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CC Resolution No. 2757 RESOLUTION NO. 2757 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF BAYTOWN, TEXAS, APPROVING A DEBT POLICY FOR THE CITY OF BAYTOWN CONCERNING THE FINANCING OF CAPITAL INVESTMENT IN THE CITY'S INFRASTRUCTURE; AND PROVIDING FOR THE EFFECTIVE DATE THEREOF. BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF BAYTOWN, TEXAS: Section 1: That the City Council of the City of Baytown, Texas, hereby approves the Debt Policy for the City of Baytown concerning the financing of capital investment in the City's infrastructure, which is attached hereto as Exhibit "A" and incorporated herein for all intents and purposes. Section 2: This resolution shall take effect immediately from and after its passage by the City Council of the City of Baytown. INTRODUCED, READ AND PASSED by the affirmative vote of the City Council of the City of Baytown this the 28t" day of October, 2021. B DON C P ILLOI Mayor ATTEST: {{CtYTO p. C}� ° o N C>n a ANGELA JACKSON, Ci J6rk .,fig • �. :i� Y A''vc:• ee°�� APPROVED AS TO FORM: KA EN L. HORNER, City Attorney RAKaren Anderson\RESp1-UT10NS\CITY COUNCIL12021.10.281Approve Debt Policy Stint.docx Exhibit "A" COB Policy on the use of municipal debt Purpose: This policy is used to guide the City Council in the use of the various debt instruments allowed by Texas law for the financing of capital investment in City infrastructure. Each year as part of the budget setting process the City Council may review the Debt Policy and shall record any changes made to the policy. The City Council may refer the policy to the Finance Sub-committee for its consideration prior to adopting any changes. Use of debt financing: Debt financing may include, but is not limited to, general obligation bonds, certificates of obligation, revenue bonds, certificates of participation, lease/purchase agreements, and other obligations permitted to be issued or incurred under Texas law. Such instruments shall only be used to finance capital assets that cannot be prudently funded from either current revenues and/or fund balance/working capital. Capital assets are defined as having a useful life beyond a single reporting period and include: • Land and land improvements. • Easements. • Buildings. • Vehicles. • Machinery and equipment. • Works of art and historical treasures. • Infrastructure - such as roads, bridges, tunnels, sewer systems, and lighting systems. Debt will not be used to fund operating expenditures. The City shall utilize tax supported general obligation bonds or certificates of obligations to finance only those capital improvements and long-term assets which have been determined to be essential to the maintenance or development of the City. The City shall have regard to the overall tax rate in deciding whether to issue property tax backed debt and may not use the issuance of debt to inflate artificially that overall rate. Debt management: The City shall strive to maintain a balanced relationship between debt service requirements and current operating costs, encourage growth of the tax base, actively seek alternative funding sources, minimize interest costs and maximize investment rate of returns. COB Policy on the use of municipal debt The City shall issue debt with terms no longer than the economic useful life of the project. For revenue supported bonds, principal repayments and associated interest costs shall not exceed projected revenue streams. The City shall use an objective analytical approach to quantify the impact of new general-purpose debt, both General Obligation Bonds and Certificates of Obligation. This process shall compare City accepted standards of affordability to the current values for the City. These standards may include debt per capita, debt as a percentage of taxable value, taxable value per capita, debt as a percentage of overall revenue and the overall tax rate. The City strives to achieve the standards at levels below the median industry measures for comparable cities. Debt Structures: The City shall normally issue bonds with a life not to exceed 25 years for general obligation bonds and 25 years for revenue bonds, but in no case longer than the useful life of the asset. The normal maturity structure is 20 years. There should be no debt structures that include increasing debt service levels in subsequent years, with the first and second year of a bond payout schedule the exception or as special situations may warrant. There shall be no "balloon" bond repayment schedules, which consist of low annual payments and one large payment of the balance due at the end of the term. There shall always be at least interest paid in the first fiscal year after a bond sale and principal payments starting generally no later than the second fiscal year after the bond issue. Normally, there shall be no capitalized interest included in the debt structure except for debt issuances reimbursing developers for infrastructure, which shall not exceed 2 years of capitalized interest. Debt refunding: The City's financial advisor shall monitor the municipal bond market for opportunities to obtain interest savings by refunding outstanding debt. As a general rule, the net present value savings of a particular refunding should exceed 3.0% of the refunded maturities unless (1) a debt restructuring is necessary or(2) bond covenant revisions are necessary to facilitate the ability to provide services or to issue additional debt. Issuance Process: COB Policy on the use of municipal debt The City shall use a competitive bidding process in the sale of debt unless the nature of the issue warrants a negotiated sale. The City will utilize a negotiated process when the issue is, or contains, a refinancing that is dependent on market/interest rate timing. The City shall award the bonds based on a true interest cost (TIC) basis. However, the City may award bonds based on a net interest cost(NIC) basis as long as the financial advisor agrees that the NIC basis can satisfactorily determine the lowest and best bid. Underwriting: The City shall refer underwriters to its financial advisor to review potential refunding opportunities. The City's financial advisor is prohibited from underwriting the City's bonds while under contract with the City for municipal advisory services, and for a period of one year after termination of the municipal advisory contract. The City will consider past participation and results of competitive City of Baytown and component unit bond sales when engaging one or more firm to underwrite a negotiated bond transaction. Rating Agencies: Full disclosure of operations and open lines of communications shall be maintained with the rating agencies. City staff, with the assistance of the financial advisor, shall prepare the necessary materials and presentation to the rating agencies. Credit ratings will be sought from one or more of the nationally recognized municipal bond rating agencies, currently Standard & Poor's and Moody, as recommended by the City's financial advisor. Direct Borrowings: The City will use direct borrowing contracts or lease/purchase agreements for capital items only when it is cost efficient and provides for more attractive terms than issuance of bonds. Capital leases and bank loans must be disclosed as debt in the CAFR under GASB Statement No. 88 and should be disclosed to the MSRB through the EMMA website. COB Policy on the use of municipal debt Definitions General Obligation Bonds (GOs)—these are guaranteed by the full faith and credit of the City and are funded from property taxes. They require voter approval, with funds restricted solely to those projects expressly authorized in the propositions approved by the voters. Certificates of Obligation (COs)—these are also guaranteed by City's taxation power and are counted in the calculation of the tax rate that is needed to support debt payments. They do not require voter approval. The City has routinely issued COs to fund necessary investments in basic infrastructure. COs have also been issued for capital projects in the City's water and wastewater systems with utility revenues being used to meet some or all of the cost of the bonds. Appendix 1 Baytown Debt Management Policy Debt Type vs. Project Type G.O. Election G.O. Election Certificates of Texas Water Required by State Recommended by Obligation Revenue Bonds Development Law Council Policy Board Loan Project Debt is Self- X ` ,Supported by Non- X X Property Tax Revenue Project is Financed by a Tax Increment X Reinvestment Zone Project is Grant Funded or X ` IJointly Funded with X X Matching Dollars Project is Needed in X Response to an Emergency Roadway, Bridge or Sidewalk Project X Park or Trail Project X x Water/Wastewater Plant, X ` , ` ,Water/Sewer/Stormwater X X System Project Police/Fire Station, Other Public Safety Facility, and X Associated Equipment Renovation or Improvement of an X X Existing Building or Facility Facility Project Not X Included in the List Above Project with High X Community Interest Non-Traditional City X Projects or Community Amenities Project with a Cost of $30,000,000 or Greater