CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
POLICY
CODE NO.
EFFECTIVE
DATE
REVISED
DATE
PAGE
Debt Policy
PS-29
01/10/1994
06/23/2003 1 of 9
BACKGROUND
To provide for proper planning of capital expenditures, financing requirements, and guidelines
for the issuance of various debt instruments. To minimize borrowing costs and maintain
financial and debt ratios within standards established by this policy and to mitigate the overall
financial impact of funding the Capital Improvements Plan (CIP).
PURPOSE

To maintain and improve the City's current credit ratings and thereby avoid financial
decisions negatively impacting the City's credit ratings.

To provide cost-effective access to municipal bond markets for capital improvements, public
facilities, and equipment for essential City services and economic development.

To encourage continuity and growth in the tax base through responsible economic
development and to preserve flexibility in capital financing by maintaining an adequate
margin of statutory debt capacity.

To enhance the decision-making process by maintaining a balanced relationship between
debt service requirements and current operating costs; to seek alternative funding sources
(e.g., categorical grants, loans, or county/state/federal aid) prior to issuing debt in order to
minimize interest costs and maximize prudent investment returns; and to minimize reliance
on property tax levy by seeking alternative revenue sources, e.g. special assessments or tax
increment financing.
POLICY
Debt Administration Policy
1.
The City shall maintain good, ongoing and dynamic communications with bond rating
agencies and investors, where appropriate, to ensure a complete and clear understanding
of the credit worthiness of the City.
2.
The City's Official Statements and other debt offering documents will provide full and
complete public disclosure of financial condition, operating results and other pertinent
credit information in compliance with municipal finance industry standards for similar
issues.
CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
POLICY
CODE NO.
EFFECTIVE
DATE
REVISED
DATE
PAGE
Debt Policy
PS-29
01/10/1994
06/23/2003 2 of 9
3.
The City will provide the secondary municipal securities market full public disclosure by
providing continuing audited financial information and other pertinent credit information
(which may be contained in official statements) relevant to the City's outstanding
obligations.
4.
Competent bond counsel and financial advisors will be selected competitively whenever
feasible and cost beneficial. The financial advisor shall maintain complete independence
for the underwriting process. The City prefers to acquire services from a certified public
financial advisor.
5.
The City should continually monitor outstanding debt issues to verify compliance with
debt covenants and adherence to federal regulations and to reduce interest costs through
refinancing opportunities.
6.
For all tax supported debt, "pay-as-you-go" funding should be considered before issuing
debt.
7.
In determining what type of bond to issue, the following factors should be considered:
8.
a.
Direct and indirect beneficiaries of the project. A significantly large proportion of
citizens should benefit from projects financed by general obligation bonds.
b.
Time pattern of the stream of benefits generated by the project, and the asset's
useful life.
c.
Revenues that may be raised by alternative types of user fees.
d.
Effect of proposed bond issues on the City's ability to finance future projects of
equal or higher priority.
e.
Interest costs for each type of bond.
f.
Impact on the City's financial condition and credit ratings.
g.
Impact on statutory debt limit.
In determining when to issue bonds, the following factors should be considered:
a.
The need for capital to complete the project.
CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
POLICY
CODE NO.
EFFECTIVE
DATE
REVISED
DATE
PAGE
Debt Policy
PS-29
01/10/1994
06/23/2003 3 of 9
b.
Timing of other proposed issues.
c.
The availability of the City's audited financial statements for the previous fiscal
year.
d.
The potential impact on the City's bond ratings.
e.
The general condition of the municipal bond market.
9.
The City should market its debt issues on a competitive basis, unless specific
predetermined criteria are met, specifically, test relating to unusual credit quality or
security structure, issue size, or market access.
10.
If a negotiated sale is advised, the City will competitively select the underwriter(s)
needed to accomplish the structuring, marketing, pricing, and sale of the bonds.
11.
All pricing for negotiated sales will be performed with direct involvement by City staff
and the City's financial advisor. Administration and management of pricing sessions
should always be conducted in a prudent manner and with an understanding that pricing
can be done another day.
12.
The City will use "true interest costs" as the means to determine the best bid on its notes
and bonds.
13.
The scheduled maturities of long-term obligations should not exceed the expected useful
life of the capital project or asset(s) financed.
14.
The City will incur debt or enter into capital lease obligations only as proposed in the
Capital Improvement Program or in the operating budget, except in the case of extreme
financial emergency beyond the City's control or reasonable ability to forecast. The City
will not incur debt to fund current operations.
15.
Bond proceeds should be used only for the following: construction, project costs,
acquisition of other fixed assets, bond issue costs, capitalized interest, debt service
reserve requirements, judgments against the City, and refunding of outstanding bond
issues.
CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
POLICY
CODE NO.
EFFECTIVE
DATE
REVISED
DATE
PAGE
Debt Policy
PS-29
01/10/1994
06/23/2003 4 of 9
16.
Lease purchases may be used to finance equipment purchases anytime the total cost of
the purchase exceeds $50,000, the useful life of the equipment is greater than three years,
the financing rate is less than or equal to the current investment rate, and the purchase is
of a non-recurring nature. Amortization of lease payments should be limited to the useful
life of the project.
17.
The City will consider refunding outstanding debt when legally permissible and
financially advantageous. A net present value debt service savings of at lease three
percent should be achieved or a significant dollar savings.
18.
Where debt repayment relies on a limited number of revenue sources, the city will review
the principal revenue sources with both a profile and a sensitivity analysis. Monitoring
these revenue sources will have a positive effect on credit ratings as well as future
property tax impacts.
19.
The City shall seek to maintain, at a minimum, 20% of its statutory debt capacity by
category of debt.
20.
The City shall seek to maintain a bonifed Debt Service Fund under federal arbitrage
regulations and to maintain adequate liquidity for timely payment of debt service by
maintaining a fund balance equal to current year debt service requirements plus a 5%
reserve.
21.
The City will maintain adequate debt service coverage ratios for any double-barreled
bonds or revenue bonds in each applicable fiscal year. The maintenance of the coverage
ratios shall be consistent with preserving the credit rating for each particular issue.
22.
All policies herein shall be reviewed on an annual basis. Updates should be provided to
the Council for its review and consent.
Debt Planning Policies
23.
The City will annually update its Capital Improvement Program (CIP). The CIP will
contain descriptions of the role of debt by type in funding CIP expenditures.
24.
The City will establish and maintain limitations on the issuance of new Property TaxBase Supported bond indebtedness to promote a balanced relationship between
expenditures for debt service and current City costs and to minimize the overall property
tax burden.
CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
POLICY
CODE NO.
EFFECTIVE
DATE
REVISED
DATE
Debt Policy
PS-29
01/10/1994
06/23/2003 5 of 9
25.
26.
PAGE
The City should closely monitor the absolute amounts and year-to-year trends of key
financial and debt ratios. If credit market norms exist, the City should strive to meet those
standards. The following list of norms should be the targets for the City.

Ratio of the debt service property tax rate to the total property tax rate will not
exceed 33% to 50%.

Direct general obligation debt and capital leases will not exceed 1.5% to 2.2% of
the market value of taxable property.

Direct general obligation debt and capital leases will not exceed $ 500 to $ 800
per capita.

Excluding refundings, general obligation debt maturities shall be structured so
that at least 25% of the principal and interest for each issue is repaid in five years
and 50% in ten years.

Revenue bond coverage ratios (annual net revenues as a percent of debt service)
will be monitored annually to ensure that they comply with rate covenants.
Debt issuance will occur annually to the extent reasonable and practicable, timed to
provide capital project funds when needed and cost-effective capital market access.
Annual debt issuance will be sized to maintain bank qualification, to the extent possible.
The City will comply with applicable federal arbitrage regulations.
General Obligation Bonds, Property Tax-Supported
27.
General obligation, property tax-supported bonding should be used 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.
28.
General obligation, property tax-supported bonding should be used only after considering
alternative funding sources, such as federal and state grants and project revenues.
29.
Excess balances in completed project accounts should be transferred to the debt service
fund.
Internal Improvements Bonds
CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
POLICY
CODE NO.
EFFECTIVE
DATE
REVISED
DATE
PAGE
Debt Policy
PS-29
01/10/1994
06/23/2003 6 of 9
30.
The City will utilize internal improvement bonds to finance public improvements which
can be shown to be supported in full or in part by special assessments.
31.
The City will use internal improvement bonds to limit potential dependence on propertytax supported debt.
32.
Adequate financial feasibility studies will be performed for each project to provide
assurances as to the adequacy of assessment revenues.
Industrial Development Bonds/Economic Development (TIF)
33.
Special obligations revenue bonds, those bonds for which the City incurs no financial or
moral obligation should be issued only if the associated development projects can be
shown to be financially feasible and contributing substantially to the welfare and
economic development of the City.
34.
Written assurances should be received that the proposed project will contribute to the
economic goals of the city and to the growth of employment and other services for
citizens.
35.
Adequate financial feasibility studies should be performed for each project to provide
assurances of the financial viability of the project, and marketability of the bonds.
36.
Adequate written assurances should be obtained that users of the project are financially
viable, financially committed to the project, and that the property will be used for its
intended purpose for an extended period.
Lease, Lease-Purchase, and other Long-Term Agreements
37.
Lease financing is appropriate in the following situations:
a.
Whenever use of leased equipment or capital improvement results in verifiable
operating savings that properly discounted, outweigh the lease financing costs.
b.
To purchase important capital equipment or finance improvement projects for
which lease financing costs can be paid for by:
1.
new, earmarked revenues approved by voters, or
CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
POLICY
CODE NO.
EFFECTIVE
DATE
REVISED
DATE
Debt Policy
PS-29
01/10/1994
06/23/2003 7 of 9
2.
c.
38.
PAGE
incremental general fund revenues, specifically attributed to the capital
project.
To finance projects deemed important enough (for safety, legal requirements,
efficiency, or other reasons) to justify reallocation of existing revenues.
City staff will determine the justification for each proposed lease transaction.
justification should include the following.
The
a.
Detailed explanation of the factors listed in the capital improvement guidelines;
b.
Reasons for not recommending a "current payment" alternative;
c.
Explanation for not recommending financing through bond issuance.
39.
The project lease payments and a cash flow statement over the life of the transaction are
required for every proposed lease agreement. The scheduled maturity should not exceed
the expected useful life of the capital project of asset(s) financed.
40.
An analysis of various financing strategies should be performed to allow for the lowest
possible costs to the city.
Derivative Products
41.
The City may investigate the potential benefits of derivative products, which usually take
the form of interest cost hedge devices and nontraditional financing structures. The City
will examine each such derivative on a case-by-case basis with particular attention to the
life-cycle cost/benefits of the product.
42.
The City will not pay any up-front fees with most interest rate hedge instruments.
DEFINITIONS
Assessed Valuation: County Appraiser's assessed values.
Bond Years: The product of the number of bonds (1 bond = $1,000 regardless of actual
denomination) and the period of time from issuance to the stated maturity. It is used in
CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
POLICY
CODE NO.
EFFECTIVE
DATE
REVISED
DATE
PAGE
Debt Policy
PS-29
01/10/1994
06/23/2003 8 of 9
calculating the average life of an issue and the net interest cost. Computations often include bond
years for year maturity or for each interest rate, as well as total bond years for the entire issue.
Average Life =
Total Bond Years
-----------------------Number of Bonds
Discretionary Revenues: Property taxes, local government aid, revenue sharing, sales taxes,
mortgage registration fees, fines and forfeitures.
Market Valuation: County Appraiser's market value.
Property Tax Supported: Directly supported by property taxes. Includes all net debt bonds
issues and the portions of those issues that are paid for by property taxes.
Property Tax-Base Supported: Supported by property tax-base generated revenues, such as
general property tax. Includes all general obligation pledges of the City, even those bonds
supported by dedicated revenues sources.
Revenue-Supported: Nongeneral obligation bonds which are solely supported by revenues not
based on real estate property values, such as sales taxes, special assessments, parking fees, water
charges and river terminal user fees.
Special Obligation Revenue Bonds: Revenue bonds for which the city grants its tax-exemption,
but for which no financial or moral obligation is assumed; including but not limited to, second
party supported Industrial Development, Commercial and Housing bonds.
Self-Supporting or Self-Liquidating Debt: Debt which is to be repaid from proceeds derived
exclusively from the enterprise activity for which the debt was issued.
Direct Debt: The sum of the total bonded debt and any unfunded debt (typically short-term
notes) of the issuer. Direct debt may be incurred in the government's own name or assumed
through the annexation or territory or consolidation with another governmental unit.
Overlapping Debt: The issuer's proportionate share of the debt or other local governmental units
which either overlap it (the issuer is located either wholly or partly within the geographic limits
of the other units) or underlie it (the other units are located within the geographic limits of the
issuer). The debt is generally apportioned based upon relative assessed value.
CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
POLICY
CODE NO.
EFFECTIVE
DATE
REVISED
DATE
PAGE
Debt Policy
PS-29
01/10/1994
06/23/2003 9 of 9
Net Debt: Direct debt less debt service fund accumulations and all self-supporting debt.
Total Debt: All debt other than Special Obligation Revenue Bonds and general obligation debt
sponsored by a specific rate structure. "Total debt" does not include overlapping debt or deduct
sinking fund assets.
True Interest Costs (TIC): Under this method of computing the borrower's cost, interest cost is
defined as the rate, compounded semiannually, necessary to discount the amounts payable on the
respective principal and interest maturity dates to the purchase price received for the bonds. TIC
computations produce a figure slightly different from the NIC method since TIC considers the
time value of money which NIC does not.
Net Interest Costs (NIC): A common method of computing the interest expense to the issuer of
bonds, and which often serves as the basis of award in a competitive sale. NIC allows for
premium and discount and represents the dollar amount of interest payable over the life of an
issue, without taking into account the time value of money. Although net interest cost actually
refers to the dollar amount of the issuer's interest costs, it is also used in reference to the average
net interest cost rate, which reflects the overall rate of interest to be paid by the issuer over the
life of the bonds.
APPROVAL AND REVISION DATES
January 10, 1994
June 23, 2003
OTHER REFERENCE
January 4, 1994 Finance & Administration Committee Minutes, Agenda Item 6a
January 10, 1994 City Council Minutes, Agenda Item 23e
June 23, 2003 City Council Minutes, Agenda Item 19
Jim Allen, Mayor
Vicki Charlesworth, City Clerk