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HomeMy WebLinkAboutRes 2019-02 - Updated Local Debt PolicySTAFF REPORT CITY OF PALM DESERT MEETING DATE: January 10, 2019 SUBMITTED BY: Veronica Tapia, Senior Management Analyst REQUEST: APPROVE RESOLUTION NO. 2019-2 ADOPTING AN UPDATED LOCAL DEBT POLICY PURSUANT TO SENATE BILL 1029, AND TAKING CERTAIN RELATED ACTIONS Recommendation By Minute Motion that the City Council approve Resolution No:2oig-2adopting the updated City of Palm Desert Local Debt Policy as it relates to bonds issued by the City and the City's related entities. Strategic Plan There is no direct correlation to the strategic plan. Background and Analvsis SB 1029 was signed into law on September 12, 2016. Among other things, SB 1029 imposes a requirement that each Report of Proposed Debt Issuance must include a certification by the issuer that it has adopted a local debt policy and that the contemplated bond issue is consistent with such adopted policy. The City of Palm Desert adopted the current local debt policy on February 23, 2017, in accordance with SB 1029. In 2018, the Securities Exchange Commission (SEC) amended rule 15c2-12 under the Securities and Exchange Act of 1934, requiring certain actions be taken with respect to filing continuing disclosure agreements executed on or after February 27, 2019. Consequently, the local debt policy has been updated to reflect the new requirements of the SEC, in addition to some general house cleaning updates. The amendment declares that whenever the City prepares to enter into new financial obligation or modify the terms of an existing financial obligation, the Finance Director shall determine whether the incurrence of such financial obligations or modification of terms would require a Listed Event Notice under the current continuing disclosure agreement(s). This responsibility is now included in the updated local debt policy under Section H-3. The attached resolution and Updated Local Debt Policy have been drafted in accordance with current practices and includes the specific requirements noted above. Staff recommends that the City Council adopt the resolution approving the Udpated Local Debt Policy. January 10, 2019 - Staff Report UPDATED LOCAL DEBT POLICY Page 2 of 2 Fiscal Analvsis There is currently no fiscal impact from this action. It merely formalizes the current practices and updates the specific requirements of SB 1029 and 15c2-12; however, these requirements may increase filing costs, but that is yet to be determined. It is intended to assist with the City's goal of maintaining fiscal sustainability and financial prudence. LEGAL REVIEW DEPT. REVIEW FINANCIAL REVIEW CITY MANAGER N/A Reveiwed by RWG % 4" eet Moore anet ooreauri Aylaian Robert W. Hargreaves Director of Finance or of Finance City Manager City Attorney ATTACHMENTS: Resolution No. 2019-2 Updated Local Debt Policy G \rda\Veronica Tapia\Word Files\Staff Reports\Palm Desert - SR Updated Local Debt Policy 1-10-19.docx RESOLUTION NO. 2019-2 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM DESERT ADOPTING AN UPDATED LOCAL DEBT POLICY AND TAKING RELATED ACTIONS RECITALS: A. The City of Palm Desert and its related entities (such as the Palm Desert Financing Authority and the Successor Agency to the Palm Desert Redevelopment Agency) (together, the "City") have issued or may issue bonds or other financing obligations ("Local Debt") that are subject to requirements for the filing of reports to the California Debt and Investment Advisory Commission ("CDIAC") pursuant to California Government Code Section 8855 ("Section 8855"). B. Under Section 8855, a municipal issuer of Local Debt must file a report (the "Report of Proposed Debt Issuance") at least 30 days before the sale of any Local Debt issue. C. Section 8855, as amended in 2017, requires the Report of Proposed Debt Issuance to include a certification that the municipal issuer has adopted a local debt policy and the contemplated Local Debt issuance is consistent with such local debt policy. D. Section 8855(i)(1) requires that the local debt policy must include the following elements: (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, if applicable; (4) Policy goals related to the issuer's planning goals and objectives; and (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. E. The City expects that it will continue to issue Local Debt from time to time. F. In connection with Section 8855(i)(1), the City previously adopted a Local Debt Policy (the "Policy") pursuant to Resolution No. 2017-15, adopted by the City Council on February 23, 2017. G. The City desires to update the Policy. G:\rda\Veronica Tapia\Word Files\Staff ReportsTalm Desert - City Council reso re updated debt policy 1-10-19.docx Resolution No. 2019-2 NOW, THEREFORE, THE CITY COUNCIL TO THE CITY OF PALM DESERT DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. The above recitals are true and correct and are a substantive part of this Resolution. Section 2. The Policy is hereby updated to be as set forth in Exhibit A. The Policy, as so updated, shall be applicable to Local Debt issued by or on behalf of the City (including its related entities such as, but not limited to, the Palm Desert Financing Authority and the Successor Agency to the Palm Desert Redevelopment Agency). The Policy, as so updated, shall supersede any prior debt policy covering the same matters previously adopted by the City. Section 3. The City Council hereby determines and finds that the Updated Policy complies with the requirements of Section 8855(i)(1). Section 4. The City Manager, the Finance Director and other officers of the City are hereby authorized and directed, jointly and severally, to execute such instruments and do any and all things which they may deem necessary or advisable to effectuate this Resolution and any such actions previously taken by such officers and staff are hereby ratified and confirmed. PASSED, APPROVED and ADOPTED this 10th day of January, 2019. AYES: NOES: ABSENT: ABSTAIN: SUSAN MARIE WEBER, MAYOR ATTEST: RACHELLE D. KLASSEN, CITY CLERK -2- G:\rda\Veronica Tapia\Word Files\Staff Reports\Palm Desert - City Council reso re updated debt policy 1-10-19.docx CITY OF PALM DESERT ADMINISTRATIVE PROCEDURES Subject Local Debt Policy Policy No. FIN-007-A Date Issued: February 23, 2017 Amended: January 10, 2019 Approved by Resolution No. 2019- Authored by Finance Department A. PURPOSE The purpose of this Local Debt Policy (this "Policy") is to establish guidelines and parameters for the effective governance, management and administration of debt and other financing obligations issued by the City and its related entities (such as the Palm Desert Financing Authority and the Successor Agency to the Palm Desert Redevelopment Agency). As used in this Policy, "City" shall mean the City and/or its related entities, as the context may require. As used in this Policy, "debt" shall be interpreted broadly to mean bonds, notes, certificates of participation, financing leases, or other financing obligations, but the use of such term in this Policy shall be solely for convenience and shall not be interpreted to characterize any such obligation as an indebtedness or debt within the meaning of any statutory or constitutional debt limitation where the substance and terms of the obligation falls within exceptions to such legal limitation. This Policy shall apply to all debt issued or sold to third party lenders or investors and does not pertain to City internal interfund borrowings or any employee benefit obligations. B. BACKGROUND The City and its related entities are committed to fiscal sustainability by employing long- term financial planning efforts, maintaining appropriate reserves levels and employing prudent practices in governance, management, budget administration and financial reporting. Debt levels and their related annual costs are important long-term obligations that must be managed within available resources. A disciplined thoughtful approach to debt management includes policies that provide guidelines for the City and its related entities to manage their collective debt program in line with those resources. Therefore, the objective of this policy is to provide written guidelines and restrictions concerning the amount and type of debt and other financing obligations issued by the City and its related entities and the ongoing management of the debt portfolio. A-1 G \rda\Veronica Tapia\Word Files\StafYReports\Paltn Desert - 2019 updated debt policy 12-18-18.docx Administrative Procedures Manual FIN-007-A Local Debt Policy Page 2 of 12 This Policy is intended to improve the quality of decisions, assist with the determination of the structure of debt issuance, identify policy goals, and demonstrate a commitment to long-term financial planning, including a multi -year capital plan. Adherence to a local debt policy signals to rating agencies and the capital markets that a government is well managed and should meet its obligations in a timely manner. C. CONDITIONS AND PURPOSES OF DEBT ISSUANCE 1. Acceptable Conditions for the Use of Debt The City believes that prudent amounts of debt can be an equitable and cost-effective means of financing infrastructure and capital asset and project needs of the City. Debt will be considered to finance such projects if: a) The project has been, or will be, included in the City's capital improvement plan or has otherwise been coordinated with the City's planning goals and objectives. b) The project can be financed with debt not exceeding the term specified in Section E.1 of this Policy, to assure that long-term debt is not issued to finance projects with a short useful life. c) It is the most cost-effective funding means available to the City, taking into account cash flow needs and other funding alternatives. d) It is fiscally prudent and meets the guidelines of this Policy. Any consideration of debt financing shall consider financial alternatives, including pay-as-you-go funding, proceeds derived from development or redevelopment of existing land and capital assets owned by the City, and use of existing or future cash reserves, or combinations thereof. 2. Acceptable Uses of Debt and Proceeds of Debt The primary purpose of debt is to finance one of the following: a) The City will consider long-term financing for the acquisition, substantial refurbishment, replacement, or expansion of capital assets (including but not limited to land improvements, infrastructure projects, equipment and water rights), for the following purposes: Acquisition and or improvement of land, right-of-way or long- term easements. Acquisition of a capital asset with a useful life of three or more years. iii. Construction or reconstruction of a facility. A-2 G \rda\Veronica Tapia\Word Files\Staff Reports\Palm Desert - 2019 updated debt policy 12-18-18.docx Administrative Procedures Manual FIN-007-A Local Debt Policy Page 3 of 12 iv. Although not the primary purpose of the financing effort, project reimbursables that include project planning design, engineering and other preconstruction efforts; project - associated furniture fixtures and equipment; capitalized interest (prefunded interest), original issue discount, underwriter's discount, and other costs of issuance. b) Refunding, refinancing, or restructuring debt (including without limitation the refinancing or advance funding of City pension obligations), subject to refunding objectives and parameters discussed in Section G. 3. Short -Term Debt a) In the event of temporary shortfalls in cash flow for City operation costs due to timing of receipt of revenues and the lack of cash on hand to cover the temporary deficit, the City may consider interim or cash flow financing, such as anticipation notes. In compliance with applicable state law, any such notes shall be payable either (i) not later than the last day of the fiscal year in which it is issued, or (ii) during the fiscal year succeeding the fiscal year in which issued, but in no event later than 15 months after the date of issue, and only if such note is payable only from revenue received or accrued during the fiscal year in which it was issued. b) Short-term debt may be used to finance short-lived capital projects, such as lease purchase financing or equipment. c) Prior to issuance of any short-term debt, a reliable revenue source shall be identified for repayment of the debt. 4. Prohibited Uses of Debt and Proceeds of Debt Prohibited uses of debt include the following: a) Financing of operating costs, except for anticipation notes satisfying the criteria set forth in Section C.3.a. b) Debt issuance used to address budgetary deficits, except for funding temporary shortfall as provided in Section C.3.a. c) Debt issued for which the term of the debt exceeds the term specified in Section E.1 of this Policy. 5. Internal Control Procedures Concerning Use of Proceeds of Debt One of the City's priorities in the management of debt is to assure that the proceeds of the debt will be directed to the intended use for which the debt A-3 G:\rda\Veronica Tapia\Word Files\Staff Reports\Palm Desert - 2019 updated debt policy 12-18-18 docx Administrative Procedures Manual FIN-007-A Local Debt Policy Page 4 of 12 has been issued. In furtherance of this priority, the following procedures shall apply: a) The Director of Finance shall retain, for the applicable period specified in Section H.4. of this Policy, a copy of each annual report filed with the California Debt and Investment Advisory Commission (CDIAC) pursuant to Section 8855(k) of the California Government Code concerning (1) debt authorized during the applicable reporting period (whether issued or not), (2) debt outstanding during the reporting period, and (3) the use during the reporting period of proceeds of issued debt. b) In connection with the preparation of each annual report to be filed with CDIAC pursuant to Section 8855(k) of the California Government Code, the Director of Finance or the designee of the Director of Finance shall keep a record of the original intended use for which the debt has been issued, and indicate whether the proceeds spent during the applicable one-year reporting period for such annual report comport with the intended use (at the time of original issuance or as modified pursuant to the following sentence). If a change in intended use has been authorized subsequent to the original issuance of the debt, the Director of Finance or the designee of the Director of Finance shall indicate in the record when the change in use was authorized and whether the City Council, City Manager, or another City official has authorized the change in intended use. The Director of Finance shall report apparent deviations from the intended use in debt proceeds to the City Manager for further discussion, and if the City Manager determines appropriate in consultation with legal counsel (which may be bond counsel, if applicable, or the City Attorney), to the City Council. If the debt has been issued to finance a capital project and the project timeline or scope of project has changed in a way that all or a portion of the debt proceeds cannot be expended on the original project, the Director of Finance shall consult with the City Manager and legal counsel (which may be bond counsel, if applicable, or the City Attorney) as to available alternatives for the expenditure of the remaining debt proceeds (including prepayment of the debt). D. TYPES OF FINANCING INSTRUMENTS; AFFORDABILITY AND PLANNING POLICIES The City recognizes that there are numerous types of financing structures and funding sources available, each with specific benefits, risks, and costs. All potential funding sources are reviewed by management within the context of this Policy and the overall portfolio to ensure that any financial product or structure is consistent with the City's objectives. Regardless of what financing structure(s) is utilized, due diligence review must be performed for each transaction, including the quantification of potential risks and A-4 G \rda\Veronica Tapia\Word Files\StafFReports\Palm Desert - 2019 updated debt policy 12-18-18.docx Administrative Procedures Manual FIN-007-A Local Debt Policy Page 5 of 12 benefits, and analysis of the impact on City creditworthiness and debt affordability and capacity. Prior to the issuance of debt or other financing obligations to finance a project, the City will carefully consider the overall long-term affordability of the proposed debt issuance. The City shall not assume more debt or other financing obligations without conducting an objective analysis of the City's ability to assume and support additional debt service payments. The City will consider its long-term revenue and expenditure trends, the impact on operational flexibility and the overall debt burden on the taxpayers. The evaluation process shall include a review of generally accepted measures of affordability and will strive to achieve and or maintain debt levels consistent with its current operating and capital needs. 1. General Fund -Supported Debt —General Fund Supported Debt generally include Certificates of Participation (COPs) and Lease Revenue Bonds (LRBs) which are lease obligations that are secured by a lease -back arrangement between the City and another public entity. Typically, the City appropriates available General Fund moneys to pay the lease payments to the other public entity and, in turn, the public entity uses such lease payments received to pay debt service on the bonds or Certificates of Participation. General Fund Supported Debt may also include bonds issued to refund obligations imposed by law, such as judgments (judgment obligation bonds (JOBs)) or unfunded accrued actuarial liabilities for pension plans (pension obligation bonds (POBs)). Without limiting the foregoing, the City may also enter into operating leases and lease -purchase agreements on an as -needed basis. These obligations do not constitute indebtedness under the state constitutional debt limitation and, therefore, are not subject to voter approval. Payments to be made under valid leases are payable only in the year in which use and occupancy of the leased property is available, and lease payments may not be accelerated as a default remedy. Lease financing requires the fair market rental value of the leased property to be equal to or greater than the required debt service or lease payments. The lessee (the City) is obligated to include in its Annual Budget and appropriate the rental payments that are due and payable during each fiscal year the lessee has use of the leased property. The City should strive to maintain its net General Fund -backed annual debt service at or less than 8% of available annually budgeted revenue. This ratio is defined as the City's annual debt service requirements on General Fund Supported Debt (including, but not limited to, COPs, LRBs, JOBs, and A-5 G \rda\Veronica Tapia\Word Files\Staff Reports\Palm Desert - 2019 updated debt policy 12-18-18.docx Administrative Procedures Manual FIN-007-A Local Debt Policy Page 6 of 12 POBs) compared to total annual General Fund Revenues net of interfund transfers. 2. Revenue Bonds — Long-term obligations payable solely from specific special fund sources, in general, are not subject to a debt limitation. Examples of such long-term obligations include those which are payable from a special fund consisting of restricted revenues or user fees (e.g., enterprise revenues) and revenues derived from the system of which the project being funded is a part. In determining the affordability of proposed revenue bonds, the City will perform an analysis comparing projected annual net revenues (exclusive of depreciation which is a non -cash related expense) to estimated annual debt service. The City should strive to maintain an annual coverage ratio of 110% (or such higher coverage ratio included in the City's existing financing documents), using historical and/or projected net revenues to cover annual debt service for bonds. To the extent necessary, the City shall undertake proceedings for a rate increase to cover both operations and debt service costs, and create debt service reserve funds to maintain the required coverage ratio. 3. Special Districts Financing — The City's special districts primarily consist of Community Facilities Districts (CFDs) and 1913/1915 Act Assessment Districts (Assessment Districts). The City will consider requests for special district formation and debt issuance when such requests address a public need or provide a public benefit. Each application will be considered on a case by case basis, and the Finance Department may not recommend a financing if it is determined that the financing could be detrimental to the debt position or the best interests of the City. 4. General Obligation Bonds — Notwithstanding their name, General Obligation Bonds are not general obligations of the City, but instead they are payable from and secured by a dedicated, voter -approved property tax override rate (i.e., a property tax in excess of the 1% basic ad valorem property tax rate which has received the approving two-thirds vote of the City's electorate). While the dedicated revenue stream to repay the debt makes General Obligation Bonds an attractive option, additional considerations for this financing mechanism include the time and expense of an election, the possibility that the electorate will not approve the ballot measure, and the legal bonding capacity limit of the assessed value of all taxable property within the City. (At the time of the adoption of this Policy, the legal bonding capacity limit is 3.75% of the assessed value of all taxable property within the City, which is the same as the limit for California general law cities. If, after the adoption of this Policy, City Council establishes a different legal bonding capacity limit for general obligation bonds pursuant Section 301 of the City Charter, such different legal bonding capacity limit shall apply.) A-6 G \rda\Veronica Tapia\Word Files\Staff Reports\Palm Desert - 2019 updated debt policy 12-18-18.docx Administrative Procedures Manual FIN-007-A Local Debt Policy Page 7 of 12 5. Tax Increment Financing — Tax increment financing is a financing method whereby a portion of ad valorem property taxes (commonly called the "tax increment") that are allocated to an entity, such as a successor agency to redevelopment agency (Successor Agency), an enhanced infrastructure financing district (EIFD), a community revitalization and investment authority (CRIA) or an infrastructure and revitalization financing district (IRFD), and the entity is permitted to incur debt payable from and secured by the tax increment revenues. While tax increment debt for redevelopment agencies and Successor Agencies is entitled to the benefits of Article XVI, Section 16, of the California Constitution, no similar provision exists for EIFDs CRIAs and IRFDs at the time of adoption of this Policy. Therefore, when considering EIFD, CRIA or IRFD financing, or other types of tax increment financing which may be permitted by law in the future, debt limit concerns should be analyzed with respect to the proposed structure and taken into account in determining the practical viability of the proposed financing. 6. Conduit Debt — Conduit financing provides for the issuance of securities by a government agency to finance a project of a third party, such as a non- profit organization or other private entity. The City may sponsor conduit financings for those activities that have a general public purpose and are consistent with the City's overall service and policy objectives. Unless a compelling public policy rationale exists, such conduit financings will not in any way pledge the City's faith and credit. E. STRUCTURE OF DEBT 1. Term of Debt — In keeping with Internal Revenue Service regulations for tax-exempt financing obligations, the weighted average maturity of the debt should not exceed 120% of the weighted average useful life of the facilities or projects to be financed, unless specific circumstances exist that would mitigate the extension of time to repay the debt and it would not cause the City to violate any covenants to maintain the tax-exempt status of such debt, if applicable. 2. Rapidity of Debt Payment; Level Payment — To the extent practical, bonds will be amortized on a level repayment basis, and revenue bonds will be amortized on a level repayment basis considering the forecasted available pledged revenues to achieve the lowest rates possible. Bond repayments (which may take into account all bonds to be repaid from the same source of funds) should not increase on an annual basis in excess of 2% without a dedicated and supporting revenue funding stream. Accelerated repayment schedules reduce debt burden faster and reduce total borrowing costs. The Finance Department will amortize debt through the most financially advantageous debt structure and to the extent possible, match the City's projected cash flow to the anticipated debt service A-7 G.\rda\Veronica Tapia\Word Files\Staff Reports\Palm Desert - 2019 updated debt policy 12-18-18.docx Administrative Procedures Manual FIN-007-A Local Debt Policy Page 8 of 12 payments. "Backloading" of debt service will be considered only when one or more of the following occur: a) Natural disasters or extraordinary or unanticipated external factors make payments on the debt in early years prohibitive. b) The benefits derived from the debt issuance can clearly be demonstrated to be greater in the future than in the present. c) Such structuring is beneficial to the aggregate overall debt payment schedule or achieves measurable interest savings. d) Such structuring will allow debt service to more closely match projected revenues, whether due to lower project revenues during the early years of the project's operation, inflation escalators in the enterprise user rates, or other quantifiable reasons. 3. Serial Bonds, Term Bonds, and Capital Appreciation Bonds — For each issuance, the City will select serial bonds or term bonds, or both. On the occasions where circumstances warrant, Capital Appreciation Bonds (CABs) may be used. The decision to use term bonds, serial bonds, or CABs is driven based on market conditions. 4. Reserve Funds — To the extent that the use of available City moneys to fund a reserve fund provides an economic benefit that offsets the cost of financing the reserve fund from bond proceeds, as determined by the Director of Finance in consultation with the City's municipal advisor and, if applicable, the underwriter for the bonds, the City may use legally permitted moneys to fund a reserve fund (in cash or through the purchase of a debt service reserve surety bond or insurance policy) for the proposed bonds, up to the maximum amount permitted by applicable law or regulation. Typically, this amount is equal to the least of: (i) maximum annual debt service on the bonds, (ii) 10% of the principal amount of the bonds (or 10% of the sale proceeds of the bonds, within the meaning of Section 148 of the federal Internal Revenue Code), or (iii) 125% of average annual debt service on the bonds. F. USE OF ALTERNATIVE DEBT INSTRUMENTS Alternative debt instruments and financing structures sometimes can provide a lower cost of borrowing in the short run, but may involve greater medium -term or long-term risk. Due diligence review must be performed for each transaction, including the quantification of potential risks and benefits, analysis of the impact on City creditworthiness and debt affordability and capacity, and an evaluation of the ability of the City to withstand the medium -term or long-term risk attendant to alternative debt instruments, including the feasibility of exit strategies. A-8 G \rda\Veronica Tapia\Word Files\Staff Reports\Palm Desert - 2019 updated debt policy 12-I8-18.docx Administrative Procedures Manual FIN-007-A Local Debt Policy Page 9 of 12 G. REFUNDING GUIDELINES The Director of Finance shall monitor all outstanding City debt obligations for potential refinancing opportunities. The City will consider refinancing of outstanding debt to achieve annual savings or to refinance a bullet payment or spike in debt service. Except for instances in which a bullet payment or spike in debt service is being refinanced, absent a compelling reason or financial benefit to the City, any refinancing should not result in an increase to the weighted average life of the refinanced debt. Except for instances in which a bullet payment or spike in debt service is being refinanced or another City policy objective is being accomplished, the City will generally seek to achieve debt service savings which, on a net present value basis, are at least 3% of the debt being refinanced. The net present value assessment shall factor in all costs, including issuance, escrow, and foregone interest earnings of any contributed funds on hand. Any potential refinancing shall additionally consider whether an alternative refinancing opportunity with higher savings is reasonably expected in the future. Refundings which produce a net present value savings of less than 3% will be considered on a case -by -case basis. Notwithstanding the foregoing, a refunding of Successor Agency bonds shall be determined based on the requirements of Health and Safety Code Section 34177.5. H. MARKET COMMUNICATION, ADMINISTRATION, AND REPORTING 1. Rating Agency Relations and Annual or Ongoing Surveillance — The Director of Finance shall be responsible for maintaining the City's relationships with the major rating agencies that rate the City's bond issues (such as S&P Global Ratings, Fitch Ratings and Moody's Investors Service). These agencies' rating criteria often change and the City cannot control the decisions made by any rating agency. However, for each debt issue that the City will seek a rating assignment, the City will strive to obtain and maintain the highest possible underlying, uninsured rating. In addition to general communication, the Director of Finance shall: a) Ensure the rating agencies are provided updated financial statements of the City as they become publically available. b) Communicate with credit analysts at each agency as may be requested by the agencies. c) Prior to each proposed new debt issuance, schedule meetings or conference calls with agency analysts and provide a thorough update on the City's financial position, including the impacts of the proposed debt issuance. 2. Council Communication — The Director of Finance should report feedback from rating agencies, when and if available, regarding the City's financial strengths and weaknesses and areas of concern relating to weaknesses as they pertain to maintaining the City's existing credit ratings. A-9 G \rda\Veronica Tapia\Word Files\Staff Reports\Palm Desert - 2019 updated debt policy 12-18-18.docx Administrative Procedures Manual FIN-007-A Local Debt Policy Page 10 of 12 3. Continuing Disclosure Compliance — The City shall remain in compliance with Rule 15c2-12, promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, by filing (to the extent required by the applicable continuing disclosure undertaking). The City adopted Continuing Disclosure Compliance Procedures on December 8, 2016 pursuant to City Council Resolution No. 2016-91, The Director of Finance, as the Responsible Officer thereunder, shall file or caused to be filed the required annual financial statements and other financial and operating data for the benefit of its bondholders within nine months of the close of the fiscal year, or by such other annual deadline required in any continuing disclosure agreement for any debt issue. The Director of Finance shall also file or cause to be filed such notices of reportable events as required by the continuing disclosure undertaking ("Listed Event Notices"). In connection with amendments to Rule 15c2-12 adopted in 2018, for any new continuing disclosure agreement executed on or after February 27, 2019 with respect to a debt issue (the "Debt"), the Director of Finance shall, before the Debt issuance date, review the City's financial records and create a list of the City's existing financial obligations (as such term is defined by Rule 15c2-12) that may be material to an investor's decision pertaining to the Debt (the "Financial Obligations List"). The Financial Obligations List shall be continuously updated. Whenever the City prepares to enter into a new financial obligation or modify the terms of an existing financial obligation, the Director of Finance shall determine whether the incurrence of such financial obligation or modification of terms would require a Listed Event Notice under the continuing disclosure agreement. If a determination is made that a Listed Event Notice would be required, the Director of Finance, in consultation with legal counsel, shall cause the Listed Event Notice to be filed on a timely basis. The City shall maintain a log or file evidencing that all continuing disclosure filings have been made promptly. 4. Debt Issue Record -Keeping — A copy of all debt -related records shall be retained at the City's offices. At minimum, these records shall include all official statements, bond legal documents/transcripts, resolutions, trustee statements, leases, and title reports for each City financing (to the extent available). Such records shall be retained while any bonds of an issue are outstanding and during the six -year period following the final maturity or redemption of the bond issue or, if later, while any bonds that refund bonds of that original issue are outstanding and for the six year period following the final maturity or redemption date of the latest refunding bond issue. 5. Arbitrage Rebate — The use of bond proceeds and their investments must be monitored to ensure compliance with all arbitrage rebate requirements A-10 G \rda\Veronica Tapia\Word Files\StaffReportsTalm Desert - 2019 updated debt policy 12-18-18 docx Administrative Procedures Manual FIN-007-A Local Debt Policy Page 11 of 12 of the Internal Revenue Code and related Internal Revenue Service regulations, in keeping with the covenants of the City and/or related entity in the tax certificate for any federally tax-exempt financing. The Director of Finance shall ensure that all bond proceeds and investments are tracked in a manner which facilitates accurate calculation; and, if a rebate payment is due, such payment is made in a timely manner. I. CREDIT RATINGS The City will consider published ratings agency guidelines regarding best financial practices and guidelines for structuring its capital funding and debt strategies to maintain the highest possible credit ratings consistent with its current operating and capital needs. J. CREDIT ENHANCEMENT Credit enhancement may be used to improve or establish a credit rating on a City debt obligation. Types of credit enhancement include letters of credit, bond insurance and surety policies. The City, in consultation with the City municipal advisor, may determine the use of a credit enhancement, for any debt issue, if it reduces the overall cost of the proposed financing or if the use of such credit enhancement furthers the City's overall financing objectives. J. SIB 1029 COMPLIANCE Senate Bill 1029, signed by the State Governor on September 12, 2016, and enacted as Chapter 307, Statutes of 2016, requires issuers to adopt debt policies addressing each of the five items below: i. The purposes for which the debt proceeds may be used. Section C.2 (Acceptable Uses of Debt and Proceeds of Debt), Section C.3 (Short -Term Debt) and Section CA (Prohibited Use of Debt and Proceeds of Debt) address the purposes for which debt proceeds may be used. ii. The types of debt that may be issued. Section C.3 (Short -Term Debt), Section D (Types of Financing Instruments; Affordable and Planning Policies), Section E (Structure of Debt) and Section F (Use of Alternative Debt Instruments) provide information regarding the types of debt that may be issued. iii. The relationship of the debt to, and integration with, the issuer's capital improvement program or budget, if applicable. Section C.1 (Acceptable Conditions for the Use of Debt) provides information regarding the relationship between the City's debt and Capital Improvement Program. iv. Policy goals related to the issuer's planning goals and objectives. A-11 G \rda\Veronica Tapia\Word Files\Staff Reports\Palm Desert - 2019 updated debt policy 12-18-18.docx Administrative Procedures Manual FIN-007-A Local Debt Policy Page 12 of 12 As described in Section B (Background), Section D (Types of Financing; Affordability and Planning Policies) and other sections, this Policy has been adopted to assist with the City's goal of maintaining fiscal sustainability and financial prudence. V. 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. Section C.5 (Internal Control Procedures Concerning Use of Proceeds of Debt) provides information regarding the City's internal control procedures designed to ensure that the proceeds of its debt issues are spent as intended. A-12 G \rda\Veronica Tapia\Word Files\Staff Reports\Palm Desert - 2019 updated debt policy 12-18-18.docx