(A) The Illinois Municipal Code (ILCS Ch. 65 Act 5, § 8-4.1-2) defines bonds as “any instrument evidencing the obligation to pay money authorized or issued by or on behalf of a municipality under applicable law including, without limiting the generality of the foregoing, bonds, notes, installment or financing contracts, leases, certificates, tax anticipation warrants or notes, vouchers, or any evidence of indebtedness.”
(B) The types of debt permitted by the city to meet its financing objectives includes, but is not limited to:
(1) General obligation bonds. Financing secured only by the full faith and credit of the city;
(2) Alternate bonds. Financing secured by a defined source of revenue (not property tax) and the full faith and credit of the city;
(3) Revenue bonds. Financing secured only by a defined source of revenue (not property tax);
(4) Capital leases. Financing of a vehicle or equipment over time with a provision to transfer ownership at a nominal amount at the termination of the lease;
(5) Loans. Federal and state low interest financing secured by a defined source of revenue (not property tax) typically used for water and wastewater projects; and
(6) Other. Special circumstances may exist when other forms of debt are appropriate, necessary, and advantageous to the city
(C) State and local governments receive tax benefits under the IRC that lower borrowing costs on their bonds. Bondholders are willing to accept a lower interest rate because interest paid to bondholders on these obligations is not includable in their gross income for federal income tax purposes. The city will generally issue tax-exempt bonds. However, the city may occasionally, based on facts and circumstances, issue taxable bonds which have a higher interest rate.
(D) In addition, the city shall be mindful of the potential benefits of bank-qualified bonds. This designation is given to a bond issuance if the city reasonably expects to issue in the calendar year of such offering no more than $10,000,000 of tax-exempt debt. When purchased by a commercial bank for its portfolio, the bank may deduct a portion of the interest cost of carrying the debt. Therefore, the city will strive to limit its annual issuance of tax-exempt debt to $10,000,000 or less, as amended by IRC from time to time, when the estimated benefits are greater than the benefits of exceeding the bank qualification limit.
(E) The city shall not be permitted to use derivative instruments including interest rate swaps, forward swaps, swap options, basis swaps, caps, floors, collars, rate locks, cancellation options or any similar hedge, derivative, or synthetic instrument.
(Ord. 19-012, passed 5-2-19)