REPORT TO COUNCIL
SUBJECT
Title
Action on the City’s Debt Management Policy
Report
BACKGROUND
The Government Finance Officers Association (GFOA) recommends that state and local governments adopt comprehensive written debt management policies. In addition, effective January 1, 2017, California Government Code section 8855(i) requires any issuer of public debt to provide the California Debt and Investment Advisory Commission (CDIAC) a report of any proposed issuance. The report to the CDIAC must include certification that the issuer has adopted local debt policies concerning the use of debt and that the proposed debt issuance is consistent with those policies.
A debt management policy improves the quality of decisions and adherence to the policy signals to rating agencies and capital markets that a government is well managed and therefore is likely to meet its debt obligations in a timely manner. The City of Santa Clara’s (the “City”) Debt Management Policy (the “Policy”) provides guidance for the issuance of bonds and other forms of indebtedness to finance land acquisition, construction, equipment, and other capital requirements of the City. The Policy is reviewed annually by Finance Department staff and updated as necessary to promote prudent debt management decisions and to remain compliant with state and federal laws.
The City’s original Policy was adopted by City Council in March 2018 and provides written guidelines on the issuance of debt, management of the City’s debt portfolio, and adherence to various laws and regulations related to the City’s debt.
DISCUSSION
The City’s Policy is continually monitored to determine if updates are necessary and prudent. A review of the current Policy was conducted by the Finance Department in anticipation of the upcoming General Obligation bond issuance anticipated for January 2026. In the latest review of the Policy, staff has identified recommended revisions (See Attachment 1 for the revised policy and Attachment 2 for the track changes version). The following notable changes are recommended to the Policy to ensure that the Policy and City processes and procedures remain consistent with state and federal rules and GFOA best practices:
1. Require that all publicly offered debt issuances meet the disclosure requirements of the Securities and Exchange Commission and other government agencies before and following bond sales. The Policy requires the Finance Department to prepare and periodically review and update, as necessary, Disclosure Controls and Procedures. See Attachment 3.
2. Specify the types of allowable short-term debt the City may issue, including Commercial Paper (CP), Line of Credit (LOC), Grant Anticipation Notes (GANs), Bond Anticipation Notes (BANs), Tax and Revenue Anticipation Notes (TANs & RANs), and Other short-term debt such as a Direct Purchase Loan from a bank or Floating Rate Notes, and the conditions or requirements to issue such short-term debt.
3. Reference the Finance Department’s Citywide Tax-Exempt Bond Proceeds Drawdown Procedures under the Arbitrage Rebate section. To facilitate the accurate and timely drawdown of tax-exempt bond proceeds spent on project expenditures and adhere to the arbitrage rebate requirements of the federal tax code, the Finance Department has established Citywide Tax-Exempt Bond Proceeds Drawdown Procedures (the “Drawdown Procedures”). The Drawdown Procedures provide guidance to City staff following the issuance of debt for the financing of City capital projects and are intended to (i) ensure the City’s compliance with relevant federal and state securities laws, and (ii) maximize interest earnings on tax-exempt bond proceeds the City is legally allowed to earn and retain. See Attachment 4.
The proposed Policy establishes prudent guidelines for managing the City’s debt to meet long-term goals and is in compliance with all provisions of the City Charter and the California Government Code section 8855(i) relevant to the issuance of public debt by local agencies. Additionally, the Policy provides guidance regarding the types of debt the City may issue (fixed or variable rate, tax-exempt or taxable), the methods for issuing debt obligations (competitive sale, negotiated sale, or private placement), the selection of financial service providers (municipal advisors, bond counsel, trustees, etc.), and the structural features of debt issuances (final maturity, call options, etc.) The Policy also describes various revenue sources that may be used to secure debt, such as property taxes, enterprise revenue, lease revenue, and special assessments. To help ensure that debt is issued in a financially prudent manner, the Policy includes sections related to debt capacity limits, debt service reserves, credit ratings, credit enhancements, and the investment of bond proceeds, as well as an appendix on interest rate swap guidelines. The Policy provides guidance on continuing disclosure, compliance, and reporting requirements following the issuance of debt, and a glossary of debt management terms.
The approved policy will be incorporated in the City Policy and Procedures Manual and published on the City’s website.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of a California Environmental Quality Act (“CEQA”) pursuant to the CEQA Guidelines section 15378(a) as it has no potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment. Furthermore, the action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(5) in that it is a governmental organizational or administrative activity that will not result in direct or indirect changes in the environment.
FISCAL IMPACT
There is no cost to the City other than administrative staff time and expense which is already budgeted.
COORDINATION
This report has been coordinated with the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
Approve the Debt Management Policy for the City of Santa Clara, its agencies and corporations.
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Jovan D. Grogan, City Manager
ATTACHMENT
1. Debt Management Policy
2. Debt Management Policy (blackline)
3. Disclosure Controls and Procedures
4. Citywide Tax-Exempt Bond Proceeds Drawdown Procedures