Debt Management Policy

Fiscal year 2023/24 - 2024/25

Purpose

To establish guidelines for the issuance of debt by the City of Yorba Linda, the Successor Agency to the Yorba Linda Redevelopment Agency, the Yorba Linda Public Financing Authority, and any related entity of the City, for which the governing body consists of the same individuals as the City Council of the City.


Background

The City’s Debt Management Policy establishes the overall debt management objectives for the City, the parameters within which the City may issue debt, and the requirements for administering debt that has been issued. Effective January 21, 2017, California government agencies were required to adopt a Debt Management Policy (Policy) in compliance with Senate Bill No. 1029 (SB 1029) in order to issue new debt. This Policy is designed to comply with Section 8855(i), of the Government Code, added by SB 1029, as well as to provide other guidelines for the issuance and management of the City’s debt.


Policy

The City is committed to financial planning, maintaining appropriate reserves levels and employing prudent practices in governance, management and budget administration. The City intends to issue debt for the purposes stated in this Policy and to implement policy decisions incorporated in the City’s annual operating budget. The Policy applies to all new money and refunding debt issued by the City, the Successor Agency to the Redevelopment Agency, the Public Financing Authority, and any related entity of the City. The Policy is designed to assist the City in achieving the following debt management and planning goals and objectives:


1. Minimizing debt service and issuance costs.

2. Maintaining access to cost-effective borrowing.

3. Achieving the highest practical credit rating.

4. Repaying all outstanding debt in full and on a timely basis.

5. Maintaining full and complete financial disclosure and reporting related to the City’s outstanding debt.

6. Ensuring that adequate internal controls are in place with respect to safeguarding and tracking the proceeds of debt issued by the City.

7. Ensuring compliance with applicable Federal and State laws, the Yorba Linda municipal code, and any applicable resolutions or policies adopted by the City Council.


Procedure

The Finance Director shall review the City’s Debt Management Policy on an as-needed basis to incorporate any applicable changes in Federal or State law, recommendations from the City’s financial advisor(s), recommendations from the various national and state organizations of municipal finance officers, or other changes recommended by City staff. Any revisions to the City’s Debt Management Policy shall be presented to the City Council for review and approval.


(A) Debt Issuances and Relationship to the City’s Budget & Capital Improvement Program


The City may issue debt for the purpose of financing capital projects, infrastructure improvements, and equipment or vehicle purchases, as well as for short-term purposes in anticipation of the receipt of bond proceeds or other revenues. The City’s Capital Improvement Program (CIP) identifies capital projects that are anticipated to be constructed over a future planning period. Some of the projects contemplated in the CIP may require debt financing, and City staff shall make recommendations to the City Council as to the most appropriate way to finance these projects to ensure that projects are available when needed in furtherance of the City’s public purposes. The annual debt service payments associated with currently outstanding or contemplated debt shall be incorporated into the City’s two-year budget. The City shall seek to issue debt in a timely manner to avoid having to make unplanned expenditures for capital improvements or equipment from its General Fund.


(B) Types of Debt


The following types of debt may be issued by the City pursuant to this Policy, subject to applicable Federal and State laws, the Yorba Linda Municipal Code, and any resolutions or policies adopted by the City Council.


1. General obligation bonds.

2. Revenue bonds.

3. Bond, grant, tax, or revenue anticipation notes.

4. Lease revenue bonds or notes and certificates of participation.

5. Lease financings for vehicles and equipment.

6. Land-secured financings, such as special tax revenue bonds and limited obligation assessment bonds.

7. Tax allocation bonds / tax increment financings to the extent permitted under State law.

8. Conduit financings, such as financings for affordable rental housing and qualified 501(c)3 organizations.


Debt may be publicly issued or privately placed and may be issued on either a long-term or short-term basis consistent with the provisions of this Policy.


(C) Responsibility for Debt Management Activities


The Finance Department shall be responsible for managing and coordinating all activities related to the issuance and administration of debt, including the implementation of internal control procedures to ensure that the proceeds of debt will be directed to the intended use. These activities include, but are not limited to, the following:


1. Issuing new money or refunding debt on behalf of the City.

2. Structuring proposed financings in consultation with the City’s financial advisor(s).

3. Selecting the financing team for debt transactions, including financial advisors, bond underwriters, bond counsel, and other consultants or service providers.

4. Ensuring compliance with applicable disclosure and reporting requirements related to the City's debt.


(D) Debt-Related Internal Controls


The Finance Department will maintain oversight responsibility for all debt financing activities. Debt financings should undergo a review process to ensure the integration of the proposed financing with the City’s budget and CIP. The City should also maintain a multi-level approval process for any proposed debt issuance. This approval process consists of the Finance Director, the City Attorney, the City Manager, and the City Council. All debt-related proceeds will be used in accordance with the financing documents. The Finance Department shall ensure that all funds drawn down from bond proceeds are for purposes authorized in those documents and that adequate records are kept to document the related expenditures. Whenever reasonably possible, proceeds of debt will be held by a third-party trustee and the City will submit written requisitions for such proceeds. The City will submit a requisition only after obtaining the signature of the City Manager, Assistant City Manager, or Finance Director.


(E) Debt Capacity


The City will maintain a level of debt that is consistent with its creditworthiness objectives and the direction of the City Council. For general obligation bonds, the California Constitution requires that long-term debt pledged by the full faith and credit of the City can only be approved by voter referendum. Per California Government Code Section 43605, the City’s debt limit is set at 15 percent of the total adjusted assessed valuation of all the real and personal property within the City. Currently, the City has no debt outstanding that is subject to the limit. Should any such debt be issued, the Finance Department shall annually calculate the City’s available debt capacity and ensure that the City is in compliance with this requirement.


(F) Adequacy of Revenues to Service Debt


The Finance Department shall actively monitor the City’s debt portfolio to ensure that adequate revenues exist to service debt and to identify opportunities to reduce debt service costs. For proposed debt issuances other than those supported by general taxes approved by the voters of the City, the Finance Director along with the City’s financial advisor(s) shall determine the impact of the proposed debt on the anticipated revenue stream or other source for repayment to ensure adequate capacity is available for the debt issue.


(G) Post-Issuance Compliance for Tax-Exempt Debt


The City will take all appropriate action to ensure that no use of the proceeds of tax-exempt debt, and no other event or action, will cause a violation of federal income tax limitations with respect to the exclusion of interest on the debt from federal income taxation, and that all uses of proceeds of the debt comply with legal requirements regarding the valid incurrence of debt and permitted uses of the proceeds of debt.


Without limiting the generality of the foregoing, the City will take the following actions to account for and monitor the expenditure and investment of debt proceeds, the use of any projects financed or refinanced with the proceeds of debt, and any changes in the underlying structure of the City’s debt.


1. Nongovernmental Uses of Debt-Financed Facilities – The City will monitor and document sales, leases, management contracts, or other use agreements with respect to bond-financed facilities with nongovernmental entities, not including uses by members of the general public within the meaning of Federal law. If private activity exists, the City will compute the percent of private activity with respect to those nongovernmental uses. When nongovernmental uses of debt-financed facilities are identified, the City will take remedial action to address the issue, including but not limited to redemption or defeasance of nonqualified debt, alternative use of the impacted debt proceeds, and/or alternative use of the debt-financed facility in question.


2. Payment of Prior Expenditures from Debt Proceeds – The City will monitor and document expenditures incurred prior to the issue date of City debt that may be reimbursed from debt proceeds. The City will allocate debt proceeds to any eligible previously-incurred expenditures within 18 months after the later of the date the expenditure was made or the date the project(s) were placed in service, but not later than the earlier of five years after the funding date of the debt or 60 days after the debt was retired.


3. Arbitrage – The City will hire a consultant to calculate any arbitrage rebate payments due or perform the required calculations in-house. The City will make any payments due to the IRS as required by law, and will take remedial action to address any issue that violates the arbitrage provisions of Federal law, such as payment of a yield reduction payment.


4. Record Retention – The City will retain accounting records related to any debt issued by the City for at least three years after the final maturity date of the debt. However, if the debt is prepaid or refunded, the City will retain the related accounting records for at least three years after the prepayment date or the final maturity date of the refunding debt, respectively.


5. Reissuance – A significant modification of the terms of any debt issued by the City may result in the debt being deemed refunded or “reissued”. Such an event will require, among other things, the filing of new information returns with the Federal government and the execution of a new arbitrage certificate. Qualified bond counsel should be consulted in the event of any modification to the terms of any City debt.


(H) Continuing Disclosure


The City is obligated pursuant to Securities and Exchange Commission (SEC) Rule 15c2-12, as amended, under the continuing disclosure certificates for the publicly traded debt it has issued to disclose certain financial and other information annually through the dissemination of an Annual Report as well as a copy of the City’s Annual Comprehensive Financial Report (ACFR). Additionally, more frequent disclosure may be required when certain material events meeting the requirements set forth in the certificate have been

identified. These filings are to be disseminated via the Municipal Securities Rulemaking Board’s (MSRB) Electronic Municipal Market Access (EMMA) system by the Finance Department or its authorized dissemination agent. Any EMMA filings made by the City shall be reviewed by the Finance Director prior to their publication.


1. Annual Reports and ACFR Submission to EMMA – Not later than the number of days following the end of each fiscal year of the City prescribed in each certificate while any debt remain outstanding, the Finance Director shall submit

or cause the City's ACFR and annual report to be submitted to the MSRB through EMMA.


2. Material Event Reporting – The Finance Director shall file or cause to be filed a notice of the occurrence of any event(s) with the MSRB via EMMA in a timely manner that complies with each certificate and applicable regulations. The events to be disclosed are listed in each certificate; however, additional disclosure requirements may exist beyond what is listed in each certificate should the SEC change the material event reporting requirements imposed upon issuers of publicly traded debt.


3. Notices of Redemption – Whenever any outstanding publicly traded bonds of the City are to be redeemed, the Finance Director will confirm that the City’s fiscal agent will give notice of the redemption to any parties required to be notified for the bond issue. Additionally, the notice will be posted to the appropriate location on the EMMA website. The Finance Director will review the EMMA posting to confirm a timely and complete filing.


4. Disclosure Training for Applicable City Staff – The Finance Director shall ensure that appropriate City employees are familiar with this section of the City’s Debt Management Policy.


5. Identification of New Requirements – Annually, the Finance Director shall review the continuing disclosure certificates of all outstanding bonds to ensure that all requirements are still applicable and are being properly adhered to. Additionally, the Finance Director shall identify any new disclosure requirements imposed by recent regulations. Lastly, upon issuance of any new debt, the Finance Director shall immediately upon closing of the transaction review the final continuing disclosure certificate to ensure that the requirements of the certificate are properly adhered to in the future.