Debt Financial Policies

Fiscal Year 2022 Operating and Capital Budget

Debt Financial Policies

In this section, you will find information on the City's financial policies related to the following topics:

  1. Introduction, Scope, and Authority
  2. Objectives
  3. Debt Administration
  4. Maintaining & Improving Credit Ratings
  5. Types of Debt
  6. Conduit Debt
  7. Investment of Bond Proceeds
  8. Purpose of Financing
  9. Criteria for Evaluating Debt Options
  10. Debt Issuance
  11. Continuing Disclosure
  12. Professional Services
  13. Credit Enhancement
  14. Secondary Market Disclosure

1a. Debt Policy - Introduction

As a commitment to long-term financial planning, the City has developed a debt policy which meets the following objectives:

  • Facilitates the execution of strategic goals;
  • Maintains the City’s fiscal strength;
  • Ensures that public funds are protected; and
  • Maximizes the City’s ability to provide quality services.

The City recognizes that revenue sources are limited; therefore, careful attention must be focused on balancing future flexibility with the need to consume scarce resources. This policy validates the City’s commitment to adhere to best financial management practices to guarantee that appropriations for capital purposes are equitable to each generation of taxpayers and other beneficiaries. The policy sets forth comprehensive guidelines to ensure that the City maintains a sound financial position.

1b. Debt Policy - Scope and Authority

The policy shall apply to all debt issued by the City and the Community Redevelopment Areas, and shall govern the issuance process, including the selection and management of related financial services and products and investment of debt proceeds.

The Chief Financial Officer or designee is the designated administrator of the policy. As administrator, the Chief Financial Officer shall provide for the issuance of debt at the lowest possible cost and risk, determine available debt capacity, comply with all Internal Revenue Service (IRS), Securities and Exchange Commission (SEC), and Municipal Securities Rulemaking Board (MSRB) rules and regulations, submit to the Mayor and City Council all recommendations to issue debt, and apply and promote prudent fiscal practices. Each debt financing shall be approved by the Mayor and City Council.

2. Debt Policy - Objectives

The following goals shall define the objectives for the issuance of debt of the City which are subject to the scope of this policy.

Balance multiple financial management objectives, including:

  • Innovation — Analyze all available financing options and select the financing vehicles that address the City’s objectives at the lowest possible cost;
  • Flexibility — Preservation of the greatest level of long-term flexibility to address any future financial needs;
  • Responsibility — Fair, reasonable and equitable to each generation of taxpayers, rate payers, users, and other beneficiaries when distributing the debt burden;
  • Credit Strength — Act as a good corporate citizen to maintain or enhance the City’s credit worthiness and reputation and ensure the trust of investors and all stakeholders; and
  • Compliance and Continuing Disclosure — Comply with all debt management reporting requirements, agreements, laws, contracts, covenants, policies, and obligations.

Define and categorize the City’s current debt programs as governmental or proprietary within the self-supporting and non-self-supporting categories.

Enhance the City’s ability to access the credit markets and improve or maintain the credit ratings for each of its programs.

Identify appropriate debt constraints or limits in an effort to ensure adequate flexibility for future generations of elected officials.

Comply with all continuing disclosure requirements.

Evaluate each of the following in anticipation of new borrowing initiatives:

  • Amount of funding currently available in addition to contemplated debt issuance
  • Outstanding debt that utilizes the same revenue stream as a source of repayment
  • Appropriate final maturity
  • Use of short-term or long-term credit vehicles
  • Use of fixed rate or variable rate pricing options.

3. Debt Administration

In recognition of its fiduciary responsibility to City taxpayers, ratepayers, and other stakeholders, the City will institute and comply with the following financial best practices:

Act with regard to self-supporting proprietary operations, when necessary, to increase rates to ensure each operation maintains rate coverage (revenue to debt service ratios) as required by City policy and/ or related debt covenants;

Limit the level of annual debt service as a percentage of available annual revenues to ensure a reasonable ability to address recurring operations and maintenance and/or capital requirements on a pay-as-you-go basis for all self-supporting governmental operations;

The City is not subject to any legal debt limit restrictions but shall monitor the amount of annual debt to ensure adequate debt level capacities;

Establish the annual subsidy required and compare it to the actual subsidy needed for all non-self-supporting proprietary operations;

Account for the issuance of debt using generally accepted accounting principles as established by the Governmental Accounting Standards Board;

Maintain complete information on the outstanding debt portfolio, including: issue name, initial par amount, dated date and sale date, purpose, security type, issue type, sale type, true interest cost, arbitrage yield, average life, underwriter(s), underwriter’s discount, principal amounts by maturity, coupon rate, coupon type, original yield, interest payment frequency by maturity, principal payment by maturity, call provisions, sinking provisions, and ratings and credit enhancement, if any;

Implement processes and assign all roles and responsibilities necessary to ensure timely compliance with all continuing disclosure requirements, up to and including posting of said items on the Electronic Municipal Market Access website; and

Revenue bonds shall be payable from pledged revenues actually budgeted, appropriated, and deposited into the funds and accounts created and established pursuant to, and in the manner provided in, the bond resolution. Covenants on the part of the City to budget and appropriate sufficient pledged revenues shall be cumulative, and shall continue until such revenues accrued are sufficient to make all required payments as, and when due. Such pledges shall not constitute a lien, neither legal or equitable, on any of the City’s covenant revenues or other revenues, nor shall it preclude the City from issuing additional bonds payable from the same pledged revenue stream, so long as sufficient coverage exists after the additional issue is taken into account.

4. Maintaining & Improving Credit Ratings

The City shall strive to maintain and improve the overall credit standing of its general credit and each of its specific debt programs. When addressing efforts to improve ratings, the City will seek to balance financial flexibility (and related ability to meet the challenges facing the community) with potential limitations or restrictions.

5. Types of Debt

Prior to issuing debt, the City analyzes which type of debt is most appropriate and the term based on costs and potential covenants.

General Obligation Debt — Direct debt supported by property tax revenues and utilized as authorized by voters. The City shall not issue general obligation debt without a successful vote by referendum.

Revenue-Backed Debt — Debt supported by dedicated revenue sources including proprietary service revenues, fees, and user charges as well as non-ad valorem tax revenues, utilities services taxes, sales taxes, state revenue sources, and excise taxes. Revenue-backed debt may be issued in the form of bonds, notes, or short-term debt for both general governmental uses and enterprise uses.

Non-Ad Valorem Debt – The City may covenant to appropriate in its annual budget non-ad valorem revenues sufficient to service the debt in the manner and to the extent, and subject to certain conditions, as provided by the bond resolution. Such bonds are not secured by a specific lien or pledge of specific non-ad valorem revenues. Such covenant is subject to the requirement that the City pay for all essential governmental services.

Capital Leases — Capital leases are often used to obtain long-term assets in lieu of purchasing the assets outright. Capital leases are initially reported as long-term liabilities on the balance sheet and exhibit one or more of the following qualities:

  • Transfer of ownership at lease termination;
  • Bargain purchase option (to lessee) at lease termination;
  • Lease term equal to more than 75% of the asset’s useful life; and
  • The present value of the minimum lease payments is equal to more than 90% of the fair market value of the asset.

Over the lifetime of a lease, the total cost to the City may be higher than the outright purchase cost of the asset. However, in exceptional circumstances, leases may be suitable for financing capital expenditures including acquisition of land and equipment and construction of facilities. Capital lease financing shall be utilized on a case-by-case basis and must be approved by the Chief Financial Officer prior to entering into any such agreement.

State Revolving Funds and Pools — The Federal Government provides states with funding to create low-interest loan programs to fund water, sewer, and flood control infrastructure projects. When in its best interest, the City may apply to Florida’s State Revolving Fund programs for low-interest loans to fund qualified projects. In addition, various governmental agencies may provide low-cost funding through pooled loan programs.

6. Conduit Debt

Pursuant to City conduit debt policies and guidelines, the City may serve as a conduit issuer for certain non-profit organizations (the “borrower”). All conduit is secured by revenues pledged by the borrower and shall contain a non-recourse provision in favor of the City. Approved borrowers shall pay all fees and comply with all terms and conditions as outlined in the separately published application and policy and procedures for conduit debt. The City may, at its own discretion, decline any request to serve as conduit issuer.

7. Investment of Bond Proceeds

All bond proceeds shall be invested as part of the City’s consolidated cash pool unless otherwise specified by the loan agreement, bond legislation, or bond indenture, and approved by the Chief Financial Officer. Investments will be consistent with City and state laws, the City’s investment policy, and IRS arbitrage rules.

8. Purposes of Financing

New Money Financing — New money issues provide financing for new capital improvement expenditures. These funds are utilized for the acquisition, construction, and improvement of capital assets, and shall not be utilized to fund operational activities.

Refunding Bonds — Refunding bonds are issued to retire all or a portion of an outstanding bond issue. Refunding bonds may be issued to achieve cash flow savings, restructure the repayment schedule, change the type of debt instrument or security, or remove undesirable covenants.

The City may refinance debt to achieve interest cost savings in a declining interest rate market. A refunding transaction for the sole purpose of achieving interest cost savings shall require a present value savings of at least three percent (3%) of the refunded debt.

9. Criteria for Evaluating Debt Options

The City has established specific target benchmarks for potential exercise of debt options. Within the framework established by the goals, objectives, and established target benchmarks, the Mayor is authorized to act on behalf of the City, in a manner intended to lower the effective cost of debt to the citizens of Tampa. The following criterion have been established for evaluating debt options:

  • Maximum aggregate principal amount;
  • Maximum underwriting discount;
  • Minimum present value debt service savings;
  • Maximum True Interest Cost; and
  • Maximum final maturity.

10. Debt Issuance

Method of Sale - City debt issuances shall be offered for sale to investors by one of the following two methods. The method chosen shall be determined on a case-by-case basis:

  • Competitive Bid - When advantageous for the City, the issuance and sale of debt shall be achieved by competitive bid. Debt issued by competitive bid will be sold to the bidder proposing the lowest true interest cost to the City; or
  • Negotiated Sale - To minimize the costs and risks associated with the issuance of debt, the Chief Financial Officer may elect to sell the debt on a negotiated basis.

The negotiation of terms and conditions shall include prices, interest rates, underwriting or remarketing fees, and commissions.

The City, with the assistance of a financial advisor, shall evaluate the terms offered and oversee the bond allocation process.

The Chief Financial Officer shall require post-sale analysis and reporting for each bond sale provided by the independent financial advisor.

11. Continuing Disclosure

Pursuant to the City’s disclosure policies and procedures, the City has covenanted to provide certain financial information and operating data annually and, provide notices of the occurrence of certain enumerated material events. The City has agreed to file annual financial information, operating data, and the audited financial statements with each entity authorized and approved by the Securities and Exchange Commission (the SEC) to act as a repository (each a Repository) for the purpose of complying with Rule 15c2-12 adopted by the SEC under the Securities Exchange Act of 1934 (the Rule).

Effective July 1, 2009, the sole Repository is the Municipal Securities Rulemaking Board (MSRB). The City has agreed to file notices of certain enumerated material events, when and if they occur, with the Repository. The Chief Financial Officer, at his/her discretion, may engage disclosure counsel and/or a qualified disclosure dissemination agent to assist in regulatory compliance.

12. Professional Services

The City shall obtain professional services as required to execute financing transactions. Professional services may include financial advisors, bond counsel, disclosure counsel, trustees, and others.

Financial Advisors - The City shall select a financial advisor(s) to assist in the issuance and administration of debt. The financial advisor(s) will provide the City with objective advice and analysis, maintain confidentiality of financial plans, and be free from any conflict of interest. Scope of service may include:

  • Comprehensive financial analysis and recommendations of specific covenants, financing structure, indentures, and terms;
  • Preparation/Review of preliminary and final official statements;
  • Review of contracts as necessary, including bond purchase contracts, liquidity facility agreements, remarketing agreements, and investment and trust agreements;
  • Review of resolutions concerning the authorization and award of financing;
  • Preparation and review of advertisements of sales in published and electronic media;
  • Assist the City with the development and presentation of information to rating agencies, investors, and other municipal market participants;
  • Attendance at meetings related to financial issues affecting financing;
  • Assist the City when determining whether a particular financing package should be sold competitively or negotiated, and attend related bid openings or provide advice during sale process;
  • Assist the City with the preparation and evaluation of Requests for Proposal for financial services related to underwriting or trustee services;
  • Provide the City a post-sale analysis including an issue summary and final report;
  • Provide advice regarding the administration of the City’s debt program and recommend modifications as requested;
  • Assist the City with any other financing matters relating to issuances; and
  • Provide other services as requested by the City.

Bond Counsel – Publicly issued and privately placed debt issued by the City shall include a written opinion by legal counsel affirming that the City is authorized to issue the proposed debt has met all federal, state, and local legal requirements as well as a determination of the proposed debt’s federal income tax status. The firm selected will be expected to provide a full range of required legal services, including:

  • Rendering the bond counsel opinion regarding the validity and binding effect of the bonds, the source of payment and security for the bonds, and the excludability of interest on the bonds from gross income for federal income tax purposes;
  • Preparing and reviewing the documents required for the authorization, issuance, sale, and delivery of the bonds, and coordinating the authorization and execution of those documents, including resolutions;
  • Reviewing all legal issues relating to the structure of the bonds;
  • Preparing and reviewing of those sections of the offering documents to be disseminated in connection with the sale of the bonds, financing documents, bond counsel opinion, tax exemption, and the continuing disclosure undertaking of the City;
  • Participating in meetings as requested relating to legal issues affecting issuance of bonds;
  • Reviewing or preparing contracts, including bond purchase contracts, liquidity facility agreements, remarketing agreements, and investment and trust agreements;
  • Preparing bound official transcripts of the financing proceedings including all documentation relating to the authorization, offering, sale, and delivery of the issue; and
  • Assisting the City with other legal matters relating to issuance of the bonds that may be identified during a transaction, including investment of proceeds and reserves and compliance with federal arbitrage regulations.

Disclosure Counsel - Post-closing activities, such preparing continuing disclosure documents, are often performed by disclosure counsel. The City will engage these services as needed which typically include:

  • Drafting official statements;
  • Conducting due diligence investigation;
  • Preparing the continuing disclosure certificate and any related on-going requirements; and
  • Providing a 10b-5 opinion.

Verification Agent - The verification agent confirms that sufficient proceeds are escrowed to ensure timely repayment of principal and interest on refunded bonds. The City shall procure the services of a verification agent in conjunction with the cash defeasance or sale of refunding bonds. Selection criteria shall include: demonstrated ability to provide accurate verification of escrow funding, accuracy, timely reports, and the competitiveness of fees.

Underwriters - The City shall select underwriters based on the firm’s demonstrated ability to serve on financial transactions with similar complexity, structure a debt issue efficiently and put capital at risk, as well as experience, reputation, competitiveness of fees, and debt to institutional and retail investors. Respondents shall include in their proposals a complete and detailed list of all proposed. The underwriting expense component must be finalized and approved by the City no later than forty-eight (48) hours prior to the day of pricing. The City and its financial advisor shall monitor the services of the underwriters.

Escrow Agent - The escrow agent holds securities and/or funds that are to be delivered upon compliance with the conditions contained in the escrow agreement. The City shall secure the services of an escrow agent when deemed necessary.

Arbitrage Rebate Calculation Firm - The arbitrage rebate calculation firm provides arbitrage rebate compliance services in accordance with the Internal Revenue Code of 1986 as amended (Code). The City shall procure the services of an arbitrage rebate calculation firm when deemed necessary. The scope will include determining if requirements of the spending exception applicable to a debt issue has been met, preparing initial rebate calculations if required, preparing any computations required by the Code, and consulting with the City as requested concerning arbitrage regulations and related issues. Selection criteria shall include the firm’s qualifications and experience, staff qualifications, demonstrated ability to provide timely reports, and cost of services.

13. Credit Enhancement

The City shall always endeavor to maintain or improve its credit ratings. The City shall strive to maintain a minimum of investment grade ratings from Standard & Poor’s, Fitch Rating Inc., and Moody’s Investors Service for bonds, and the City’s issuer credit rating.

Bond Insurance - Bond insurance provides improved credit quality for the bonds as a result of the insurance provider’s guarantee of the payment of principal, and interest on the bonds. Because of the decreased risk, investors are willing to purchase bonds with lower yields than uninsured bonds, thus providing the issuer with interest cost savings. Bond insurance shall be utilized when it provides an economic advantage to a particular bond maturity or entire issue. An analysis comparing the present value of the interest savings to the cost of the insurance premium shall be performed. Insurance shall be purchased when the premium cost is less than the present value of the projected interest savings. The financial advisor shall undertake a competitive selection process when soliciting pricing for bond insurance. In the case of a competitive bond sale, the financial advisor shall facilitate the pre- qualification of bonds by insurance providers. For a negotiated sale, the Chief Financial Officer shall have the authority to purchase bond insurance when deemed advantageous and the terms and conditions governing the guarantee are satisfactory.

Letters of Credit - Letters of credit represent a bank’s promise to pay principal and interest when due for a defined period of time and subject to certain conditions. In a direct pay letter of credit, the trustee may draw upon the letter of credit to make debt service payments. A stand-by letter of credit may be used to ensure the availability of funds to pay the principal and interest of an obligation. The issuance of most variable rate debt requires the use of a liquidity facility. The financial advisor shall conduct a competitive process to recommend a letter of credit provider. Only those banks with long-term ratings greater than, or equal to, those of the City, and short-term ratings of P-1/A-1 by Moody’s Investors Service and Standard & Poor’s, respectively, may be solicited. Selection criteria shall include the bank’s acceptance of terms and conditions acceptable to the City, review of representative lists of clients, and an evaluation of fees.

14. Secondary Market Disclosure

These policies and procedures are designed to satisfy legal and contractual requirements with respect to outstanding publicly offered bonds for which it is an obligor. As discussed below, at a future date, in order to satisfy such legal and contractual requirements, the posting on MSRB’s EMMA System or new or modified financial obligations (i.e., contracts that are debt, debt-related or debt-like), including without limitation, bank loans, lines of credit, commercial paper, swaps, interlocal capital funding agreements, tax- exempt equipment lease financings, state revolving fund loans or state infrastructure bank loans, will be required.

The Chief Financial Officer is responsible for compliance with these policies and procedures. The City shall comply with the annual and material event filing requirements of any written continuing disclosure undertakings with respect to outstanding publicly offered bonds for which it is an obligor (there are and will be no such written continuing disclosure undertakings in connection with private placements, bank loans, or SRF loans) which are promulgated pursuant to Rule 15c2-12 of the Securities and Exchange Commission, as amended, including, if applicable, the amendments which become effective upon the closing of the City’s first public offering after February 27, 2019. Such amendments, when they become effective, may require City disclosures on MSRB’s EMMA System of new or modified financial obligations (i.e., contracts that are debt, debt-related or debt-like), including without limitation, bank loans, lines of credit, commercial paper, swaps, interlocal capital funding agreements, tax-exempt equipment lease financings, state revolving fund loans, or state infrastructure bank loans.

The City shall identify the documents, reports, etc. which customarily contain current information about, for example, the financial and operational condition of the City and establish a process by which the issuer makes such documents, reports, etc., accurate. Depending on facts and circumstances, inaccurate statements that can trigger federal securities law liability under the antifraud provision can be contained in reports or other documents containing financial information and/or operating data disseminated to various governmental or institutional bodies, or to the public, including Comprehensive Annual Financial Reports, budgets, the Mayor’s State of the City address, mid-year financial reports, reports submitted by a municipality to a state agency, reports made by a state or local official to a legislative body (such as a state legislature or city council), and other reports made part of a public record and available to the public, even if not filed on MSRB’s EMMA System.

The City shall retain a dissemination agent to assist with filings on MSRB’s EMMA System. When in doubt about its obligations and/or best practices under these policies and procedures, the City should consult with its Disclosure Counsel and Financial Advisors. The City shall have Disclosure Counsel conduct periodic training of City officials.

Given the potential for liability of the City and its officials with respect to information made publicly available about the City that is reasonably expected to reach investors and the trading markets, the statements of the City and its officials who may be viewed as having knowledge regarding the financial condition and operations of the City should be carefully evaluated to assure that they are not materially false or misleading. The SEC has historically encouraged municipal issuers and their officials to take steps to reduce the risk of misleading investors. For example, in 1994, the SEC provided interpretive guidance in order to minimize the risk of misleading investors, and recommended that municipal issuers “should establish practices and procedures to identify and timely disclose, in a manner designed to inform the trading market, material information reflecting on the creditworthiness of the issuer and obligor and the terms of the security. In the City of Harrisburg, Pennsylvania, Exchange Act Release No. 69515 (May 6, 2013), the SEC recommended that municipal issuers and their officials, at a minimum, “consider adopting policies and procedures that are reasonably designed to result in accurate, timely, and complete public disclosures; identifying those persons involved in the disclosure process; evaluating other public disclosures that the municipal issuer has made, including financial information and other statements, prior to public dissemination; and assuring that responsible individuals receive adequate training about their obligations under the federal securities laws.”

In the SEC staff’s view, such reasonably designed policies and procedures, when consistently implemented, can help a municipal issuer regularly provide more accurate, timely, and comprehensive information to investors; better manage communications with their investors; and comply with the antifraud provisions. For that reason, the SEC staff encourages issuers to adopt policies and procedures which, among other things, designate an individual responsible for compliance with such policies and procedures; establish a periodic training schedule for issuer staff and officials responsible for developing, reviewing, and disseminating issuer disclosures; identify the documents, reports, etc. which customarily contain current information about, for example, the financial and operational condition of the issuer and establish a process by which the issuer makes such documents, reports, etc. regularly available to investors; and identify the place or places at which the issuer makes such documents, reports, etc. regularly available to the public, which may include a central repository, such as MSRB’s EMMA System, or an investor-relations website.

Care must be taken with respect to any voluntary statement or disclosure of the City that is reasonably expected to reach investors and the trading markets, because the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder may apply. Rule 10b-5, in part, prohibits, in connection with the purchase or sale of any security, the making of any untrue statement of material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. Scienter is a required element of a violation of Section 10(b) of the Exchange Act and Rule 10b-5. The term “scienter” refers to a mental state embracing intent to deceive, manipulate, or defraud. Courts and the SEC have stated that the scienter requirement for violations of the antifraud provisions may be satisfied by a showing of recklessness. Recklessness has been defined as an “extreme departure from the standards of ordinary care, and which

represents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it.”

For purposes of Section 10(b) of the Exchange Act and Rule 10b-5, a fact is “material” if there is a substantial likelihood that the information would have been viewed by the reasonable investor as having significantly altered the total mix of information available.”

The City discloses current information about itself in a variety of ways, including the MSRB’s EMMA System, public announcements, press releases, interviews with media representatives, and discussions with groups whose members have a particular interest in their affairs. While there are disparate views on this point, the SEC has stated that the fact that such information is not published for purposes of informing the securities markets does not alter the mandate that they not violate the antifraud provisions; it matters not whoever the intended primary audience and whatever the medium of delivery is; and this standard applies to all statements by a municipal issuer, whether on the MSRB’s EMMA system or elsewhere, whether written or oral, and regardless of the extent to which the municipal issuer has fulfilled its contractual continuing disclosure undertakings. In addition to MSRB’s EMMA system, the SEC has stated that federal securities law liability under the antifraud provisions could occur based on:

  1. Posted inaccurate statements contained on the municipal issuer’s website;
  2. Posted materials or statements where it is not apparent to the reasonable person that such information speaks as of a certain date or earlier period;
  3. Posted inaccurate information that is contained within a hyperlink when the municipal issuer explicitly or implicitly approved or endorsed the statement of a third party; and
  4. Posted summaries or overviews of information, particularly financial information that is confusing or misleading to investors.

The statements of City officials are also subject to the antifraud provisions if their statements are reasonably expected to reach investors or the securities markets. Notably, statements by City officials, “who may be viewed as having knowledge regarding the financial condition and operation “of the City” could be a principal source of significant, current information about the City of the security and thus be reasonably expected to influence investors and the secondary market. Accordingly, depending on the facts and circumstances, the statements of City officials that may be subject to the antifraud provisions could include verbal statements made by City officials, such as speeches, public announcements, and interviews with media representatives, as well as statements disseminated through other avenues such as, in the staff’s view and/or social media. (Please refer to legal-bulletin-21 for futher guidance)