cost of issuing debt in the public market, but the final maturity of the loan may be limited. Additionally, the process to obtain a loan may take considerably longer than publicly-issued bonds. Though generally less cost effective than a loan, bonds may afford financing for projects with a need for expedited schedules.
(B) Short-Term Debt . Short-term debt may be used as an interim source of funding before the issuance of long-term debt. It may be issued for any governmental purpose for which long-term debt may be issued, including the payment of capitalized interest and other financing-related costs; it may also be used to address legitimate short-term cash-flow requirements during a given fiscal year, so that the City may continue to fund the operating costs of providing necessary public services; and it may be used to bridge the gap in financing before long-term debt is issued to meet the ongoing capital needs of a project or a series of projects. The City will not engage in short-term borrowing solely for the purpose of generating investment returns (arbitrage).

Short-term debt usually may not exceed five years.
(1) Tax and Revenue Anticipation Notes (“ TRANs”). These are short-term notes used to cover cash shortfalls resulting from a mismatch between the timing of revenues and expenditures. The City may issue TRANs without voter approval when needed to meet general-fund cash-flow needs in a fiscal year. TRANs are secured by the property taxes and other revenues received later in the fiscal year, and they typically must be repaid within 13 months after issuance.
(2) Bond Anticipation Notes (“ BANs”). These are short-term interest- bearing notes issued in the anticipation of long-term bond issuances.

The City may issue BANs as a source of interim financing when the City Debt Management Policy | Page 11
Treasurer determines that doing so is prudent and advantageous to the City. Voter approval is not required.
(3) Grant Anticipation Notes (“ GANs”). These are short-term interest- bearing notes issued in anticipation of the receipt of grants. The City may issue GANs as a source of interim financing when the City Treasurer determines that doing so is prudent and advantageous to the City and the upcoming receipt of grants is guaranteed. Voter approval is not required.
(4) Lease-Purchase Financings. These financings may be used for the short-term financing of essential equipment. The term of a lease- purchase agreement is typically less than 10 years but may be as long as 15 years. Under this type of financing, the City and a bank enter into a master lease agreement for the lease-purchase of equipment up to a certain aggregate amount. The City and the bank then enter into separate “schedules of property” or “lease schedules” for each lease- purchase of equipment, and the City Council annually budgets and appropriates an amount sufficient to pay rent for the equipment under lease during that year; the failure to appropriate will result in termination of the lease-purchase agreement and the potential acquisition by the bank of the financed equipment. Voter approval is not required. (5) Commercial Paper Notes. These notes serve as a cash-management tool used primarily to provide short-term interim funding of capital expenditures that will ultimately be funded from a long-term bond or loan. Commercial-paper notes can reduce a project’s overall interest costs because only the amount needed for interim funding is borrowed, and interest rates on the interim funding are lower than the rates on the “permanent” funding with long-term bonds or loans. As of the date of this Policy, the City has never issued commercial paper notes, but the need for this type of short-term financing could arise in the future. (C) Other Debt. There may be special ci rcumstances when other forms of debt are appropriate; these will be evaluated on a case-by-case basis. (D) Refunding. The City Treasurer’s Offi ce will periodically review outstanding City Debt to identify refunding opportunities and evaluate the costs and benefits of restructuring or retiring outstanding obligations. Refunding will be considered (within federal tax-law constraints) when it will provide a net economic benefit or is needed to achieve City objectives relating to necessary changes in restrictive covenants, call provisions, operational flexibility, tax status, the issuer, debt-service profile, etc. The City may purchase City Debt in the open market for the purpose of retiring the debt when doing so is cost effective.
(1) Tax-exempt bonds are allowed only for a “current refunding,” which is when outstanding bonds are paid off within 90 days after the proceeds Debt Management Policy | Page 12
of the refunding bonds are deposited into an escrow account with the escrow agent (typically the same entity as the trustee). (2) In general, when the City undertakes a current refunding for net economic benefit, the refunding should produce net-present-value debt- service savings of at least 5%. This 5% threshold is a goal rather than a requirement, as the City may have reasons to refund an issue that generates net-present-value savings of less than 5% (e.g., the refunding will eliminate unduly restrictive debt covenants) or conversely aim for a higher targeted minimum level of savings.
(3) The City may also issue taxable bonds to advance refund tax-exempt bonds with an optional redemption date more than 90 days after the proceeds of the taxable bonds are available. Whether the City moves forward with an advance refunding will depend on several factors, and the City Treasurer’s Office will work with one of the City’s municipal advisors to evaluate advance-refunding scenarios. In general, the goal will be a net-present-value savings of at least 5%, but this is not a requirement.
(4) When, during periods of economic distress, the City Council determines that annual debt service (i.e., principal and interest payments) for an outstanding issue of bonds might exceed available revenues, the City may issue new bonds to refund and restructure the outstanding bonds even though the net-present-value savings are negative. Annual debt service on the refunding bonds would be lower than debt service on the refunded bonds in the first few years of the refunded bonds, but the term of the refunded bonds might extend beyond the term of the refunded bonds, thereby increasing overall total interest costs.

4.2 Public Policy Discussion. The proceedings to issue debt for projects that are controversial or of high public interest should be conducted with full transparency and public discussion (e.g., through community meetings, public outreach, City Council meetings).

4.3 Reimbursement of City Expenditures. If the City intends to reimburse itself from proceeds of tax-exempt debt for City expenditures made before issuance of the debt, then City staff must bring forward to the City Council, as soon as is practicable and in accordance with 26 C.F.R. § 1.150-2, a resolution declaring the City’s official intention to reimburse itself.

4.4 Method of Sale. Except to the extent a competitive process is required by law, the City Treasurer is responsible for determining the appropriate method to offer City Debt to prospective investors. A negotiated sale is preferred because it (A) provides the City more flexibility in determining the structure, time, and date of the sale, which is advantageous in a volatile municipal-bond market; (B) permits the schedule for the issuance and sale of bonds to be expedited when necessary to meet the City’s goals; and (C) affords the chosen underwriter or senior managing Debt Management Policy | Page 13
underwriter (in the case of an underwriting syndicate) greater opportunity to pre- market the City Debt to potential purchasers, including local investors, before the sale—all of which contributes to the City’s goal of achieving the lowest overall cost of borrowing. Criteria (C) is especially important to certain credit types such as special-tax revenue bonds, where there is a need to properly describe the background or the “story” of the particular special-tax revenue bonds for each financing so investors can have a better understanding of the risks of the financing and the project. Other methods of sale, such as competitive sale and private placement, may be considered on a case-by-case basis. For example, private- placement debt may be appropriate when pending litigation or other risks or market conditions make a competitive or publicly negotiated sale difficult.

4.5 Pooled Financing. The City Treasurer is responsible for determining the appropriate use of third-party “pools” to issue City Debt. The current preferred method of sale is a direct issuance by the City led by one senior managing underwriter or co-senior managing underwriters. The appropriateness of pooled financing depends on the par amount of bonds to be issued, the complexity of the financing, and the need for greater bond-market penetration (institutional and retail investors, and high-net-worth individuals).

4.6 Professional Assistance. The City Treasurer may periodically select and retain service providers (other than bond and disclosure counsel, which the City Attorney’s Office selects and retains) as needed to meet legal requirements and obtain specialized analytical services that facilitate the issuance of City Debt by minimizing borrowing costs. The City Treasurer will make these selections with the goal of achieving an appropriate balance between cost and service quality (e.g., general professional experience, professional reputation, market recognition, and the City’s experience with the service provider). The City Treasurer may select service providers through a sole-source process of their choosing unless a competitive or other process is required by law or this Policy.

5.0 Debt Structure Features

5.1 Debt Repayment.
(A) Useful Life. City Debt must be st ructured so that the weighted average maturity of the proposed debt is less than or equal to the weighted average economic or useful life of the capital projects or improvements to be financed.
(B) Level Debt Service Preferred. To t he extent possible, the structure of debt- service for long-term debt other than special-tax revenue bonds should have combined annual principal and interest payments that remain relatively constant to maturity, i.e., “level debt service.” But in some circumstances non-level debt service may be to the City’s advantage or is the norm—such as in the case of special-tax revenue bonds where debt service increases by about 2% annually. The City Treasurer’s Office will determine the structure of the debt at the time of borrowing after considering pricing, cash flows, and Debt Management Policy | Page 14
other relevant factors and after consulting with the underwriter of the proposed debt and one of the City’s municipal advisors.

5.2 Credit Quality. The City should obtain and maintain the highest possible credit ratings when issuing short-term and long-term debt and will only issue bonds, for itself or others, that have a credit rating of “investment grade” or higher. The City will, however, consider the issuance of non-rated special-tax revenue bonds issued through CFDs, as well as the issuance of other non-rated bonds if circumstances warrant. In the context of non-rated land-secured bonds, the City reserves the right to not move forward with a financing requested by a developer for any reason. At a minimum, key information must be provided to the City for review and consideration. The items include but are not limited to: a recorded final map on at least the first phase(s) of development, approved tentative maps on the balance of the district, non-redacted purchase and sale agreements for land sales of taxable property within the district within at least the last three years of the request to form the district, and definitive development plans including unit mix, village size and village phasing. Furthermore, the City reserves the right to not move forward with a financing if the development does not have complete or substantially complete backbone infrastructure and street improvements on at least the first phases of development (all in-ground utilities, streets, curbs, gutters, sidewalks), and is in a state of development ready to pull building permits. The City will not seek a rating for bonds unless the City Treasurer’s Office determines that the bonds are likely to receive an underlying (i.e., unenhanced) rating of BBB or higher.

5.3 Credit Enhancement. The City Treasurer’s Office will work with one of the City’s municipal advisors and with the underwriter of the proposed City Debt (or senior managing underwriter, if there is an underwriting syndicate) to analyze the costs and benefits of obtaining bond insurance on a maturity-by-maturity basis for the proposed debt.

5.4 Non-Cash Reserve and Reduced Reserve. The City Treasurer’s Office will work with one of the City’s municipal advisors and with the underwriter of the proposed City Debt (or senior managing underwriter, if there is an underwriting syndicate) to analyze the costs and benefits of having no reserve, obtaining a surety reserve policy, or incorporating a debt service reserve based on a modified three-prong reserve test (26 C.F.R. § 1.148-2(f)(2))—for example, to 50% of maximum annual debt service or 10% of outstanding principal.

5.5 Fixed-Rate Debt. The City’s preferred interest-rate mode is fixed-rate.

5.6 Variable-Rate Debt. The City may issue variable-rate debt—i.e., debt that pays interest at a rate that resets according to a pre-determined formula or specified

 For Moody’s Investor Service, “investment grade” means a rating of P-3 or higher for short-term debt and Baa3 or higher for long-term debt. For Standard & Poor’s, “investment grade” means a rating of A- 3 or higher for short-term debt and BBB– or higher for long-term debt. And for Fitch Ratings, “investment grade” means a rating of F3 or higher for short-term debt and BBB– or higher for long-term debt.

Debt Management Policy | Page 15
index or a rate that results from a periodic remarketing of the debt. Although the City might benefit from short-term variable-rate debt, issuing variable-rate debt, especially long-term debt, passes an unknown obligation and risk to future City Councils and the funds expected to repay the debt.

5.7 Derivatives. Derivatives might be appropriate for certain City borrowing programs.

For example, derivatives may be used in connection with the issuance of variable- rate debt. The City Treasurer’s Office will evaluate the use of derivatives on a case by-case basis to determine whether the potential benefits are sufficient to offset any potential costs and whether the derivatives are consistent with federal and state law and financially prudent.

5.8 Call Provisions. The City Treasurer’s Office will determine the call provisions for City Debt at the time of pricing, mindful that call provisions may affect the interest of potential investors and the price of the bonds. The City’s preferred structure is optional redemption at par to maintain flexibility for future refunding opportunities.

The City will not issue non-callable debt unless it is legally required or unless market conditions dictate otherwise; non-callable debt should not be issued solely to generate additional debt-service savings.

5.9 Bond Size. Unless otherwise directed by the City Treasurer in consultation with the City Manager, the minimum amount the City will finance through the issuance of bonds is $10 million unless circumstances justify a lower amount. The City may pursue other financing mechanisms—such as pay-as-you-go financing, inter-fund borrowing, lines of credit, and lease financing—for debt less than $10 million. In the case of special-tax revenue bonds, special circumstances may exist that warrant the City Treasurer’s consideration of the developer’s request to issue bonds in an amount less than $10 million (e.g., if the bonds are for an infill or brownfield development project). The City Treasurer will determine whether to move forward with a debt financing with a small par amount.

6. Debt Administration and Regulatory Compliance

6.1 Policies and Procedures for Post-Issuance Compliance. The City Treasurer’s Office must maintain written policies and procedures that require compliance with debt covenants and with federal, state, and local laws and regulations. The policies and procedures must address continuing-disclosure requirements; arbitrage-rebate requirements, private-use limitations, other tax-compliance requirements; levy enrollment and administration; delinquency and foreclosure management; debt service and other payments; and permitted investments and uses of debt proceeds.

6.2 Arbitrage Compliance. The City Treasurer’s Office is responsible for keeping all records needed to comply with federal arbitrage requirements for tax-exempt debt. (A) For each bond issue, the City Treasur er’s Office will pay required rebate amounts, if any, no later than 60 days after each five-year anniversary of the Debt Management Policy | Page 16
issue date of the bonds and no later than 60 days after the last bond of the issue is redeemed.
(1) During the construction of each capital project financed with debt proceeds, the City’s arbitrage consultant will typically be requested to prepare an interim arbitrage-rebate report at least once every 12 months until all proceeds deposited in the project fund have been expended; if, however, the proceeds remaining in the project fund are equal to or less than 5% of the proceeds deposited into the acquisition and construction or project fund, then the City Treasurer’s Office may have the arbitrage consultant prepare the interim arbitrage-rebate reports according to the timeframe required by IRS regulations. (2) After the construction proceeds have been fully expended or the balance in the project fund has fallen below 5% of the proceeds deposited into the acquisition and construction or project fund, the City’s arbitrage consultant will prepare an interim arbitrage-rebate report on each five-year anniversary of the issue date of the bonds, or more frequently if warranted.
(B) During the term of each issue plus th ree years, the City Treasurer’s Office will retain copies of all arbitrage reports, records relating to the use and investment of tax-exempt proceeds, documentation of private use, and other relevant documents associated with the issue. If the issue is refunded, then the retention period for the refunded issue is the life of the refunding issue plus three years. Training may be provided for all personnel working on the IRS’s post-issuance-compliance process. If any potential violations to complying with federal tax laws are discovered, then the City Treasurer or the Debt Manager, after consulting with the City Attorney’s Office, will contact bond counsel and determine what, if any, corrective actions are needed (e.g., participation in the IRS’s Voluntary Closing Agreement Program). (C) The City Treasurer or the Debt M anager will periodically review the City’s post-issuance compliance policies and procedures and will implement revisions as appropriate after consulting with the City Attorney’s Office and, if needed, bond counsel and disclosure counsel.
(D) When bonds (the refundi ng bonds) are issued to refund outstanding bonds (the refunded bonds), all remaining proceeds of the refunded bonds—e.g., all amounts remaining in the project fund, reserve fund, and other accounts, plus accrued interest—will be consider ed for purposes of IRS regulations to be “transferred proceeds” of the refunding bonds and, as such, will be subject to the arbitrage calculations for the refunding bonds. In addition, if the transferred proceeds represent more than 5% of the original deposit in the acquisition and construction or project fund of proceeds from the refunded bonds (see section 6.2(A)(1) above), then interim arbitrage calculations must be performed on an annual basis until the balance of the transferred proceeds is less than 5% of the original deposit at which point the arbitrage Debt Management Policy | Page 17
calculations will be completed every five years from the issuance date of the refunding bonds.

6.3 Use of Proceeds from Tax-Exempt or Taxable Debt and of Assets Financed with Tax-Exempt Debt. The City Treasurer’s Office in conjunction with other City departments is responsible for the following:
(A) Monitoring the use of proceeds fr om tax-exempt and taxable debt and the use of assets financed or refinanced with tax-exempt debt throughout the term of the debt to ensure compliance with all covenants and restrictions in the documents relating to the debt and to ensure that the proceeds are directed to the intended uses.
(B) Consulting with the City Attorney’s Office and bond counsel in reviewing contracts or other arrangements involving use of assets financed or refinanced with tax-exempt taxable debt to ensure compliance with all covenants and restrictions in the documents relating to the debt. (C) Maintaining records for any contract s or other arrangements involving the use of assets financed or refinanced with tax-exempt debt. (D) Maintaining internal-control procedures related to the management and disbursement of proceeds, such as procedures requiring that proceeds are either (1) held by a third-party trustee or fiscal agent, which will disburse the proceeds to, or upon the order of, the City in accordance with one or more written requisitions; or (2) held by the City and deposited and accounted for in a separate fund or account, with withdrawals and expenditures carefully documented.
(E) Consulting promptly with the City Attorney’s Office and bond counsel to develop a course of action to remediat e any identified existing or potential violations of restrictions on the use of tax-exempt or taxable proceeds or the use of assets financed or refinanced with tax-exempt or taxable proceeds.

Debt Management Policy | Attachment A
Attachment A
Supplemental Policies
City of Sacramento Policies and Procedures for Use of Special Assessment and Mello- Roos Community Facilities District Financing for Infrastructure, Public Facilities, Programs and Services (Adopted on June 29, 1993, by Resolution No. 93-381, updated on August 9, 1994, by Resolution 94-491 and on May 15, 2012) City of Sacramento Development Fee Financing Program for Commercial, Industrial and Residential Development Projects (Adopted January 1997 by Resolution No. 97- 002)
California Debt and Investment Advisory Commission Appraisal Standards for Land- Secured Financings CDIAC 04-07 (Adopted in May 1994 and revised in July 2004) City of Sacramento Debt Management Policy – Supplemental Policy on Disclosure (Adopted on June 2, 2011, by Resolution No. 2011-322 and updated on February 7, 2017, by Resolution No. 2017-0046; on June 19, 2018, by Resolution No. 2018-0251; on April 23, 2019, by Resolution No. 2019-0122; on December 10, 2019, by Resolution No. 2019-0453; on June 30, 2020, by Resolution No. 2020-0189; June 1, 2021, by Resolution No. 2021-0156; and on October 19, 2021, by Resolution No. 2021-0314; and on November 1, 2022, by Resolution No. 2022- )
Supplemental Policy on Disclosure | Page 1

CITY OF SACRAMENTO

DEBT MANAGEMENT POLICY
Supplemental Policy on Disclosure
Adopted by the City Council on November 1, 2022

1. Introduction

1.1 This Supplemental Policy on Disclosure (“ Policy”) governs the City’s fulfillment of its disclosure obligations related to municipal securities issued by the City or by related entities such as the Sacramento City Financing Authority, the Sacramento Public Financing Authority, and the Redevelopment Agency Successor Agency. In the event an Enhanced Infrastructure Financing District (“EIFD”) formed by the City issues bonds, the City, specifically the Office of the City Treasurer, may be asked to handle post issuance matters including continuing disclosure for EIFD bonds.

While an EIFD is a separate legal entity from the City with a separate governing body from the City Council, if City staff is responsible with the continuing disclosure requirements for EIFD bonds, City staff will do so in accordance with this Policy.

(A) The City and its related entities is sue obligations in the municipal-bond market from time to time. When bonds are issued, the City, whether acting for itself or for a related entity, is obligated to disclose all material information in compliance with federal securities laws, including the Securities Act of 1933, the Securities and Exchange Act of 1934, Rule 10b-5 of the Securities and Exchange Commission (the “SEC”), and Rule 15c2-12 of the SEC as amended. California Government Code sections 8855 and 53359.5 require certain disclosures to the California Debt and Investment Advisory Commission, and Government Code sections 12463.2, 53891, 53892, 53892.2, and 53892.3 require certain disclosures to the California State Controller’s Office.

(B) Incomplete, inaccurate, or misleading di sclosure might have material financial consequences for the City, as well as City officers and employees. For example:

 The SEC could bring civ il actions charging that disclosure was negligent, reckless, or intentionally fraudulent; in addition, the SEC could refer cases to the U.S. Department of Justice for criminal prosecution.

 The SEC could impose cumbersome pr ocedures and oversight on the City as conditions for settling civil actions.

 The City could suffer adverse publicit y, which might reduce market access and investor acceptance.

Supplemental Policy on Disclosure | Page 2

 The credit ratings on the City’s municipal securities could be downgraded, resulting in increased costs in future issuances.

 City officials could face personal fines for violations of securities laws.

 Enhanced credibility in t he municipal-bond market.

 Transparency with rating agencies, inve stors, and prospective investors.

 Improved decision making for prospective investors.

 Increased numbers and types of inve stors who purchase the City’s bonds in the primary and secondary markets.

 Demonstrated City commitment to providing full and timely disclosure to investors, credit-rating agencies, and other stakeholders.

 The potential for a lower overall cost of borrowing.

1.2 Scope of Policy. This policy applies to City information and documents, including the following, that a reasonable investor would consider significant or useful when deciding whether to invest in the City’s bonds:

(A) Initial-disclosure docum ents, i.e., preliminary and final official statements.

(B) Continuing-disclosure documents, i.e ., annual financial information, required event notices, and voluntary notices.

2. Governing Authority, Point of Contact, and Responsibility

2.1 Authority. Either the Cit y Treasurer or the Debt Manager within the City Treasurer’s Office (the “Debt Manager”) shall manage the City’s disclosure program in conformance with federal, state, and local requirements, including the Sacramento City Charter, the Sacramento City Code, and the City’s Debt-Management Policy.

2.2 Point of Contact. Either the City Treasur er or the Debt Manager will be the City’s point of contact for disclosure, primarily responsible not only for developing and Supplemental Policy on Disclosure | Page 3

distributing information but also for determining the materiality of information, based in part by guidance by the City Attorney’s Office and the City’s disclosure counsel.

2.3 Responsibility.

(A) The City Treasurer or the Debt Manager shall oversee all aspects of disclosure. As such, the City Treasurer or the Debt Manager shall review the form and content of the City’s documents and materials prepared, issued, or distributed in connection with the City’s disclosure obligations relating to its municipal securities. Those documents and materials include not just preliminary and final official statements but also the following:

 Annual financial information prov ided to the Municipal Securities Rulemaking Board (“MSRB”) in accordance with SEC Rule 15c2-12 and any applicable continuing-disclosure agreement or certificate (except that the City Treasurer and the Debt Manager are not responsible for the form and content of the City’s audited financial report, which is prepared by the City’s Accounting Division and reviewed by the City’s external auditor).  Event notices provided to the MSRB in accordance with SEC Rule 15c2-12 and any applicable continuing-disclosure agreement or certificate.  Any other information provided to t he MSRB for use by investors in making investment decisions.

Such information and notices will typically be provided through the MSRB’s Electronic Municipal Market Access website (known as “EMMA”), which the SEC has designated as the official source for municipal securities data and disclosure documents.

The City reserves the right to utilize certain services provided by a third-party dissemination agent such as the upload of disclosure filings to EMMA, however as stated in section (c) below, the preparation, review, and final approval of all disclosure filings are the responsibility of the City. (B) Along with the City Treasurer and thei r staff, the City Attorney and the City Manager shall serve as integral members of the financing team, each responsible, as appropriate, for ensuring and certifying to the accuracy of information released to the municipal-bond market.

(C) The City is responsible for the content of its disclosure documents. The City Treasurer, City Attorney, and City Manager shall ensure that the use of outside professionals for their respective areas of expertise is appropriate and that reliance upon outside professionals is reasonable and not excessive.

The City Treasurer’s Office is responsible for the accuracy and completeness of information filed with EMMA, except with respect to certain information filed by developers or their consultants, in accordance with the respective Supplemental Policy on Disclosure | Page 4

developer’s limited scope continuing disclosure requirements for certain special-tax revenue bonds.

(D) The City Treasurer or the Debt M anager shall ensure that subject-matter experts, including City staff with relevant knowledge or expertise, are involved in developing and periodically reviewing and updating disclosure documents. For example, when obligations are secured by specific revenues, such as water or wastewater revenues, City staff who are knowledgeable about the relevant utility must be involved.

(E) The City Treasurer or the Debt Manager, in collaboration with the City Attorney, shall arrange for the engagement of disclosure counsel to assist the City in complying with disclosure requirements, as warranted. The City Treasurer or the Debt Manager shall also arrange for the periodic training of City officers and employees regarding their disclosure obligations under federal securities laws.

(F) City officers and employees servi ng as financing-team members are responsible for reviewing and commenting on draft documents. As part of their review, they must determine whether all material information—including confidential or politically sensitive information—has been included and is both accurate and relevant.

(G) City officers and employees and the officers and employees of related entities shall promptly provide all information, assurances, and certifications the City Treasurer or the Debt Manager requests for compliance with federal securities laws. The City Manager and the City Attorney shall require prompt and full responses to those requests.

3. Certifications

3.1 In connection with the Cit y Council’s approval of preliminary or final official statements for publicly issued municipal securities, an appropriate City officer or employee shall certify in writing, to the best of his or her knowledge, that the documents do not make any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading.

3.2 The City Treasurer or t he Debt Manager shall provide offering documents such as preliminary official statements to appropriate City officials (which may include the Mayor and City Council, City Manager, City Attorney, and other City officers and employees) in such a manner as to allow timely, informed decisions regarding disclosure.

Debt Management Policy | Page 1

CITY OF SACRAMENTO

DEBT MANAGEMENT POLICY
Adopted by the City Council on October 19, 2021November 1, 2022

1. Introduction

1.2 Purpose. This Debt-Management Policy (this “Policy”) sets forth the principles and objectives that should guide the City’s decisions to issue debt, and it establishes guidelines for responsibly managing debt. The core objectives of this Policy include the following:
(A) Minimize costs of debt service and issuance.
(B) Maintain access to cost-effective borrowing.
(C) Achieve and maintain the highest practi cal credit ratings of the various bond and credit types as well as the City’s overall issuer-credit ratings. (D) Balance pay-as-you-go fi nancing with debt financing. (E) Ensure full and timely repayment of debt.
(F) Maintain full financial and non-fina ncial disclosure and reporting with respect to debt and associated credit ratings, as well as debt that matured or were refunded/defeased within the past three years.
(G) Ensure compliance with federal, state, and local laws and regulations. (H) Promote the City’s best interests and protect the City’s financial stability when deciding whether to approve debt and how to structure the debt. (I) Maintain internal-control procedures to ensure that the proceeds of each debt issuance are directed to the intended uses.
(J) Increase Maintain a high-level of transparency to debt stakeholders and consistency in debt decision making.

1.3 Scope of Application. This Policy applies to debt issued or incurred by the City, the Sacramento City Financing Authority, the Sacramento Public Financing Authority, and the Redevelopment Agency Successor Agency; to debt the City issues on behalf of assessment districts andthrough community facilities districts (“CFDs”); Debt Management Policy | Page 2
and to debt the City issues for third parties (i.e., conduit financing) (collectively, “City Debt”). From time to time, however, compelling or extraordinary circumstances may arise that require the City Council, at the recommendation of the City Treasurer or the Debt Manager within the City Treasurer’s Office (the “Debt Manager”), to make an exception to this Policy. While there may be exceptions to this Policy, such exceptions shall not impair existing City programs, services, or staffing levels as noted in section 3.1(A) of this Policy or impair the City’s ability to satisfy existing financial obligations. Certain obligations of the City—such as Other Post-Employment Benefits and debt not involving the issuance of bonds or other long-term obligations—are not subject to this Policy.

2. Governing Authority, Points of Contact, and Responsibility

2.3 Point of Contact. The City Treasurer and the Debt Manager are responsible for maintaining communication to the bond market on the City’s behalf, with a policy and practice of full and timely disclosure. This includes communication with rating agencies, bond insurers, investors, and other debt-related service providers about the City’s financial condition; the financial condition of enterprise funds that secure the repayment of enterprise revenue bonds; and the relevant financial information of community facilities districtCFDs or assessment districts that secure special-tax or assessment bonds, as applicable. As necessary, the City Treasurer or the Debt Manager will seek guidance from the City Attorney’s Office and the City’s disclosure counsel on the appropriateness of disclosing certain matters.

2.4 Responsibilities. Debt obligations may not be presented to the City Council for authorization without a joint assessment and recommendation by the City Manager’s Office and the City Treasurer’s Office, except as follows: bonds to be issued on behalf ofthrough community facilities districtCFDs or assessment districts may be presented to the City Council for authorization by the City Treasurer’s Office without a joint assessment and recommendation. City departments that propose debt-financed capital programs or small-equipment acquisitions must work in close coordination with the City Treasurer’s Office, the City Manager’s Office, the City Attorney’s Office, and the City’s Department of Finance Department by providing information to facilitate the feasibility analysis and due-diligence process before the issuance or incurrence of debt. In drafting preparing and reviewing bond-issuance documents and other related matters, the following roles serve as general guidance. Roles for a particular financing may differ slightly.

Debt Management Policy | Page 3
(A) The City Treasurer’s Office—
(1) is responsible for determining the structure, timing, method of issuance (public vs. private placement, negotiated vs. competitive sale), and other terms of debt issuance;
(2) serves as the primary contact between the City and rating agencies, investors, and all other financial market participants; (3) manages non-attorney members of the financing team (see section 4.6 of this Policy, “Professional Assistance”);
(4) leads the development of a ll necessary financing documents; (5) presents the financing structure and financing documents to the City Council for approval;
(6) manages the investm ent of debt proceeds in the acquisition and construction funds, and bond-reserve funds, capitalized interest funds, and escrow funds;
(7) manages compliance with post-i ssuance requirements, including continuing-disclosure requirements (in accordance with the Supplemental Policy on Disclosure), private-activity analysis and remediation, and arbitrage requirements; and
(8) conducts periodic reviews of this Policy and brings forward to the City Council any proposed amendments.
(B) The City Manager’s Office and appropr iate City Departments under the City Manager’s purview—
(1) identifies and prioritizes projects through the City’s multi-year capital- improvement program;
(2) identifies sources of funds for payment of debt service; (3) identifies sources of funds for project operations and maintenance; (4) participates in docum ent preparation and review such as, but not limited to: the preliminary and final official statements, rating agency presentations, and investor roadshows;
(5) participates in conference calls or meetings regarding the debt, e.g., due-diligence reviews, rating-agency presentations, and investor relations;
(6) provides timely information as needed to comply with post-issuance requirements, including tracking expenditures of tax-exempt debt proceeds to comply with arbitrage requirements, private-activity analysis, and annual reporting requirements; and
Debt Management Policy | Page 4
(7) notifies the City Treasurer’s Office before the City enters into (a) any agreements that qualify as “debt obligations” under SEC Rule 15c2-12, such as loans from non-City lenders, equipment leases, and grants; and (b) any amendments of such loans, leases, and grants. (C) The City Attorney’s Office—
(1) provides independent verification of the City’s compliance with all applicable laws and regulations with the assistance of outside legal counsel;
(2) selects, retains, and manages outside legal counsel to assist with debt financing (e.g., bond counsel, disclosure counsel);
(3) informs City staff and the Cit y Council regarding legal risk; (4) participates in document preparation and review; and (5) participates in conference calls or meetings regarding due-diligence review.
(D) The City Council—
(1) takes this Policy into account when it authorizes the issuance or incurrence of City Debt;
(2) reviews and approves this Policy and, if necessary, reviews and considers the approval of recommendations to amend this Policy brought forward by the City Treasurer’s Office; and
(3) reviews and, if appropriate, approv es supplemental policies that address various debt and financing instruments (if additional supplemental policies are adopted, then an amended version of Attachment A reflecting those policies must be attached to this Policy).

3. Capital Financing Considerations

3.1 Constraints. Except for debt issued on behalf ofthrough community facilities districtCFDs or assessment districts, new-money debt will affect the long-term affordability of all outstanding and planned new-money debt of the same credit type; the maintenance and operating costs of debt-financed improvements will also affect the City’s budget.
(A) The pledge of repayment implicit in the issuance of debt means that any future issuance of debt is limited; hence, when assessing the financial feasibility of financing a planned proposed project or purchaseacquisition, the City Council must consider (1) the total of all outstanding debt, including overlapping debt and the planned proposed new-money debt; (2) the City’s needs for special projects that benefit City constituents; (3) any feasibility report or analysis that has been prepared for the financing in accordance Debt Management Policy | Page 5
with section 3.3(A) or 3.3(B) below; and (4) whether issuing debt to finance the planned proposed project or purchase acquisition will necessitate reductions in the number and types of programs and services the City provides to constituents or reductions in the number of City employees; and (5) whether issuing such debt may impair the City’s ability to satisfy unfunded liabilities or other non-discretionary obligations.
(B) Additionally, the necessary main tenance and operating costs of debt- financed projects will constrain the City’s budgetary flexibility and should be considered alongside debt capacity when evaluating any proposed financing. (C) Finally, debt issuances should be coor dinated with the City’s overall capital- improvement program and budget process to the extent possible.

3.3. Feasibility. To ensure consistency with this Policy, the City Council shall not undertake or authorize the issuance or incurrence of debt—particularly new- money debt—without an assessment and re commendation of the City Manager’s Office and the City Treasurer’s Office.
(A) General-Fund or Lease-Revenue B onds. In conjunction with the City Treasurer’s Office, the City’s Department of Finance shall prepare, for each long-term financing that will be supported by the general fund, an internal feasibility analysis (formal or informal) of the effect on current and future budgets and the City’s overall credit ratings of the debt and the costs of operating the financed capital projects proposed to be financed. This analysis may be performed formally or informally and must also address the reliability of revenues to support debt service of outstanding general-fund obligation and general-fund lease revenue debt, as well as the proposed debt financing.

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(B) Special Revenues. In c onjunction with the City Treasurer’s Office, the City’s Department of Finance shall prepare, for each long-term financing that will be supported by special revenues (any special fund revenues held by the City other than enterprise fund revenues), an internal feasibility analysis (formal or informal) that identifies the effect of both the financing and the operating costs of the financed capital projects on the City’s current and future budgets and the City’s overall credit ratings. This analysis must also address the reliability of revenues that support debt service of outstanding special revenue debt, as well as the proposed debt financing. Projected revenues from the transient-occupancy tax (Sacramento City Code chapter 3.28) must equal or exceed 175% of annual debt service for senior obligations and 115% of annual debt service for subordinate obligations. Projected revenues fromThe debt service coverage ratio of a community facilities districtCFD must equal or exceed 110% of the sum of annual debt-service and administration costsnet special tax revenues (gross special tax revenues less priority administrative expenses) generated in each year the debt is outstanding.
(C) Enterprise Funds. The City Manager’s Office and the City Treasurer’s Office shall evaluate the affordability of new-money debt for enterprise funds.

When the City is not the issuer of bonds for a project within the City, the City’s policy will be to require the issuer to assume full responsibility for issuance and on-going compliance of the bond issue with federal and state laws. City Treasurer’s Office staff will rely upon information and documentation provided by the joint-powers authority or the prospective borrower of a project that desires to obtain tax-exempt financing. The City reserves the right to ask follow-up questions and request additional information as part of the review it deems appropriate. When feasible, the City may hold the public hearing required by the Tax Equity and Fiscal Responsibility Act of 1982 (26 U.S.C. § 147(f)(2)) but is not required to do so.

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(E) City-Issued Conduit Financing. In rare instances, the City Treasurer’s Office may determine that it is in the City’s best interest to issue debt on behalf of another governmental entity or a 501(c)(3) corporation within the City’s boundaries. In these instances, neither the City’s general fund, nor the City’s other funds, nor the City’s taxing power will be pledged for repayment of the debt. In addition, the City will rely on the financial analysis provided by the governmental entity or the 501(c)(3) corporation for purposes of due- diligence review before moving forward on the request to issue debt. The City reserves the right to conduct a reasonable due diligence process. The City’s preferred method is for a joint-powers authority, of which the City is already a member, to be the issuing issuer of conduit debt is conduit financing by a joint-powers authority.
(F) Small-Equipment Lease Financing. The City may move forward with a small- equipment lease financing at the request of City departments after analysis and due-diligence review by the City Manager’s Office, the City Department of Finance, and the City Treasurer’s Office. Requests from City departments must demonstrate the need (e.g., legal, environmental, cash flow) for small- equipment lease financing, and the City departments must provide realistic, projected drawdown schedules showing that borrowed funds will be spent in accordance with requirements of the Internal Revenue Service (the “IRS”).

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(6) Debt financing would be the pr eferred method, but circumstances require delaying the financing.
(B) Factors favoring debt financing.
(1) Current and projected revenues available for debt service are sufficient and reliable so that financings can be marketed with investment-grade credit ratings.
(2) Market conditions present favorable interest rates and demand for the City’s financings.
(3) The proposed project is mandated by federal or state law, by court or administrative order, or by a settlement related to a lawsuit or administrative action, and current resources are insufficient or unavailable to fund the project fully within the time required. (4) The proposed project is immediately needed to meet or relieve capacity needs or emergency conditions, and current resources are insufficient to fund the project fully within the time required.
(5) Maintains generational equity.

4. Debt Issuance

4.1 Types and Purposes of Debt.
(A) Long-Term Debt. Long-term new-money debt may be used only to finance capital improvements, such as the costs of acquiring or improving land, infrastructure, facilities, or equipment, and only if it is appropriate to spread these costs over more than one budget year. Portions of Llong-term new- money debt may also be used to fund capitalized interest, costs of issuance, required reserves, and any other financing-related costs that may be legally capitalized. Long-term new-money debt may not be used to fund City operating costs, or to fund services or programs, or to fund maintenance- related costs. The final maturity of long-term debt should not exceed 40 years. The following are the types of long-term debt that may be undertaken issued or incurred by the City:
(1) Special-Tax Revenue Bonds. Un der the Mello-Roos Community Facilities District Act of 1982, codified at Government Code sections 53311 to 53368.3 (the “Mello-Roos Act”), the City may use special-tax revenue bonds to finance the construction or acquisition of various public improvements identified in the Rate and Method of Apportionment of Special Tax for each CFD. The Mello-Roos Act provides an efficient means of financing certain public capital facilities and services and promotes economic development in areas that lack sufficient infrastructure, such as infill or brownfield areas. Bonds may be issued to fund capital facilities so long as the estimated useful life of the Debt Management Policy | Page 9
public or non-public capital facilities is at least five years. These bonds must be approved by at least two-thirds of the qualified electors within the CFD.
(2) Marks-Roos Bonds . Under the Marks-Roos Local Bond Pooling Act of 1985, codified at Government Code sections 6584 to 6599.3 (the “Marks-Roos Act”), governmental entities, in consort with or as part of a joint-powers authority, may use a “pooled” financing technique for a broad array of public capital improvements. The City has used the Marks-Roos Act to issue refunding bonds for community facilities districtCFDs as well as for two three redevelopment project areas when new- money debt was issued concurrently. Voter approval is not required.
(3) Special-Assessment Bonds. The Improvement Act of 1911 and the Improvement Bond Act of 1915 authorize the City to form assessment districts for imposing special-assessment liens on properties within the districts, with the assessment on each property calculated according to the “special benefit” the property receives from the improvements. The assessments are then used to secure payment of bonds that amortize the improvement costs over a period of years. A majority of the property owners within the district that are subject to the assessment must approve both the formation of the district and the issuance of the bonds.

Approval occurs through submission of assessment ballots weighted according to the amount of each property’s proposed assessment.

Importantly, for some improvements the “general benefit” may outweigh the “special benefit”; if so, then the usefulness of special-assessment bonds to finance the improvements will be diminished.

Property and Business Improvement District Bonds. Under the Property and Business Improvement District Law of 1994, codified at Streets and Highways Code sections 36600 through 36671, bonds may be issued to finance capital improvements with repayment of the bonds from assessments levied on the real property or businesses that benefit from the improvements financed.
(54) General-Obligation Bonds. These bonds may be issued by governmental entities that have the legal authority to levy ad valorem property taxes and other charges at whatever rate and amount is necessary to pay the debt. Under article XVI, section 18, of the California Constitution, these bonds may only be issued with two-thirds voter approval.
(65) Enhanced Infrastructure Financing District Bonds. These bonds may be approved by a public financing authority (“PFA”) established for the purpose of managing the affairs of the EIFD. While the PFA will be comprised of members appointed by the City (City Council members and City Council’s public designees), the PFA oversees a separate Debt Management Policy | Page 10
legal entity. The requirements of the EIFD and issuing EIFD bonds are identified in Government Code sections 53398.5 to 53398.88.

Only refunding TABs are now authorized, and only the Redevelopment Agency Successor Agency of the City of Sacramento may issue them. (76) Certificates of Participation and Lease-Revenue Bonds. These debt instruments are secured by a lease-leaseback arrangement between the City and another public entity. The City uses its general operating revenues (which are not expressly pledged) to pay rent owed under a lease. The payments are in turn used to pay debt service on lease- revenue bonds issued by a joint-powers authority or on certificates of participation executed and delivered by a trustee. Voter approval is not required because these debt instruments are not subject to the debt limit in article XVI, section 18 of the California Constitution. The City Council must annually appropriate funding for the payment of debt service associated with these types of debt instruments as part of the approval of the City’s budget.
(87) Revenue Bonds. These bonds are payable from revenue generated by a City enterprise, such as water and wastewater utilities. Because debt service on revenue bonds is paid solely from enterprise revenues and is not secured by any pledge of tax or general fund revenues, these bonds are not subject to the debt limit in article XVI, section 18 of the California Constitution. Revenue bonds are used for the improvements to the enterprise and are paid by ratepayers that benefit from the service provided by the enterprise.
(98) State Revolving Fund Loans or Other Similar Debt Instruments. An example is the Infrastructure State Revolving Fund Program, which provides financing to public agencies and non-profit corporations sponsored by public agencies; the loan proceeds are used for a variety of infrastructure and economic-development projects. Often the cost of borrowing through the loan programs is lower than the cost of issuing debt in the public market, but the final maturity of the loan may be limited. Additionally, the process to obtain a loan may take considerably Debt Management Policy | Page 11
longer than publicly publicly-issued bonds. Though generally less cost effective than a loan, bonds may afford financing for projects with a need for expedited schedules.
(B) Short-Term Debt . Short-term debt may be used as an interim source of funding before the issuance of long-term debt. It may be issued for any governmental purpose for which long-term debt may be issued, including the payment of capitalized interest and other financing-related costs; it may also be used to address legitimate short-term cash-flow requirements during a given fiscal year, so that the City may continue to fund the operating costs of providing necessary public services; and it may be used to bridge the gap in financing before long-term debt is issued to meet the ongoing capital needs of a project or a series of projects. The City will not engage in short-term borrowing solely for the purpose of generating investment returns (arbitrage).

Short-term debt usually may not exceed five years.
(1) Tax and Revenue Anticipation Notes (“ TRANs”). These are short-term notes used to cover cash shortfalls resulting from a mismatch between the timing of revenues and expenditures. The City may issue TRANs without voter approval when needed to meet general-fund cash-flow needs in a fiscal year. TRANs are secured by the property taxes and other revenues received later in the fiscal year, and they typically must be repaid within 13 months after issuance.
(2) Bond Anticipation Notes (“BANs”). These are short-term interest- bearing notes issued in the anticipation of long-term bond issuances.

The City may issue BANs as a source of interim financing when the City Treasurer determines that doing so is prudent and advantageous to the City. Voter approval is not required.
(2)(3) Grant Anticipation Notes (“GANs”). These are short-term interest- bearing notes issued in anticipation of the receipt of grants. The City may issue GANs as a source of interim financing when the City Treasurer determines that doing so is prudent and advantageous to the City and the upcoming receipt of grants is guaranteed. Voter approval is not required.
(4) Lease-Purchase Financings. These financings may be used for the short-term financing of essential equipment. The term of a lease- purchase agreement is typically less than 10 years but may be as long as 15 years. Under this type of financing, the City and a bank enter into a master lease agreement for the lease-purchase of equipment up to a certain aggregate amount. The City and the bank then enter into separate “schedules of property” or “lease schedules” for each lease- purchase of equipment, and the City Council annually budgets and appropriates an amount sufficient to pay rent for the equipment under lease during that year; the failure to appropriate will result in termination Debt Management Policy | Page 12
of the lease-purchase agreement and the potential acquisition by the bank of the financed equipment. Voter approval is not required. (5) Commercial Paper Notes. These notes serve as a cash-management tool used primarily to provide short-term interim funding of capital expenditures that will ultimately be funded from a long-term bond or loan. Commercial-paper notes can reduce a project’s overall interest costs because only the amount needed for interim funding is borrowed, and interest rates on the interim funding are lower than the rates on the “permanent” funding with long-term bonds or loans. As of the date of this Policy, the City has never issued commercial paper notes, but the need for this type of short-term financing could arise in the future. (C) Other Debt. There may be special ci rcumstances when other forms of debt are appropriate; these will be evaluated on a case-by-case basis. (D) Refunding. The City Treasurer’s Offi ce will periodically review outstanding City Debt to identify refunding opportunities and evaluate the costs and benefits of restructuring or retiring outstanding obligations. Refunding will be considered (within federal tax-law constraints) when it will provide a net economic benefit or is needed to achieve City objectives relating to necessary changes in restrictive covenants, call provisions, operational flexibility, tax status, the issuer, debt-service profile, etc. The City may purchase City Debt in the open market for the purpose of retiring the debt when doing so is cost effective.
(1) Tax-exempt bonds are allowed only for a “current refunding,” which is when outstanding bonds are paid off within 90 days after the proceeds of the refunding bonds are deposited into an escrow account with the escrow agent (typically the same entity as the trustee). (2) In general, when the City underta kes a current refunding for net economic benefit, the refunding should produce net-present-value debt- service savings of at least 5%. This 5% threshold is a goal rather than a requirement, as the City may have reasons to refund an issue that generates net-present-value savings of less than 5% (e.g., the refunding will eliminate unduly restrictive debt covenants) or conversely aim for a higher targeted minimum level of savings.
(3) The City may also issue taxable bonds to advance refund tax-exempt bonds with an optional redemption date more than 90 days after the proceeds of the taxable bonds are available. Whether the City moves forward with an advance refunding will depend on several factors, and the City Treasurer’s Office will work with one of the City’s municipal advisors to evaluate advance-refunding scenarios. In general, the goal will be a net-present-value savings of at least 5%, but this is not requireda requirement.

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(4) When, during periods of economic distress, the City Council determines that annual debt service (i.e., principal and interest payments) for an outstanding issue of bonds might exceed available revenues, the City may issue new bonds to refund and restructure the outstanding bonds even though the net-present-value savings are negative. Annual debt service on the refunding bonds would be lower than debt service on the refunded bonds in the first few years of the refunded bonds, but the term of the refunded bonds might extend beyond the term of the refunded bonds, thereby increasing overall total interest costs.

4.4 Method of Sale. Except to the extent a competitive process is required by law, the City Treasurer is responsible for determining the appropriate way method to offer City Debt to prospective investors. A negotiated sale is preferred because it (A) provides the City more flexibility in determining the structure, time, and date of the sale, which is advantageous in a volatile municipal-bond market; (B) permits the schedule for the issuance and sale of bonds to be expedited when necessary to meet the City’s goals; and (C) affords the chosen underwriter or senior managing underwriter (in the case of an underwriting syndicate) greater opportunity to pre- market the City Debt to potential purchasers, including local investors, before the sale—all of which contributes to the City’s goal of achieving the lowest overall cost of borrowing. Criteria (C) is especially important to certain credit types such as special-tax revenue bonds, where there is a need to properly describe the background or the “story” of the particular special-tax revenue bonds for each financing so investors can have a better understanding of the risks of the financing and the project. Other methods of sale, such as competitive sale and private placement, may be considered on a case-by-case basis. For example, private- placement debt may be appropriate when pending litigation or other risks or market conditions make a competitive or publicly negotiated sale difficult.

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4.6 Professional Assistance. The City Treasurer may periodically select and retain service providers (other than bond and disclosure counsel, which the City Attorney’s Office selects and retains) as needed to meet legal requirements and obtain specialized analytical services that facilitate the issuance of City Debt by minimizing borrowing costs. The City Treasurer will make these selections with the goal of achieving an appropriate balance between cost and service quality (e.g., general professional experience, professional reputation, market recognition, and the City’s experience with the service provider). The City Treasurer may select service providers through a sole-source process of his or hertheir choosing unless a competitive or other process is required by law or this Policy.

5.0 Debt Structure Features

5.1 Debt Repayment.
(A) Useful Life. City Debt must be st ructured so that the weighted average maturity of the proposed debt is less than or equal to the weighted average economic or useful life of the capital projects or improvements to be financed.
(B) Level Debt Service Preferred. To t he extent possible, the structure of debt- service for long-term debt other than special-tax revenue bonds should have combined annual principal and interest payments that remain relatively constant to maturity, i.e., “level debt service.” But in some circumstances non-level debt service may be to the City’s advantage or is the norm—such as in the case of Special special-Tax tax Revenue revenue Bonds bonds where debt service increases by about 2% annually. The City Treasurer’s Office will determine the structure of the debt at the time of borrowing after considering pricing, cash flows, and other relevant factors and after consulting with the underwriter of the proposed debt and one of the City’s municipal advisors.

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tentative maps on the balance of the district, non-redacted purchase and sale agreements for land sales of taxable property within the district within at least the last three years of the request to form the district, and definitive development plans including unit mix, village size and village phasing. Furthermore, the City reserves the right to not move forward with a financing if the development does not have complete or substantially complete backbone infrastructure and street improvements on at least the first phases of development (all in-ground utilities, streets, curbs, gutters, sidewalks), and is in a state of development ready to pull building permits. The City will not seek a rating for bonds unless the City Treasurer’s Office determines that the bonds are likely to receive an underlying (i.e., unenhanced) rating of BBB or higher.

5.4 Non-Cash Reserve and Reduced Reserve. The City Treasurer’s Office will work with one of the City’s municipal advisors and with the underwriter of the proposed City Debt (or senior managing underwriter, if there is an underwriting syndicate) to analyze the costs and benefits of having no reserve, obtaining a surety reserve policy, or incorporating a debt service reserve based on a modifying themodified three-prong reserve test (26 C.F.R. § 1.148-2(f)(2))—for exam ple, to 50% of maximum annual debt service or 10% of outstanding principal.

5.5 Fixed-Rate Debt. The City’s preferred interest-rate mode is fixed fixed-rate.

5.6 Variable-Rate Debt. The City may issue variable-rate debt—i.e., debt that pays interest at a rate that varies resets according to a pre-determined formula or specified index or a rate that results from a periodic remarketing of the debt.

Although the City might benefit from short-term variable-rate debt, issuing variable- rate debt, especially long-term debt, passes an unknown obligation and risk to future City Councils and the funds expected to repay the debt.

5.7 Derivatives. Derivatives might be appropriate for certain City borrowing programs.

The City will not issue non-callable debt unless it is legally required or unless Debt Management Policy | Page 16
market conditions dictate otherwise; non-callable debt should not be issued solely to generate additional debt-service savings.

5.9 Bond Size. Unless otherwise directed by the City Treasurer in consultation with the City Manager, the minimum amount the City will finance through the issuance of bonds is $10 million unless circumstances justify a lower amount. The City may pursue other financing mechanisms—such as pay-as-you-go financing, inter-fund borrowing, lines of credit, and lease financing—for debt less than $10 million. In the case of Sspecial -Tax tax Revenue revenue Bondsbonds, special circumstances may exist that warrant the City Treasurer’s consideration of the developer’s request to issue bonds in an amount less than $10 million (e.g., if the bonds are for an infill or brownfield development project). The City Treasurer will determine whether to move forward with a debt financing with a small par amount.

6. Debt Administration and Regulatory Compliance

6.2 Arbitrage Compliance. The City Treasurer’s Office is responsible for keeping all records needed to comply with federal arbitrage requirements for tax-exempt debt. (A) For each bond issue, the City Treasur er’s Office will pay required rebate amounts, if any, no later than 60 days after each five-year anniversary of the issue date of the bonds and no later than 60 days after the last bond of the issue is redeemed.
(1) During the construction of each capital project financed with debt proceeds, the City’s arbitrage consultant will typically be requested to prepare an interim arbitrage-rebate report at least once every 12 months until all proceeds deposited in the project fund have been expended; if, however, the proceeds remaining in the project fund are equal to or less than 5% of the proceeds deposited into the acquisition and construction or project fund, then the City Treasurer’s Office may have the arbitrage consultant prepare the interim arbitrage-rebate reports according to the timeframe required by IRS regulations. (2) After the construction proceeds have been fully expended or the balance in the project fund has fallen below 5% of the proceeds deposited into the acquisition and construction or project fund, the City’s arbitrage consultant will prepare an interim arbitrage-rebate Debt Management Policy | Page 17
report on each five-year anniversary of the issue date of the bonds, or more frequently if warranted.
(B) During the term of each issue plus th ree years, the City Treasurer’s Office will retain copies of all arbitrage reports, records relating to the use and investment of tax-exempt proceeds, documentation of private use, and other relevant documents associated with the issue. If the issue is refunded, then the retention period for the refunded issue is the life of the refunding issue plus three years. Training may be provided for all personnel working on the IRS’s post-issuance-compliance process. If any potential violations to complying with federal tax laws are discovered, then the City Treasurer or the Debt Manager, after consulting with the City Attorney’s Office, will contact bond counsel and determine what, if any, corrective actions are needed (e.g., participation in the IRS’s Voluntary Closing Agreement Program). (C) The City Treasurer or the Debt M anager will periodically review the City’s post-issuance compliance policies and procedures and will implement revisions as appropriate after consulting with the City Attorney’s Office and, if needed, bond counsel and disclosure counsel.
(D) When bonds (the refundi ng bonds) are issued to refund outstanding bonds (the refunded bonds), all remaining proceeds of the refunded bonds—e.g., all amounts remaining in the project fund, reserve fund, and other accounts, plus accrued interest—will be consider ed for purposes of IRS regulations to be “transferred proceeds” of the refunding bonds and, as such, will be subject to the arbitrage calculations for the refunding bonds. In addition, if the transferred proceeds represent more than 5% of the original deposit in the acquisition and construction or project fund of proceeds from the refunded bonds (see section 6.2(A)(1) above), then interim arbitrage calculations must be performed on an annual basis until the balance of the transferred proceeds is less than 5% of the original deposit at which point the arbitrage calculations will be completed every five years from the issuance date of the refunding bonds.

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(C) Maintaining records for any contract s or other arrangements involving the use of assets financed or refinanced with tax-exempt debt. (D) Maintaining internal-control procedures related to the management and disbursement of proceeds, such as procedures requiring that proceeds are either (1) held by a third-party trustee or fiscal agent, which will disburse the proceeds to, or upon the order of, the City in accordance with one or more written requisitions; or (2) held by the City and deposited and accounted for in a separate fund or account, with withdrawals and expenditures carefully documented.
(D) Consulting promptly with the City Attorney’s Office and bond counsel to develop a course of action to remediate any identified existing or potential violations of restrictions on the use of tax-exempt or taxable proceeds or the use of assets financed or refinanced with tax-exempt or taxable proceeds.

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(E) Consulting promptly wit h the City Attorney’s Office and bond counsel to develop a course of action to remediat e any identified existing or potential violations of restrictions on the use of tax-exempt or taxable proceeds or the use of assets financed or refinanced with tax-exempt or taxable proceeds.

Debt Management Policy | Attachment A
Attachment A
Supplemental Policies
City of Sacramento Policies and Procedures for Use of Special Assessment and Mello- Roos Community Facilities District Financing for Infrastructure, Public Facilities, Programs and Services (Adopted on June 29, 1993, by Resolution No. 93-381, updated on August 9, 1994, by Resolution 94-491 and on May 15, 2012) City of Sacramento Development Fee Financing Program for Commercial, Industrial and Residential Development Projects (Adopted January 1997 by Resolution No. 97- 002)
California Debt and Investment Advisory Commission Appraisal Standards for Land- Secured Financings CDIAC 04-07 (Adopted in May 1994 and revised in July 2004) City of Sacramento Debt Management Policy – Supplemental Policy on Disclosure (Adopted on June 2, 2011, by Resolution No. 2011-322 and updated on February 7, 2017, by Resolution No. 2017-0046; on June 19, 2018, by Resolution No. 2018-0251; on April 23, 2019, by Resolution No. 2019-0122; on December 10, 2019, by Resolution No. 2019-0453; on June 30, 2020, by Resolution No. 2020-0189; June 1, 2021, by Resolution No. 2021-0156; and on October 19, 2021, by Resolution No. 2021- -0314; and on November 1, 2022, by Resolution No. 2022- )
Supplemental Policy on Disclosure | Page 1

CITY OF SACRAMENTO

DEBT MANAGEMENT POLICY
Supplemental Policy on Disclosure
Adopted by the City Council on October 19, 2021November 1, 2022

1. Introduction

1.1 This Supplemental Policy on Disclosure (“Policy”) governs the City’s discharge fulfillment of its disclosure obligations related to municipal securities issued by the City or by related entities such as the Sacramento City Financing Authority, the Sacramento Public Financing Authority, and the Redevelopment Agency Successor Agency. In the event an Enhanced Infrastructure Financing District (“EIFD”) formed by the City issues bonds, the City, specifically the Office of the City Treasurer, may be asked to handle post issuance matters including continuing disclosure for EIFD bonds. While an EIFD is a separate legal entity from the City with a separate governing body from the City Council, if City staff is responsible with the continuing disclosure requirements for EIFD bonds, City staff will do so in accordance with this Policy.

(B) Incomplete, inaccurate, or misleading di sclosure might have material financial consequences for the City, and as well as City officers and employees. For example:

 The SEC could impose cumbersome pr ocedures and oversight on the City as conditions for settling civil actions.

 The City could suffer adverse publicit y, which might reduce market access and investor acceptance.

Supplemental Policy on Disclosure | Page 2

 The credit ratings on the City’s municipal securities could be downgraded, resulting in increased costs in future issuances.

 City officials could face personal fines for violations of securities laws.

 Enhanced credibility in t he municipal-bond market.

 Transparency with rating agencies, inve stors, and prospective investors.

 Improved decision making for prospective investors.

 Increased numbers and types of inve stors who purchase the City’s bonds in the primary and secondary markets.

 Demonstrated City commitment to providing full and timely disclosure to investors, credit-rating agencies, and other stakeholders.

 The potential for a lower overall cost of borrowing.

(A) Initial-disclosure docum ents, i.e., preliminary and final official statements.

(B) Continuing-disclosure documents, i.e ., annual financial information, required event notices, and voluntary notices.

2. Governing Authority, Point of Contact, and Responsibility

distributing information but also for determining the materiality of information, based in part by guidance by the City Attorney’s Office and the City’s disclosure counsel.

2.3 Responsibility.

The City reserves the right to utilize certain services provided by a third-party dissemination agent such as the upload of disclosure filings to EMMA, however as stated in section (c) below, the preparation, review, and final approval of all disclosure filings are the responsibility of the City. (B) Along with the City Treasurer and his or hertheir staff, the City Attorney and the City Manager shall serve as integral members of the financing team, each responsible, as appropriate, for ensuring and certifying to the accuracy of information released to the municipal-bond market.

developer’s limited scope continuing disclosure requirements for certain special-tax revenue bonds.

3. Certifications

Sacramento City CouncilNovember 1, 2022

Sacramento City Council
November 1, 2022