The duration of a bond issue shall not exceed the economic or useful life of the improvement or asset that the issue is financing. The city shall design the financing schedule and repayment of bonds to take best advantage of market conditions and, as practical, to recapture or maximize its credit capacity for future use, and moderate the impact to the taxpayer.
(A) Maturity guidelines.
(1) Governmental activities. Maturity limited to 20 years.
(2) Business-type activities. Maturity limited to 40 years.
(B) Debt service schedule.
(1) A level or declining debt service schedule will be employed unless operational matters dictate otherwise, or except to achieve overall level debt service with existing bonds.
(2) The city will use the debt service schedule which will best fit with the overall debt structure of the city's bonds at the time the new bonds are issued.
(3) Consideration will be given to coordinating the length of the issue with the lives of assets, whenever practicable.
(C) Use of credit enhancements. Credit enhancements are mechanisms which guarantee principal and interest payments. The city may enter into agreements with commercial banks or other financial entities to acquire letters of credit, municipal bond insurance, or other credit enhancements that will provide the city with access to credit under terms and conditions as specified in such agreements, when their use is judged cost effective or otherwise advantageous. A credit enhancement, while costly, will usually bring a lower interest rate on bonds and a higher rating from the rating agencies, thus lowering overall costs.
(D) Use of redemption features. A call option, or optional redemption provision, gives the city the right to prepay or retire bonds prior to their stated maturity. These prepayment provisions are structured into the original bond issuance to provide the city an opportunity to manage its debt portfolio. The exercise of these prepayment provisions is typically accomplished through the issuance of refunding bonds. Bonds can be refunded to achieve one or more of the following objectives:
(1) Reduce future interest costs. Shall be at least 2% present value savings for current refunding and at least 3% present value savings for advance refunding;
(2) Restructure future debt service in response to evolving conditions regarding anticipated revenue sources;
(3) Alter bond characteristics, such as call provisions or payment dates, on existing bonds; and
(4) Change the legal requirements, termed covenants, of the original issue to reflect more closely the changing conditions of the city or the type of bond.
(E) Debt capacity. As a local government entity with home-rule authority, the city has no statutorily determined debt limit. However, it is important that the city issue debt prudently.
(1) Funds borrowed for a project today are not available to fund other projects tomorrow.
(2) Funds committed for debt repayment today are not available to fund operations in the future.
(3) Enterprise fund debt capacity will be evaluated as an integral part of the city's rate review and setting process. The city will set rates at the level needed to cover the full cost of operations, maintenance, administration and capital improvement costs, including debt service requirements.
(Ord. 19-012, passed 5-2-19)