DEBT MANAGEMENT POLICY
ANNUAL UPDATE
HUMBOLDT COUNTY, NEVADA
July, 2012
TABLE OF CONTENTS
I.
INTRODUCTION
1
II.
ABILITY TO AFFORD EXISTING GENERAL OBLIGATION DEBT,
AUTHORIZED FUTURE GENERAL OBLIGATION DEBT AND PROPOSED
FUTURE GENERAL OBLIGATION DEBT (NRS 350.013 (C)(1)). SOURCES
OF MONEY PROJECTED TO BE AVAILABLE TO PAY EXISTING GENERAL
OBLIGATION DEBT, AUTHORIZED FUTURE GENERAL OBLIGATION DEBT
AND PROPOSED FUTURE GENERAL OBLIGATION DEBT (NRS 350.013
(C)(6)).
2
III.
OPERATIONAL COSTS AND REVENUE SOURCES FOR THE ENSUING 5
YEARS ASSOCIATED WITH EACH PROJECT INCLUDED IN ITS PLAN FOR
CAPITAL IMPROVEMENTS, IF THOSE COSTS AND REVENUES ARE
EXPECTED TO AFFECT THE TAX RATE (NRS 350.013 (C)(7)).
5
IV.
CAPACITY TO INCUR AUTHORIZED AND PROPOSED FUTURE GENERAL
OBLIGATION DEBT WITHOUT EXCEEDING THE APPLICABLE DEBT LIMIT
(NRS 350.013 (C)(2)).
5
V.
GENERAL OBLIGATION DEBT THAT IS PAYABLE FROM PROPERTY
TAXES PER CAPITA AS COMPARED WITH SUCH DEBT OF OTHER
MUNICIPALITIES IN THIS STATE (NRS 350.013 (C)(3)).
GENERAL
OBLIGATION DEBT THAT IS PAYABLE FROM PROPERTY TAXES AS A
PERCENTAGE OF ASSESSED VALUATION OF ALL TAXABLE PROPERTY
WITHIN THE BOUNDARIES OF THE MUNICIPALITY (NRS 350.013 (C)(4)).
6
VI.
POLICY STATEMENT REGARDING THE MANNER IN WHICH THE LOCAL
GOVERNMENT EXPECTS TO SELL ITS DEBT (NRS 350.013 (C)(5)).
7
I.
INTRODUCTION
Humboldt County (the “County”) has a Capital Improvement Plan (“CIP”) adopted annually by
Resolution of the Board of County Commissioners which is a multi-year planning document that
identifies and prioritizes the need for a variety of public improvements and coordinates financing and
construction time frames. The CIP is a process that provides order and continuity for the repair,
replacement, construction or expansion of the County’s capital assets. With revenue limitations in
mind, the County’s CIP focuses primarily on the County’s more immediate needs.
Legislation described herein requires local governments to prepare a debt management policy prior to
incurring general obligation debt and requires annual updates of that policy. This annual update is not
intended to review the County’s total financial position. Analysis of the County’s debt position is
important, as future growth in the County may result in an increased need for capital financing.
Resources, as well as needs, should drive the County’s debt issuance program. Decisions regarding
the use of debt will be based in part on the long-term needs of the County and the amount of equity
(cash) dedicated in a given fiscal year to capital outlay.
Listed below are excerpts from Nevada Law which require local governments to submit a debt
management policy and annual updates:
NRS 350.013
1. Except as otherwise provided in this section, on or before August 1 of each year, the
governing body of a municipality which proposes to issue or has outstanding any general
obligation debt, other general obligations or special obligations, or which levies or proposes
to levy any special elective tax, shall submit to the Department of Taxation and the
commission:
…(c) A written statement of the debt management policy of the municipality, which must
include, without limitation:
(1) A discussion of its ability to afford existing general obligation debt, authorized future
general obligation debt and proposed future general obligation debt;
(2) A discussion of its capacity to incur authorized and proposed future general
obligation debt without exceeding the applicable debt limit;
(3) A discussion of its general obligation debt that is payable from property taxes per
capita as compared with such debt of other municipalities in this state;
(4) A discussion of its general obligation debt that is payable from property taxes as a
percentage of assessed valuation of all taxable property within the boundaries of the
municipality;
(5) Policy regarding the manner in which the municipality expects to sell its debt;
(6) A discussion of its sources of money projected to be available to pay existing
general obligation debt, authorized future general obligation debt and proposed future general
obligation debt; and
(7) A discussion of its operational costs and revenue sources, for the ensuing 5 fiscal
years, associated with each project included in its plan for capital improvement submitted
pursuant to paragraph (d), if those costs and revenues are expected to affect the tax rate.
…3. Except as otherwise provided in subsection 4, the governing body of each municipality
shall update all statements and plans required by subsection 1 not less frequency than once
each fiscal year.
PAGE 1 – Humboldt County Debt Management Policy Update 7-1-12
II.
ABILITY TO AFFORD EXISTING, AUTHORIZED FUTURE GENERAL OBLIGAION DEBT
AND PROPOSED FUTURE GENERAL OBLIGATION DEBT (NRS 350.013 (C)(1)).
SOURCES OF MONEY PROJECTED TO BE AVAILABLE TO PAY EXISTING,
AUTHORIZED FUTURE GENERAL OBLIGATION DEBT AND PROPOSED FUTURE
GENERAL OBLIGATION DEBT (NRS 350.013 (C)(6)).
A. OUTSTANDING GENERAL OBLIGATION BONDS
Humboldt County has no General Obligation Debt.
GENERAL FUND STATEMENT OF REVENUES AND EXPENDITURES
HUMBOLDT COUNTY, NEVADA
Fiscal year
Ended 6/30
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Estimated
PROPERTY TAXES
$2,162,141
$2,495,459
$3,657,384
$4,023,434
$1,938,749
LICENSES.& PERMITS
$1,431,143
$958,831
$1,006,648
$1,023,409
$701,000
INTERGOVERNMENTAL
$8,143,457
$8,149,143
$7,576,803
$9,185,319
$6,822,278
CHARGES FOR SERVICES
$565,658
$425,712
$428,700
$454,390
$322,200
FINES & FORFEITS
$846,520
$664,579
$676,077
$637,393
$582,000
MISCELLANEOUS
$1,246,716
$679,822
$756,039
$420,323
$110,414
TOTAL REVENUES
$14,395,635
$13,373,546
$14,101,651
$15,744,268
$10,476,641
GENERAL GOVERNMENT
$4,466,100
$4,575,287
$4,578,722
$4,552,064
$5,473,504
PUBLIC SAFETY
$5,136,663
$5,366,057
$5,770,801
$5,789,567
$6,270,765
JUDICIAL
$1,947,591
$2,027,446
$2,164,834
$1,976,330
$2,186,993
PUBLIC WORKS
$19,063
$18,662
$19,110
$19,791
$22,000
HEALTH
$216,921
$231,481
$220,714
$256,753
$360,891
$2,500
-
$5,000
$2,500
$2,500
COMMUNITY SUPPORT
$527,567
$591,653
$647,593
$794,106
$453,051
INTERGOVERNMENTAL
$530,711
$443,869
$470,183
$457,356
$566,000
TOTAL EXPENDITURES
$12,847,116
$13,254,455
$13,876,957
$13,848,467
$15,335,704
EXCESS (DEFICIENCY) OF
REVENUES OVER EXPENDITURES
$1,548,519
$119,091
$224,694
$1,895,801
($4,859,063)
$5,000
$5,000
$5,000
$83,040
$5,000
OPERATING TRANSFERS OUT
-
(600,000)
-
-
-
CONTINGENCY
-
-
-
($350,000)
($350,000)
FUND BALANCE JULY 1
$9,513,748
$11,067,267
$10,591,358
$10,821,052
$12,799,937
FUND BALANCE JUNE 30
$11,067,267
$10,591,358
$10,821,052
$12,799,937
$7,595,874
REVENUES
EXPENDITURES
CULTURE & RECREATION
OTHER FINANCING SOURCES (USES)
OPERATING TRANSFERS IN
SOURCE: HUMBOLDT COUNTY
PAGE 2 – Humboldt County Debt Management Policy Update 7-1-12
III.
OPERATIONAL COSTS AND REVENUE SOURCES FOR THE ENSUING 5 YEARS
ASSOCIATED WITH EACH PROJECT INCLUDED IN ITS PLAN FOR CAPITAL
IMPROVEMENTS, IF THOSE COSTS AND REVENUES ARE EXPECTED TO
AFFECT THE TAX RATE (NRS 350.013 (C)(7)).
The County’s multi-year Capital Improvement Plan (“CIP”), adopted annually by Resolution of the
Board of County Commissioners, identifies various capital projects, some of which may require
general obligation financing. Those which may require general obligation financing are discussed
below. The timing of these projects and the actual financing needs have not been determined at this
time. Prior to any of the projects being financed with long-term general obligation bonds, Humboldt
County Debt Management Commission approval would be required. Medium term bonds (10 years or
less) require Department of Taxation approval.
NONE
IV.
CAPACITY TO INCUR FUTURE GENERAL OBLIGATION DEBT WITHOUT
EXCEEDING THE APPLICABLE DEBT LIMIT (NRS 350.013 (C)(2)).
State statues limit the aggregate principal amount of the County’s general obligation debt to 10% of the
County’s total assessed valuation. Based upon Fiscal Year 2011-2012 assessed valuation of
$974,870,092 the County’s debt limit for general obligations is $97,487,009 with 0 of such debt to
which the limit applies outstanding and the future financings discussed herein as of June 30, 2012.
The following table illustrates the County’s general obligation statutory debt limitation.
STATUTORY DEBT CAPACITY
Humboldt County, Nevada – June 30, 2012
Statutory Debt Limitation
Outstanding General Obligation Indebtedness
Plus: Future Financings
Total Outstanding and Future Financings
Additional Statutory Debt Limitation
SOURCE: HUMBOLDT COUNTY
PAGE 3 – Humboldt County Debt Management Policy Update 7-1-12
$97,487,009
0
NONE
0
$97,487,009
V.
GENERAL OBLIGATION DEBT THAT IS PAYABLE FROM AD VALOREM TAXES PER CAPITA
AS COMPARED WITH SUCH DEBT OF OTHER MUNICIPALITIES IN THIS STATE (NRS 350.013
(C) (3)). GENERAL OBLIGATION DEBT THAT IS PAYABLE FROM AD VALOREM TAXES AS A
PERCENTAGE OF ASSESSED VALUATION OF ALL TAXABLE PROPERTY WITHIN THE
BOUNDARIES OF THE MUNCIPALITY (NRS 350.013 (C) (4)).
DEBT RATIO COMPARISONS
COUNTY
HUMBOLDT
LANDER
DOUGLAS
CHURCHILL
TOTAL GENERAL
OBLIGATION
DEBT AS OF
6-30-12
$0
$0
$26,488,026
$1,113,213
POPULATION
AS FY 2012
17,135
5,988
47,661
25,136
ASSESSED
VALUATION
FY 2012
$974,870,092
$2,088,782,993
$2,765,187,468
$733,286,173
GENERAL
OBLIGATION
DEBT PER
CAPITA
GENERAL
OBLIGATION
DEBT AS A
% OF
ASSESSED
VALUE
$0
$0
$555.76
$44.29
0.00%
0.00%
0.96%
0.15%
SOURCE: DEPARTMENT OF TAXATION 2011-2012 FINAL BUDGET ESTIMATES & COUNTY FINANCE
OFFICES.
VI.
A POLICY STATEMENT REGARDING THE MANNER IN WHICH THE LOCAL GOVERNMENT
EXPECTS TO SELL ITS DEBT (NRS 350.013 (C) (5)).
There are two ways bonds can be sold: competitive (public) or negotiated sale. The Government
Finance Officers Association urges “competitive sales should be used to market debt whenever
feasible.” Competitive and negotiated sales provide for one or more pricings, depending upon market
conditions or other factors. Either method can provide for changing issue size, maturity amounts,
term bond features, etc. The timing of competitive and negotiated sales is generally related to the
requirements of the Nevada Open Meeting Law.
Competitive Sale – With a competitive sale, any interested underwriter(s) is invited to submit a
proposal to purchase an issue of bonds. The bonds are awarded to the underwriter(s) presenting the
best bid according to stipulated criteria set forth in the notice of sale. The best bid is usually
determined based on the lowest overall interest rate. Competitive sales should be used for all issues
unless circumstances dictate otherwise.
Negotiated Sale – A securities sale through an exclusive arrangement between the issuer and an
underwriter or underwriting syndicate. At the end of successful negotiations, the issue is awarded to
the underwriters.
Negotiated underwriting may be considered based on one or more of the following criteria:




Extremely large issue size.
Complex financing structure (i.e., variable rate financings, new derivatives and certain revenue
issues, etc.) which provides a desirable benefit to the County.
Comparatively lesser credit rating.
Other factors which lead the County to conclude that a competitive sale would not be effective.
PAGE 4 – Humboldt County Debt Management Policy Update 7-1-12
Miscellaneous
Debt Service Fund Balance - A debt service fund balance provides a ready reserve to meet current
debt service payments should moneys not be available from current revenues. It is the County’s
policy to strive for a debt service fund balance equal to one year of principal and interest on its voterapproved debt.
Refundings – A refunding is generally the underwriting of a new bond issue whose proceeds are used
to redeem an outstanding issue. Key definitions are described as follows:
Advance Refunding – A method of providing for payment of debt service on a bond until the
first call date or designated call date from available funds. Advance refundings are done by
issuing a new bond or using available funds and investing the proceeds in an escrow account
in a portfolio of U.S. government securities structured to provide enough cash flow to pay debt
service on the refunded bonds.
Current Refunding – The duration of the escrow is 90 days or less.
Gross Savings – Difference between debt service on refunding bonds and refunded bonds
less any contribution from a reserve or debt service fund.
Present Value Savings – Present value of gross savings discounted at the refunding bond
yield to the closing date plus accrued interest less any contribution from a reserve or debt
service fund.
Prior to beginning a refunding bond issue the County will review an estimate of the savings achievable
from the refunding. The County may also review a pro forma schedule estimating the savings
assuming that the refunding is done at various points in the future.
The County will generally consider refunding outstanding bonds if one or more of the following
conditions exist:
1.
2.
3.
Present value savings are at least 3% of the par amount of the refunding bonds.
The bonds to be refunded have restrictive or outdated covenants.
Restructuring debt is deemed to be desirable.
The County may pursue a refunding not meeting the above criteria if:
1.
2.
Present value of savings exceeds the costs of issuing the bonds.
Current savings are acceptable when compared to savings that could be achieved
by waiting for more favorable interest rates and/or call premiums.
Debt Structuring
Maturity structures – The term of County debt issues should not extend beyond the useful life
of the project or equipment financed. The repayment of principal on tax supported debt should
generally not extend beyond 20 years unless there are compelling factors which make it
necessary to extend the term beyond this point.
PAGE 5 – Humboldt County Debt Management Policy Update 7-1-12
Debt issued by the County should be structured to provide for generally level debt service.
Deferring the repayment of principal should be avoided except in select instances where it will
take a period of time before project revenues are sufficient to pay debt service.
Bond Insurance – Bond insurance is an insurance policy purchased by an issuer or an
underwriter for either an entire issue or specific maturities, which guarantees the payment of
principal and interest. This security provides a higher credit rating and thus a lower borrowing
cost for an issuer.
Bond insurance can be purchased directly by the County prior to the bond sale (direct
purchase) or at the underwriter’s option and expense (bidder’s option). The County will
attempt to qualify its bond issues for insurance with bond insurance companies rated AAA by
Moody’s Investors Service and Standard & Poor’s Corporation.
The decision to purchase insurance directly versus bidder’s option is based on:




volatile markets
current investor demand for insured bonds
level of insurance premiums
ability of the County to purchase bond insurance from bond proceeds
When insurance is purchased directly by the County, the present value of the estimated debt
service savings from insurance should be at least equal to or greater than the insurance
premium. The bond insurance company will usually be chosen based on an estimate of the
greatest net present value insurance benefit (present value of debt service savings less
insurance premium).
Equal Opportunity – It is the policy of the County to provide minority business enterprises, women
business enterprises and all other business enterprises an equal opportunity to participate in the
performance of all County contracts. At competitive sale, bidders are requested to assist the county
in implementing this policy by taking all reasonable steps to ensure that all available business
enterprises, including minority and women business enterprises have an equal opportunity to
participate in County contracts.
PAGE 6 – Humboldt County Debt Management Policy Update 7-1-12