Debt Service and Policies
DEBT POLICIES AND RATING
The purpose of the debt policies is to establish debt issuance guidelines and describe the types of debt the City will undertake and in which circumstances. These policies are applicable to all debt issuance for the City of Fountain including obligations which are not legally debt (i.e. leases). Leases are obligations of the City of Fountain that are subject to annual appropriation of funds for their payment by the City Council of the City of Fountain. The debt policies are summarized below and are a part of the City of Fountain Financial Policies and procedures Manual that may be found at the folloiwing link:
https://fountaincolorado.hosted.civiclive.com/cms/One.aspx?portalId=6004447&pageId=8299166
Debt Rating: As of October 9, 2020, S&P Global Ratings assigned its 'A' long-term rating to the City of Fountain, Colo.'s series 2020 taxable water and electric revenue refunding bonds. At the same time, S&P Global Ratings affirmed its 'A' underlying rating (SPUR) on Fountain's revenue bonds outstanding. The electric, water, and wastewater enterprise (the combined utility) provides electric and water services in and near Fountain. Net revenue of the combined utility (excluding 50% of connection fee revenue) secures the bonds. The outlook is stable.
The City’s General Fund direct bonded indebtedness limit, based on 10% of the 2020 Assessed Valuation, is $23,812,000. Since the General Fund has no bonded indebtedness, the entire debt limit is currently available.
As indicated in our Finanical Policies and in accordance with State Tabor regulations, the City may not take on general obligation debt that is not voter approved.
7.1 Debt Guidelines
The purpose of this policy is to establish the primary guidelines under which debt will be issued to the City.
• The City will seek to maintain, and if possible, improve its current bond rating so its borrowing costs are minimized and its access to credit is preserved. Sound financial practices, debt management and capacity, and competent management support the maintenance of the City’s current bond rating. In its relations with rating agencies and the investment community, the City will follow a policy of full disclosure, as required by legal and professional practices.
• Credit Worthiness. The City will seek to maintain, and as possible, improve its current credit rating so its borrowing costs are minimized and its access to credit is preserved and enhanced.
• The City will maintain good communications about its financial condition with bond and credit rating institutions.
• Borrowing Purposes. The City will not fund current operations from the proceeds of borrowed funds, except for short-term cash flow borrowing such as Tax Anticipation Notes. The City will confine long-term borrowing to capital improvements, projects, or equipment, which cannot be funded from current revenues.
• Debt Repayment. When the City uses long-term debt financing, it will repay the debt within a period not to exceed the useful life of the improvements or equipment.
• Whenever possible, debt shall be self-supporting, and will be revenue debt, or revenue-backed with a general obligation pledge.
• The general obligation pledge will be used only for projects, which have a general benefit to City residents, which cannot be self-supporting.
• Arbitrage occurs when the funds received from a bond are reinvested at a higher interest rate than that which is paid to the bond investors. Taxes must be paid on any profits derived by the City from such reinvestment. Reports are required for each bond on every five year anniversary of the bond issue date. The finance director will contract with an arbitrage compliance consulting firm to ensure proper calculation and compliance with IRS arbitrage regulations.
• A calendar with up-to-date payment information will be maintained by Finance for all debt obligations of the City.
7.2 Types of Debt
7.2.1 The following types of debt may be issued by the City:
• Pursuant to Section 10.5 of the City Charter, revenue bonds, payable from any or source or sources other than ad valorem taxes of the City, may be issued without an election by Council action.
• Local or Special Improvement District Bonds may be issued and debt repayments scheduled pursuant to the requirements set forth in Section 10.8 of the City Charter.
• Advance refunding will generally be undertaken only when the net present value savings exceeds 4% of the net interest cost or when the restructuring of debt is in the City’s financial interest in accordance with the provisions set forth in Section 10.6 of the City Charter.
• Lease purchase debt, including certificates of participation, will be considered as an alternative to long-term vendor leases when cost effective. Such debt will be subject to annual appropriation and administered by the Finance Department.
• Long-term lease purchases for buildings and facilities will be used when the cost of a lease purchase is lower than other options or if deemed appropriate because of time constraints, etc. pursuant to the requirements set forth in section 10.7 of the City Charter.
• Direct Bonded Debt. Pursuant to Section 10.4 of the City Charter, the Net Direct Bonded Debt as a percentage of Assessed Value shall not exceed 10%.
• Conduit Financing. Recognizing that the City is able to issue debt for broad purposes, it may be appropriate to issue on behalf of another party when the City Council, after a complete review process, determines that the proposed project will provide a general benefit to City residents. The City will consider issuing conduit financing which will not impair the City’s credit rating. Any financing issued through the City shall qualify for an investment grade rating by one or both of the two top rating agencies. All expenses related to conduit financing will be borne by the applicants. The City shall establish review procedures for projects, including public contracting and financial fees.
• Loans/Installment Purchases. Because all loans and installment purchases are considered the City’s debt, it is very important that Finance complete those transactions on behalf of the City. Finance will maintain a copy of the agreement, payment schedule, and contact name. Finance is also available to review terms of any loan or lease purchase agreement. All payments will be processed through Finance.
• Certificates of participation are used when a revenue source is available within the City’s long-range operational forecasts.
• Other Financing. The City may issue debt on behalf of its enterprises subject to the same criteria listed above. Debt issued for City enterprises shall be approved by the City Council.
• Interfund borrowings may occur for temporary cash flow reasons and are not intended to result in a transfer of financial resources. Any interfund borrowings from one fund to another must be approved by the City Council by resolution. In such cases, a loan agreement between the funds will be included and attached to the Council resolution containing repayment terms, interest rates, due dates, etc.
GENERAL FUND DEBT DESCRIPTIONS AND SCHEDULES
The General Fund debt service details and in total are indicated below.
During 2012, the City entered into a lease purchase agreement for $3 million for the construction of a replacement fire station #1 and the remodel of the existing combined police/fire station #1 into a solely police facility. Interest is paid semi-annually, and annual principal payments are due under the lease agreement through September 2032. Interest accrues on the outstanding balance at the rate of 3.95%.
During 2016, the City entered into a five year 1.663% lease agreement for $275,000 to purchase 4 new police vehicles plus equipment and new radios for $80,422 for several departments to allow for emergency communication due to E-911 consolidation. Annual payments of $74,005 are due under the lease agreement through August 2021.
During 2017, the City entered into a lease agreement for $1 million for the Lorraine building remodel with a 15 year term. Interest accrues at 3.15% and is paid semi-annually. Annual principal payments are due the under the lease agreement through September 2032.
During 2017, the City entered into a ten year lease agreement for $482,518 to purchase a new Rosenbauer Pumper Fire Truck and related equipment. Interest accrues at 2.52% per annum. Monthly payments of $4,552 are due under the lease agreement through August 2027.
During 2017, the City entered into a five year lease agreement for $809,770 to purchase ten replacement police vehicles and related equipment, and new streets equipment including a track loader, patching machine, and street sweeper. Interest accrues at 2.07%. Monthly payments of $14,218 are due under the lease agreement through August 2022.
During 2017, the City entered into a 15 year lease agreement for $1,004,165 with Siemens EPC for energy efficient upgrades to multiple City facilities. Quarterly payments are due beginning first quarter 2018 under the lease agreement with an interest rate of 2.72% through December 2032.
During 2017, the City entered into a ten year lease agreement for $104,300 to purchase a new mobile command center and related equipment for Public Safety. Interest accrues at 2.74% per annum. Monthly payments of $995 are due under the lease agreement through December 2027.
During 2017, the City entered into a five year lease agreement for $465,000 to purchase data backup and network replacement equipment for IT, new customer service billing software, and a new meter data management system for utilities. Interest accrues at 3.92% per annum. Annual payments of $100,282 are due under the lease agreement through April 2022.
During 2020, the City entered into a five year lease agreement for $522,428 to purchase new IT servers City wide. Interest accrues at 2.20% per annum. Annual payments of $113,573 are due under the lease agreement through November 2024.
The City anticipates leasing a new fire truck in 2022 at a cost of $575,000.
The City’s General Fund direct bonded indebtedness limit, based on 10% of the 2020 Assessed Valuation, is $23,812,000. Since the General Fund has no bonded indebtedness, the entire debt limit is currently available.
As indicated in our Finanical Policies and in accordance with State Tabor regulations, the City may not take on general obligation debt that is not voter approved.
WATER FUND DEBT DESCRIPTIONS AND SCHEDULES
The Water Fund debt service details and in total are indicated below.
During 2013, the City entered into a loan agreement with the Colorado Water Resources and Power Development Authority (CWRPDA). Authorized uses of the loan proceeds include the construction of the Southern Delivery System and remodel of the future Utility Customer Service Center located across the street from City Hall. Payments of interest and principal are due semi-annually on February 1 and August 1, through August 1, 2043. Interest accrues at rates ranging from 2% to 4% per annum.
During 2014, the 2005 loan agreement with the Colorado Water Resources and Power Development Authority (CWRPDA) was refunded by issuing new debt of $16,900,000 through CWRPDA to refund $6,455,000 with a final payment from the City of the 2005 loan agreement in 2015 of $203,875 and new debt for projects of $10,445,000. The total refunding cash savings over the remaining life of the bonds is approximately $998,000 with net present value percent savings of 10.27%.
During 2014, the City entered into a $16,900,000 loan agreement with the Colorado Water Resources and Power Development Authority (CWRPDA). Authorized uses of the loan proceeds included refunding all but $400,000 of the 2005 CWRPDA loan and new uses for the construction of the Southern Delivery System, Water Rights Acquisition, Water Main Projects, and Supervisory Control and Data Acquisition (SCADA). Payments of interest and principal are due semi-annually on February 1 and August 1, through August 1, 2044. Interest accrues at rates ranging from 2% to 5% per annum.
During 2015, the City issued $3.965 million of new City of Fountain Water Revenue 2015 Series Bonds. Authorized uses of the loan proceeds included uses for the construction of the Southern Delivery System, Water Rights Acquisition, Water Main Projects, Supervisory Control and Data Acquisition (SCADA), and New Water Building-design and issuance costs. Payments of interest and principal are due semi-annually on June 1 and December 1, through December 1, 2045. Interest accrues at rates ranging from 3% to 3.625% per annum.
During 2016, the City issued $7.15 million of new City of Fountain Water Revenue 2016 Series Bonds to refund the 2009 loan agreement with the Colorado Water Resources and Power Development Authority (CWRPDA). The original 2009 issue loan proceeds uses included the purchase of a facility to house the utility customer service operations and the purchase of land for a future raw water storage reservoir. The total refunding cash savings over the remaining life of the bonds is approximately $1.86 million with net present value percent savings of 19.15%. Payments of interest and principal are due semi-annually on June 1 and December 1, through December 2038. Interest accrues at rates ranging from 2% to 4% per annum.
During 2019, the City issued $19.0 million of new City of Fountain Electric and Water Revenue 2019 Series Bonds. This debt is shared between the Electric and Water Utilities with Water’s share being $7.6 million or 40%. Authorized uses of the loan proceeds for water included various system infrastructure and well improvements, the City’s portion of the design and construction of a new Water Treatment Building at Aga Park, the Water Fund’s share of the design and construction of a new Joint Operations Utility Building for Water and Electric, and issuance costs. Payments of interest and principal are due annually on December 1, through December 1, 2039. Interest accrues at rates ranging from 3% to 5% per annum.
During 2020, the City issued $8.34 million of new City of Fountain Water Revenue 2020 Series Bonds to refund the 2011 loan agreement with the Colorado Water Resources and Power Development Authority (CWRPDA). The uses of the original 2011 issue loan proceeds included the construction of the Southern Delivery System and Phase 1 of the remodel of the future Utility Customer Service Center, located across the street from City Hall. The total refunding cash savings over the remaining life of the bonds is approximately $1.64 million with net present value percent savings of 10.16%. Payments of interest and principal are due annually on December 1, through December 2041. Interest accrues at rates ranging from .77% to 3.3% per annum.
These loans are payable solely from revenues of the City’s utility system, which includes the Water and Electric Funds, after deduction of operating and maintenance costs.
ELECTRIC FUND DEBT DESCRIPTIONS AND SCHEDULES
The Electric Fund debt service details and in total are indicated below.
During 2017, the City entered into a five year lease agreement for $713,080 to purchase new hardware and software for customer service billing software and meter data management systems. Interest accrues at 2.0% per annum. Monthly payments of $12,594 are due under the lease agreement through December 2022.
During 2019, the City issued $19.0 million of new City of Fountain Electric and Water Revenue 2019 Series Bonds. This debt is shared between the Electric and Water Utilities with Electric’s share being $11.4 million or 60%. Authorized uses of the loan proceeds for electric included construction of a 115kV transmission line, design and construction of a new electric substation, the Verizon Collocation Project, the Electric Fund’s share of the design and construction of a new Joint Operations Utility Building for Water and Electric, and issuance costs. Payments of interest and principal are due annually on December 1, through December 1, 2039. Interest accrues at rates ranging from 3% to 5% per annum.
These loans are payable solely from revenues of the City’s utility system, which includes the Water and Electric Funds, after deduction of operating and maintenance costs.
AMBULANCE FUND DEBT DESCRIPTIONS AND SCHEDULES
The City’s Ambulance Fund entered into an $83,000 lease agreement for 6 years in 2015 to purchase a new replacement ambulance. A grant of $77,000 offset the total cost of the $162,000. Monthly payments of $1,235 are due under the lease agreement through July 2021. Interest accrues on the outstanding balance at the rate of 2.28%.
PUBLIC TRANSPORTATION FUND DEBT DESCRIPTIONS AND SCHEDULES
During 2018, the City entered into a four year lease agreement for $140,834 to purchase two new buses for Fountain Public Transportation. Annual payments of $37,644 are due under the lease agreement through May 2021. Interest accrues on the outstanding balance at the rate of 4.65%.
