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Adopt a resolution to enact the recommended Debt Management Policy
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Published Notice Required? Yes __ No _X_
Public Hearing Required? Yes __ No _X_
DEPARTMENTAL RECOMMENDATION:
The Debt Advisory Committee recommends that the Board of Supervisors adopt a resolution to enact the recommended Debt Management Policy.
SUMMARY/DISCUSSION:
The County does not currently have a debt policy. A debt policy can be a useful tool in guiding decisions related to debt and adoption of one is now a requirement under State law to issue new debt. The County recently initiated the process to refund its Series 2007 Certificates of Participation and must adopt a debt policy as part of the process.
California Senate Bill No. 1029 took effect on January 1, 2017. It requires that 30 days prior to the issuance of any debt, issuers must adopt a local debt policy that addresses the following:
1. The purposes for which the debt proceeds may be used.
2. The types of debt that may be issued.
3. The relationship of the debt to, and integration with, the issuer’s capital improvement program or budget.
4. Policy goals related to the issuer’s planning goals and objectives.
5. The internal control procedures that the issuer has implemented, or will implement, to ensure that the proceeds of the proposed debt issuance will be directed to the intended use.
The debt policy does not have an immediate financial impact. The primary purpose is to guide decisions by the County related to funding new projects and managing its existing and future debt portfolio while also complying with State law. Adherence to a prudent debt policy can contribute to strong long-term financial performance. Additionally, the existence of the formally adopted debt policy is viewed as a positive credit rating factor by the agencies that rate the County’s debt.
The County retains discretion related to most aspects of the debt policy. Important considerations within the policy include:
1. Level of detail contained in the document, from high-level policy to specific detailed provisions. Various agencies have debt policies that cover this range.
2. The overall risk stance taken with respect to the use and types of debt, from conservative to more aggressive.
3. The extent to which the document prescribes ongoing reporting, transparency, and internal controls related to debt.
With respect to these considerations, the current proposed debt policy:
1. Provides a moderate level of specificity by:
a. Including the possibility of issuing all types of debt commonly used by public agencies in California with the criterion for choosing being to select the option that best meets the County’s financial and policy goals.
b. Retaining flexibility in choosing the method of sale with the criterion for choosing being to select the option that achieves the best financial results for the County.
c. Setting a minimum threshold for refunding for savings at the industry-wide standard of 3% net present value savings with the flexibility to consider other factors such as the length of an escrow or the need for restructuring in making a final determination.
2. Is moderately conservative by:
a. Setting a goal to achieve the highest possible credit rating.
b. Limiting general fund debt service to 4-6% of annual expenditures.
c. Limiting variable rate debt to 20% of the County’s debt portfolio.
3. Establishes oversight and reporting that includes:
a. Review by the Debt Advisory Committee and approval by the Board of Supervisors of any bond issuance.
b. Standard legally required reporting related to continuing disclosure and arbitrage regulations.
The debt policy is to be reviewed annually and can be modified by the Board of Supervisors at any time after initial adoption.
FINANCING:
There is no cost for enacting a debt policy.
ALTERNATIVES:
The Board may choose not to enact a debt policy. This is not recommended as it places the County in violation of California Senate Bill No. 1029.
OTHER AGENCY INVOLVEMENT:
The Debt Advisory Committee has reviewed this policy and recommends its adoption.
CAO RECOMMENDATION:
APPROVE DEPARTMENTAL RECOMMENDATION