11/21/2016 - City Council Finance CommitteeFINANCE COMMITTEE MEETING
MONDAY, NOVEMBER 21, 2016
12:30 P.M.
CITY HALL
FIRST FLOOR CONFERENCE
AGENDA
I. AGENDA ADOPTION
II. FIRE ADMINISTRATION BUILDING
III. DEBT MANAGEMENT POLICY
IV. UPDATE ON NORTHEAST EAGAN CONFERENCE CENTER/HOTEL FEASIBILITY STUDY
V. OTHER BUSINESS
VI. ADJOURNMENT
Agenda Information Memo
Finance Committee Meeting
November 21, 2016
Fire Administration Building
Action to Be Considered:
Provide direction to staff on the next steps regarding the possible sale of the Fire Administration
Building
Facts:
➢ Information will be provided at the meeting from the City Attorney's office regarding the recent
completion of a range of value analysis on the Fire Administration Building to assist with
providing direction to staff on the next steps regarding the possible sale of the Fire
Administration Building.
Attachments: (0)
Agenda Information Memo
Finance Committee Meeting
November 21, 2016
III. DEBT MANAGEMENT POLICY
Action To Be Considered:
Suggest edits and/or direct Debt Management Policy to a future City Council meeting for
adoption.
Facts:
➢ When the City issued Capital Improvement bonds in 2016, Standard & Poor's
commented on the City's lack of a formal debt policy adopted by the Council.
➢ To remedy that, staff has drafted a policy using the Government Finance Officers
Association best practices as a framework. Debt polices from comparably -sized
Minnesota metro area cities were reviewed and utilized in the process of
drafting the City's policy as well.
➢ Staff is working with Springsted right now on a possible refunding of the City's
2008A State Aid bonds in early -2017. If that refunding moves forward, the credit
ratings agencies will be updating their ratings, so adoption of a Debt
Management Policy now will be timely.
➢ Staff will be available at the Finance Committee meeting to answer any
questions.
Attachments (1)
Debt Management Policy
City of Eagan, Minnesota
November 2016
Purpose
The purpose of this policy is to establish parameters and restrictions that guide the issuance and
management of direct and conduit long-term debt to ensure the ongoing financial health and stability of
the City.
• Direct debt can be in the form of special assessment bonds, tax increment bonds, housing
improvement bonds, revenue bonds, capital improvement bonds, equipment certificates, and
other debt instruments as authorized by Federal and State law. Sections 1 through 5 of this policy
relate to direct debt.
• Conduit debt can be in the form of private activity revenue bonds for 501(c)(3) organizations or
low-income housing revenue bonds. The City is not liable to repay conduit debt; it is fully the
responsibility of the private entity. Conduit debt policy is outlined in Section 6 herein.
Debt is a mechanism that allows capital improvements to proceed when needed, in advance of when it
would otherwise be possible. Debt can reduce long-term costs due to inflation and prevent lost
opportunities. Debt also equalizes the costs of improvements to present and future constituencies in that
the beneficiaries of a project are the same generation that carries its tax burden.
Some of the debt management policy statements contained herein reflect state and federal laws and
regulations; other policy statements reflect the City's best practices, goals, and limits and/or acceptable
ranges of total debt and annual debt service.
1. Debt Limits
a) Debt may be issued for public improvement projects, public facilities construction, or capital
equipment purchases as authorized under Minnesota Statutes §475 (general municipal debt),
444 (water, sanitary sewer and storm sewer debt), 429 (special assessment debt), 412
(equipment certificates) and 469 (tax increment and conduit debt).
b) Debt shall not be issued for capital projects or assets with a useful life of less than 5 years.
c) Debt shall not be issued to finance current operations.
d) Minnesota Statutes §475.53 restricts net debt obligations (gross debt less available debt
service funds and deferred assessment revenues) to 3% of the estimated market value of
taxable property within the City. The policy of the City is to limit net debt obligations to half
of the State limit, or 1.5% of the City's estimated taxable market value.
e) Total annual debt service payments, excluding refunded debt where funds are held in escrow
to pay it, should not exceed 10% of the total annual locally -generated operating revenue of
the General and other governmental funds.
Debt Management Policy
City of Eagan, Minnesota
November 2016
2. Debt Structuring Practices
a) The term of a bond issue shall not exceed the useful life of the related asset.
b) Amortization of the debt service should be equal principal payments annually or roughly
equal total payments. Debt should not be structured with large balloon payments toward the
end of the term.
c) Redemption features (calls) are to be included when reasonable and prudent to afford the
City the option to refinance in favorable market conditions.
d) To provide more certainty of future debt service, the City will issue fixed-rate debt, not
variable-rate debt.
e) Except in special circumstances identified by the City Council, all bonds issued by the City will
be designated general obligation bonds (i.e., backed by the full faith and credit of the City). In
addition, when possible and as appropriate for the specific bond issue, special assessments or
other revenue streams will be pledged in support of the bonds.
3. Debt Issuance Practices
a) The City will engage an independent financial advisor to assist with determining the
appropriate method of sale for each bond issue. Unless special circumstances or market
conditions warrant otherwise, bonds will be marketed on a competitive bid basis.
b) The City will engage at least one of the three major credit ratings agencies to provide rating
services in advance of the sale.
c) The City will engage bond counsel to advise on the legal issues related to the issue and sale of
bonds.
d) The City will engage an independent financial advisor to review from time to time
opportunities for the City to refund (refinance
crossover refundings.
existing debt by way of current or advance
e) A minimum net present value savings of 3% of outstanding principal is required for an
advance crossover refunding issue. The net present value savings of a refunding issue should
be at least 1.25 times the total cost of refunding.
f) Under Federal law, cities may issue a maximum annual amount of debt that qualifies for
specific bank tax deductions. The effect of issuing "bank -qualified" debt is generally lower
rates and better marketability of the bonds. The City will prioritize use of its annual level of
bank -qualified debt for its own primary purposes; tax-exempt financing for other local
governments, not-for-profit organizations, or housing improvement districts will be of lower
priority and should not be provided if doing so disqualifies the City from bank -qualified status.
2
Debt Management Policy
City of Eagan, Minnesota
November 2016
4. Debt Management Practices
a) Bond proceeds shall be invested in accordance with the City's Investment Policy, which
requires that bids from at least three offering brokerages are solicited with each investment
opportunity, thus maintaining compliance with the Security and Exchange Commission's (SEC)
Municipal Advisor Rule regarding investment of bond proceeds.
b) The City will engage an independent financial advisor to assist in compliance with primary and
secondary market disclosure practices, including annual certifications and SEC reporting, as
required.
c) The City will engage an independent financial advisor to monitor arbitrage rebate filing
deadlines and complete the appropriate calculations and reporting requirements.
d) The City will maintain frequent and regular communications with its bond ratings agencies
about its financial condition, and will follow a policy of full disclosure in its financial reports
and bond prospectus official statements.
5. Use of Derivatives
a) The City will NOT allow the use of debt -related derivative products such as interest rate
swaps, futures and options contracts, and other hedging mechanisms.
6. Conduit Debt
a) Conduit debt is tax-exempt debt issued in the name of the City on behalf of a private entity,
but for which the City has no obligation to pay.
b) Conduit debt can be for low-income housing or capital projects of not-for-profit entities,
C)
d)
e)
f)
subject to approval by the City Council.
The City will not issue conduit debt if it jeopardizes the bank -qualified status of existing or
planned direct debt.
The City will not issue conduit debt on behalf of religious institutions.
To be considered for approval, the private entity shall submit an application to the City,
addressed to the Finance Director, who will review the propriety of the application and the
City's bank -qualified status, and place it on a City Council agenda for consideration.
The City will charge fees to the private entity according to the City's Fee Schedule.
Agenda Information Memo
Finance Committee Meeting
November 21, 2016
IV. Update on Northeast Eagan Conference Center/Hotel Feasibility Study
Action to Be Considered:
None. Staff will provide an update to the Finance Committee on the status of the consultant selection
and schedule for the Northeast Eagan Conference Center/Hotel Feasibility Study.