HomeMy WebLinkAboutDebt Management TOWN OF ITHACA
DEBT MANAGEMENT POLICY
I. SCOPE
Long term debt is an effective way to finance capital improvements by matching the term of
the debt with the useful life of the asset being financed. Properly managed debt provides
flexibility incurrent and future operating budgets and provides the Town of Ithaca(the"Town")
with the long-term assets required to deliver services or other resources to the public. The Town
recognizesthat effective debt management practices require a comprehensive Debt Management
Policy("Policy") that details the use of capital and capital debt to support the services provided
to its residents.
II. PURPOSE
The following policy seeks to position the Town's debt plan amongst the best practices in
municipal finance to improve its bond rating and preserve the highest credit rating possible with
the allocation of resources to the programs and services provided by the Town.
III. OUTSTANDING AND MATURING OBLIGATIONS
Nothing in this policy shall be deemed to affect or impair any outstanding obligations of the
Town or any obligations issued to renew such outstanding obligations. Failure to comply with
any goal or limit established by this policy shall not of itself be deemed to invalidate any
obligations.
IV. SHORT-TERM OPERATIONAL BORROWINGS
The Town is authorized under the New York State Local Finance Law (LFL) to borrow in
anticipation of the receipt of taxes or other forms of revenue (primarily in the form of State or
Federal aid). Such borrowings take the form of short-term notes and provide working capital to
balance timing differences between revenue and expenditures. Short-term operational
borrowings include budget, deficit, tax, and revenue anticipation notes. Under normal
circumstances, tax anticipation notes shall be fully paid on or before December 31 of each year.
Revenue anticipationnotes shall be paid in accordance with limitations of the LFL.
The Town shall not use short-term borrowing to finance operating needs except in the case of
financial necessity, as determined by the Finance Officer and Town Supervisor and approval by
the Town Board.
V. PERIODS OF PROBABLE USEFULNESS
The LFL assigns a period of probable usefulness (PPU) to each capital purpose that can be
financed, which determines the maximum period over which assets may be financed. The
Finance Officer shall ensure the final maturity date for any long-term debt will not exceed the
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expected life of the capital improvement financed.
VI. METHOD OF DEBT STRUCTURING
The LFL permits bonds to be amortized using the 50 Percent Rule or a level or declining debt
structure. The Town shall select the amortization method that produces debt service payments
compatible with the Town's needs and ability to repay its existing and forecasted debt
obligations. The Finance Officer shall confer with the Town's Municipal Advisor and/or Bond
Counsel relating to the structuring of debt obligations.
When appropriate, by recommendation of the Town Finance Officer, the Town may consider
lease financing or other alterative types of financing as permitted by the LFL.
VII. METHOD OF SALE
The Town Finance Officer shall confer with the Town's Municipal Advisor and/or Bond
Counsel to determine the most appropriate method of sale based upon various issuance specific
factors.
If a negotiated sale process is deemed appropriate, the Underwriter(s) shall be selected through
a competitive process. The Town Finance Officer may request the Town's Municipal Advisor
and/or BondCounsel to assist in this process, analyze proposals and provide recommendations
with respect to the selection(s).
VIII. DEBT LIMIT
Pursuant to the State Constitution, the total amount of the Town's outstanding debt may not
exceedseven per centum (7%) of the five-year average taxable full valuation of property
assessments. This is the Constitutional Debt Limit (CDL). The Town's water debt is excluded
from the calculation of the CDL. Self-supporting debt, including sewer debt,paid from non-real
property tax revenue may also be excluded in full or partif authorized by the Office of the State
Comptrollers(OSC). If applicable,the Finance Officer should apply for all self-supporting debt
exclusions to maintain sufficient debt capacity.
The Finance Officer shall ensure that the net general obligation debt of the Town will not exceed
the constitutional debt limit.
IX. CAPITAL IMPROVEMENT PLAN AND THE CAPITAL BUDGET
The Director of Engineering, in collaboration with the Director of Public Works, annually
prepares and submits a five-year Capital Improvement Plan (CIP) to the Town Board for its
consideration and approval. The Town considers this Policy to be an integral part of the CIP.
Therefore, the CIP submitted to Town Board should include a prospective impact statement and
analysis with respect to proposed capital budgetimprovements financed with debt obligations.
The impact analysis should include an annual overlay of proposed and existing debt obligations
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and an evaluation of applicable debt ratios. Toassist with debt service assumptions,the Finance
Officer may enlist the support of the Town's Municipal Advisor and/or Bond Counsel.
X. INVESTMENT OF DEBT PROCEEDS
The Town Finance Officer is required to invest proceeds of obligations in accordance with the
Town's then current Investment Policy adopted in accordance with Section 39 of the General
Municipal Law, Section 11 of the General Municipal Law, and in accordance with applicable
Federal tax requirements. New York State law permits the Town to co-mingle debt proceeds
with operating moneys under a pooled investment program. However, for disbursement
purposes debt proceeds are required to be deposited in one or more demand accounts separate
from other funds of the Town.Accounting records shall be maintained to ensure that debt
proceeds are spent for the purpose(s) for which they are authorized.
XL TIMELY REPAYMENT OF DEBT OBLIGATIONS
The Town must be certain that debt payments are made timely and in full, without impairing its
cashflow and subsequently its ability to provide essential governmental service. Accordingly,
the Finance Officer shall monitor the Town's cash flow position and the annual operating budget
to ensure the full and timely repayment of all debt principal and interest due that fiscal year.
XII. REFUNDING OF OUTSTANDING LONG-TERM DEBT OBLIGATIONS
The Town Finance Officer, with the assistance of the Town's Municipal Advisor, shall
periodically review the Town's outstanding long-term debt to identify refunding opportunities.
If a refunding opportunity is identified,the Town Finance Officer shall work in conjunction with
the Town's MunicipalAdvisor to determine if the potential benefits of the refunding outweigh
the risks or costs of delaying the refunding.
XIII. CREDIT RATING STRATEGIES
The Town's credit rating has a significant impact on its ability to access the capital markets,the
issuance costs associated with a debt sale, and the interest rate that is obtained on its debt
obligations. As such, the Town is committed to maintaining a credit rating strategy. However,
the rating strategies must not compromise the delivery of basic services to Town residents. The
Town Finance Officer will be responsible for maintaining relationships with rating agencies
assigning ratings to the Town's debt. The Town Finance Officer will confer with the Town's
Municipal Advisor regarding rating agency methodologies and the Town's credit rating
strategy. Changes to current methodologies could impact future fiscal decisions.
XIV. CONTINUING DISCLOSURE REQUIREMENTS
The Town Finance Officer shall work in conjunction with the Town's Municipal Advisor in
order to ensure compliance with secondary market information and disclosures made pursuant
to Rule 15-2c-12 of the Securities Exchange Act of 1934.
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XV. ANNUAL REVIEW &AMENDMENTS
On an annual basis,or as deemed necessary,the Town Board shall review the Debt Management
Policy and shall approve policy revisions, if any,by formal resolution.
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