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HomeMy WebLinkAboutReso - CC - 025-2019�C RESOLUTION NO. -2019 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF BURLINGAME ADOPTING A DEBT MANAGEMENT POLICY WHEREAS, Senate Bill 1029 (SB 1029), which became effective on January 1, 2017, amended California Government Code Section 8855 to add certain requirements related to the issuance and administration of debt by local agencies such as the District, including the adoption of a debt policy meeting the requirements of California Government Code Section 8855; and WHEREAS, the City of Burlingame wishes at this time to approve a debt policy that is compliant with California Government Code Section 8855 to govern future issuances of debt by the City. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF BURLINGAME RESOLVES AND ORDERS AS FOLLOWS: Section 1. Adoption of Policy. The Council approves and adopts the Debt Management Policy as shown on the attached Exhibit A. The Debt Management Policy shall govern the issuance and administration of debt issued by the City, all in accordance and subject to the conditions set forth in such policy. Section 2. Effective Date. This Resolution shall take effect immediately upon its passage and adoption. In-munwit 44, Donna Colson, Mayor I, Meaghan Hassel -Shearer, City Clerk of the City of Burlingame, certify that the foregoing Resolution was duly and regularly introduced and adopted at a regular meeting of the Burlingame City Council held on the 4t' day of March, 2019, by the following vote: AYES: Councilmembers BEACH, BROWNRIGG, COLSON, KEIGHRAN, ORTIZ NOES: Councilmembers: NONE ABSENT: Councilmembers: NONE M ghan"Tassel-Shearer, City Clerk City of Burlingame, California Financial Policy Document Debt Management Policy Adoption Date: 03/04/2019 Last Revision Date: Owner Department: Finance Introduction A Debt Management Policy sets forth certain debt management objectives, establishes overall parameters, and provides general direction in the planning, issuance, and administration of the City's debt. The purpose is to maintain the City's ability to incur debt and other long-term obligations at favorable interest rates for capital improvements, facilities, and equipment beneficial to the City and necessary for high quality public services for its citizens. Cost- effective access to the capital markets depends on prudent management of the City's debt program. This policy supports the Council's goal of sustaining long-term financial strength. The guidelines established by this policy will govern the issuance and management of all debt used for long-term capital financing needs and not for general operating functions. The Finance Department recognizes that changes in the capital markets and other unforeseen circumstances may require action that may deviate from this Debt Management Policy. In cases that require exceptions to this Debt Management Policy, approval from the City Council will be necessary for implementation. Objectives The purpose of this Debt Management Policy is to establish a framework in which the City Council, City Manager, and all City departments may work to effectively use the financing options available to provide quality service to the citizens of Burlingame, while maintaining financial integrity. The policy is to guide staff in the pursuit of the following equally important objectives: • Maintain cost-effective access to the capital markets through prudent policies and practices that a. Preserve the City's economic standings throughout varying economic cycles and adverse impacts b. Achieve the highest possible credit ratings within the context of the City's capital needs and financing capabilities c. Minimize debt service and issuance costs • Balance significant capital demands through pay-as-you-go, debt financing, and/or alternate financing mechanisms such as public/private partnerships • Maintain moderate debt and debt service payments with effective planning and coordination with City departments • Ensure full and timely repayment of debt • Maintain full and complete financial disclosure and reporting • Ensure compliance with applicable State and Federal laws Page 1 of 13 City of Burlingame, California Financial Policy Document Debt Management Policy • Maintain good investor relationships through the timely dissemination of material financial information It shall be the policy of the City to encourage funding capital projects with cash, on a "pay as you go" basis, to the extent possible and practical. As part of the "pay as you go" strategy, the City will first look for grant funding or private sources for capital projects. Cash funding is recommended 1) for purchases of assets whose lives are shorter than five years; 2) when market conditions are unstable or present difficulties in achieving acceptable interest rates; and 3) when adding to existing debt levels might have an adverse impact on the City's credit rating. The Finance Department may utilize several types of municipal debt obligations to finance long-term capital projects. Long-term debt is issued largely to finance the acquisition and/or construction of capital improvements and is not considered appropriate for funding operating or maintenance costs. CONDITIONS AND PURPOSES OF DEBT ISSUANCE Acceptable Conditions for the Use of Debt — The City believes that prudent amounts of debt can be an equitable and cost-effective means of financing major infrastructure and capital asset and project needs of the City. Debt will be considered to finance such projects i£ • The project has been, or will be, included in the City's capital improvement plan or has otherwise been coordinated with the City's planning goals and objectives. • The project can be financed with debt not exceeding the term specified in this Policy, to assure that long-term debt is not issued to finance projects with a short useful life. • It is the most cost-effective funding means available to the City, taking into account cash flow needs and other funding alternatives. • It is fiscally prudent and meets the guidelines of this Policy. Any consideration of debt financing shall consider financial alternatives, including pay-as-you-go funding, proceeds derived from development or redevelopment of existing land and capital assets owned by the City, and use of existing or future cash reserves, or combinations thereof. • Funding a project across a longer period is needed to ensure intergenerational equity. Acceptable Uses of Debt and Proceeds of Debt — The primary purpose of debt is to finance the acquisition, substantial refurbishment, replacement, or expansion of capital assets (including but not limited to land improvements, infrastructure projects, equipment, and water rights). As such, debt is largely considered for the following purposes: Acquisition and or improvement of land, right-of-way, or long-term easements. Acquisition of a capital asset with a useful life of five or more years. Construction or reconstruction of a facility. Page 2 of 13 City of Burlingame, California Financial Policy Document Debt Management Policy • Related project costs that include project planning design, engineering, and other preconstruction efforts; project -associated furniture, fixtures, and equipment; original issue discount, underwriter's discount, and other costs of issuance. The City will also consider refunding, refinancing, or restructuring debt or other long-term liabilities, such as pension obligations, subject to the objectives and parameters discussed in this Policy. Short -Term Debt — In the event of temporary shortfalls in cash flow for City operation costs due to timing of receipt of revenues and the lack of cash on hand to cover the temporary deficit, the City may consider interim or cash flow financing, such as anticipation notes. In compliance with applicable state law, any such note shall be payable either (i) not later than the last day of the fiscal year in which it is issued, or (ii) during the fiscal year succeeding the fiscal year in which issued, but in no event later than 15 months after the date of issue, and only if such note is payable only from revenue received or accrued during the fiscal year in which it was issued. Short-term debt may be used to finance short-lived capital projects, such as lease purchase financing or equipment. Prior to issuance of any short-term debt, a reliable revenue source shall be identified for repayment of the debt. Types of Financing Instruments Permitted There are numerous types of financing structures and funding sources available, each with specific benefits, risks, and costs. All potential funding sources are reviewed by City management within the context of this policy and the overall portfolio to ensure that any financial product or structure is consistent with the City' objectives. Regardless of the financing structure(s) utilized, each transaction will require an analysis of the impact on City creditworthiness and debt affordability and capacity. The City will carefully consider the overall long-term affordability of any proposed debt issuance. The City will consider its long- term revenue and expenditure trends, the impact on operational flexibility, and the overall debt burden on the taxpayers. The evaluation process will include a review of generally accepted measures of affordability and will strive to achieve and/or maintain debt at levels consistent with its current operating and capital needs. Assessment Bonds — Proceeds from Assessment Bonds may be used to finance local public improvements, provided that said improvements benefit the parcels of land to be assessed. Local streets, street lights, landscaping, sidewalks, and sanitary sewers are some examples of local improvements commonly financed by assessment bonds. General Obligation Bonds — General Obligation Bonds may only be issued with two-thirds approval of a popular vote. The California State Constitution (Article XVI, Section 18) limits the use of the proceeds from GO Bonds to "the acquisition or improvement of real property." Voter -approved GO bonds provide the lowest cost of long-term financing and provide a new and dedicated revenue source in the form of additional ad valorem taxes to pay debt service. Libraries, parks, and public safety facilities are all types of facilities that could be financed with GO Bonds. Page 3 of 13 City of Burlingame, California Financial Policy Document Debt Management Policy Pension Obligation Bonds — Pension Obligation Bonds (POBs) are issued to finance all or part of the unfunded pension liabilities of the City. Typically, these bonds are issued at a lower rate of return than would be paid to the Pension System Administrator, and in this way, provide an economic benefit to the City. POBs are issued as taxable instruments over a 15-30 year term by matching the term with the amortization period of the outstanding unfunded actuarial accrued liability. POBs are a general obligation of the City, but they are not subject to voter approval. Issuance of debt to fund pension liability increases debt burden and may use up debt capacity that may be needed to finance capital improvements. As such, the issuance of POBs should not become a substitute for the prudent funding of pension obligations within the City's operating budget. Enterprise Revenue Bonds — Enterprise Revenue Bonds finance facilities for a revenue producing enterprise and are payable from revenue sources within that enterprise. As these bonds are not secured by any pledge of ad valorem taxes or General Fund revenues of the City, bond covenants provide that revenues generated by the associated enterprise funds must be sufficient to maintain required debt coverage levels, or the rates of the enterprise have to be raised to maintain the coverages and operations of the facilities. Water and Sewer utilities are examples of revenue producing enterprises within the City. Lease Revenue Bonds — Lease Revenue Bonds (LRBs) are secured by a revenue stream produced by a public project. They are typically issued to finance capital projects that either have an identified budgetary system for repayment or generate project revenue but rely on a broader pledge of General Fund revenues to reduce borrowing costs. LRBs finance the purchase of real property and the acquisition and installation of equipment for the City's general government purposes. LRBs are secured by a lease -back arrangement between the City and the Joint Powers Financing Authority (JPFA) of the City. The lease payments from the City are collected by the JPFA and used to fund the debt service payments. The JPFA retains title to the project until the debt is retired. LRBs do not constitute indebtedness under the State Constitution and are not subject to voter approval. Certificates of Participation — Certificates of Participation (COPs) are similar to Lease Revenue Bonds; the debt is secured by the underlying lease, rather than the COP obligation. The lease payments are equal to debt service on the COP. Again, a lease obligation where payment is contingent on the availability of the leased project is not classified as debt needing voter approval. Mello -Roos Bonds — The City may issue bonds through a Community Facilities District (CFD). These bonds must be approved by a two-thirds vote of the registered voters within the district (unless there are fewer than 12 registered voters, in which case the vote is by the landowners), and are secured by a special tax on the real property within the district. The bonds may be issued to finance facilities or provide services, although the facilities do not need to be physically located within the district. These types of obligations, although repaid through additional special taxes levied on a discrete group of taxpayers, constitute overlapping indebtedness of the City and have an impact on the overall level of debt affordability. Page 4 of 13 City of Burlingame, California Financial Policy Document Debt Management Policy Financing Leases — A lease purchase obligation placed with a lender without the issuance of securities may be used to finance certain vehicle and equipment purchases when the aggregate cost of equipment to be purchased exceeds $50,000. In rare instances, acquisitions below $50,000 may be deemed to be clearly cost effective and in the City's best interest. At the discretion of the City's Finance Director, these transactions will be evaluated on a case -by - case basis. All equipment with a useful life of less than five years shall be funded on a pay-as-you-go basis except for fiscal emergencies as affirmed by a majority vote of the City Council. The term of financing shall be limited to the useful life of the vehicle or equipment, but in no case shall exceed 10 years. Revenue Bonds — Revenue bonds are long-term obligations payable solely from specific special fund sources. Examples of such long-term obligations include those that are payable from a special fund consisting of restricted revenues or user fees (Enterprise Revenues) and revenues derived from the system of which the project being funded is a part. The City should strive to maintain a coverage ratio of at least 110% (projected annual net revenues compared to estimated annual debt service) to cover debt service of revenue bonds. To the extent necessary, the City shall undertake proceedings for a rate increase to cover both operations and debt service costs, and create debt service reserve funds to maintain the required coverage ratio. The City may enter into agreements and other long-term obligations supporting revenue bonds issued by agencies or joint powers authorities that the City is a member of, including, for example, Bay Area Water Supply & Conservation Agency (BAWSCA) and South Bayside Water Management Authority (SBWMA). Special Districts Financing — The City will consider requests for special district formation and debt issuance when such requests address a public need or provide a public benefit. Each application will be considered on a case -by -case basis, and the Finance Department may not recommend a financing if it is determined that the financing could be detrimental to the debt position or the best interests of the City. Conduit Financings — The City may assist in financing projects of a non -governmental third party, such as a non-profit organization or other private entity, by sponsoring conduit financing. Such financing may be approved for those activities (e.g. economic development, housing, etc.) that may have a general public purpose and are consistent with the City's overall service and policy objectives. Repayment of the debt is secured solely by the non- governmental organization, and no appropriation will be made in the event of a default. Refunding Obligations — Pursuant to the Government Code and various other financing statutes applicable in particular situations, the City Council is authorized to provide for the issuance of bonds for the purpose of refunding any long-term obligation of the City. Absent any significant non -economic factors, a refunding should produce minimum net debt service savings (net of reserve fund earnings and other offsets) of at least 3% of the par value of the Page 5 of 13 City of Burlingame, California Financial Policy Document Debt Management Policy refunded bonds on a net present value basis, using the refunding issue's Arbitrage Yield as the discount rate, unless the Finance Director determines that a lower savings percentage is acceptable for issues or maturities with short maturity dates, or that the refunding is needed to accomplish other financial or programmatic objectives, such as the elimination of covenants. Other Obligations — There may be special circumstances when other forms of debt are appropriate and may be evaluated on a case -by -case basis. Such other forms include, but are not limited to, non -enterprise revenue bonds, bond anticipation notes, grant anticipation notes, lines of credit, tax allocation bonds, and capital appreciation bonds. Debt Limitations The Finance Director shall determine whether proposed debt transactions comply with the debt limitations prescribed by this Policy. Proposed debt transactions that meet the limitations of the Debt Management Policy will be subject to approval by resolution or ordinance of the City Council. The following limits shall be applied to the City's transactions as appropriate. General Obligation Bonds — The legal bonding capacity/limit for a California general law city is 3.75%. Therefore, any outstanding general obligation bonded indebtedness cannot exceed 3.75% of the assessed valuation of taxable property within the boundaries of the City. A minimum of 3.25% in debt capacity shall be reserved for capital projects deemed by the City Council to be of the highest priority or urgency. Lease Revenue Bonds and Certificates of Participation — Any net debt service payments funded from General Fund sources shall be no greater than 10% of current General Fund discretionary revenues. Once this limit is reached, CON and other lease financing debt will only be used as funding sources for capital projects when existing debt is retired and/or the City's aggregate General Fund discretionary revenues (excluding one-time revenues) grow. Revenue Bonds — Payments on bonds that are tied to a specified revenue stream other than General Fund sources (e.g. enterprise revenue bonds and assessment bonds) are not subject to this 10% limit. Any debt secured by revenues of an Enterprise Fund shall maintain a coverage ratio of at least 110% of net revenues of the Enterprise Fund, or such higher coverage ratio included in the City's existing financing documents, using historical and/or projected net revenues to cover annual debt service for bonds. Variable Rate Debt — The City may elect to issue securities that pay a rate of interest that varies according to a pre -determined formula or results from a periodic remarketing of the securities, consistent with State and Federal law and covenants of pre-existing bonds. Variable rate debt affords the City the potential to achieve a lower cost debt depending on market conditions. However, due to the potential risks of such instruments, the City will have no more than 10% of its outstanding debt in variable rate form. Page 6 of 13 City of Burlingame, California Financial Policy Document Debt Management Policy Derivatives — Properly used, interest rate swaps and related financial instruments such as swap options can be beneficial interest rate management tools that can assist the City as part of its overall debt and investment management program. Interest rate swaps are appropriate for use when they are designed to achieve specific financial objective(s) consistent with the City's overall financial policy and strategy. However, these products also carry with them certain risks not faced in standard debt instruments that are often difficult to quantify. If there is a compelling risk management reason to utilize derivative products, the City will review a proposed transaction and, where appropriate, provide analysis and recommend approval. Prior to making such recommendation, the staff will submit for discussion a Derivatives Policy designed to ensure that adequate internal controls are in place to manage such instruments. The City Council may choose to enlist the services of professional third party counsel, acting in a fiduciary capacity, to provide an assessment of the proposed debt. Debt Structuring The following terms shall be applied to the City's transactions as appropriate. Individual terms may change as dictated by the marketplace for the unique qualities of the transaction. Term of Debt — In keeping with Internal Revenue Service regulations for tax exempt financing obligations, the weighted average maturity of the debt should not exceed 120% of the weighted average economic life of the facilities or projects to be financed, unless specific circumstances exist that would mitigate the extension of time to repay the debt and would not cause the City to violate any covenants to maintain the tax-exempt status of such debt, if applicable. Rapidity of Debt Payment; Level Payment — To the extent practical, bonds will be amortized on a level repayment basis, and revenue bonds will be amortized on a level repayment basis considering the forecasted available pledged revenues to achieve the lowest rates possible. Bond repayments should not increase on an annual basis in excess of 2% without a dedicated and supporting revenue funding stream. Accelerated repayment schedules reduce debt burden faster and reduce total borrowing costs. The Finance Department will amortize debt through the most financially advantageous debt structure and, to the extent possible, match the City's projected cash flow to the anticipated debt service payments. Serial Bonds, Term Bonds, and Capital Appreciation Bonds — For each issuance, the City will select serial bonds or term bonds, or both. On the occasions where circumstances warrant, Capital Appreciation Bonds (CABs) may be used. The decision to use term, serial, or CAB bonds is driven based on market conditions. Reserve Funds — To the extent that the use of available City moneys to fund a reserve fund provides an economic benefit that offsets the cost of financing the reserve fund from bond proceeds (as determined by the Finance Director in consultation with the City's municipal advisor and, if applicable, the underwriter for the bonds), the City may use legally permitted moneys to fund a reserve fund (in cash or through the purchase of a debt service reserve surety bond or insurance policy) for the proposed bonds, up to the maximum amount Page 7 of 13 City of Burlingame, California Financial Policy Document Debt Management Policy permitted by applicable law or regulation. Typically, this amount is equal to the least of. (i) maximum annual debt service on the bonds, (ii) 10% of the principal amount of the bonds (or 10% of the sale proceeds of the bonds, within the meaning of Section 148 of the federal Internal Revenue Code), or (iii) 125% of average annual debt service on the bonds. Debt Issuance Method of Sale - The two primary methods of issuing debt obligations are 1) a competitive sale or 2) a negotiated sale. However, other methods may be considered. • Competitive Sale: When circumstances permit a competitive sale, underwriters submit sealed bids, and the underwriter or underwriting syndicate with the lowest True Interest Cost (TIC) is awarded the sale. The bidder's role is limited to the review of the offering circular released by the City, making credit assessment based on the facts presented in the offering circular, and offering its bid per the bidding parameters established by the City. • Negotiated Sale: In a negotiated sale, the underwriter or underwriting syndicate is selected through a Request for Proposals (RFP) process. The interest rate and the underwriter's fee are negotiated prior to the sale, based on market conditions. The underwriter will actively assist the City in structuring the financing and marketing of the bonds, including providing assistance in preparing the bond offering circular. The decision on whether to use a competitive sale or a negotiated sale shall be based on the following criteria: market familiarity, credit strength, policy goals, type of debt instrument, issue size, and market conditions. • Public Offerings: Public offerings can be executed through either a competitive sale or a negotiated sale. It shall be the policy of the City to issue debt through a competitive sale whenever feasible. Using a competitive sale usually results in the lowest cost of borrowing to a highly rated issuer like the City. In a competitive sale, the notice inviting bids will be carefully constructed so as to ensure the best possible bid for the City, relative to existing market conditions and other salient factors. Parameters to be examined include: a. Limits between the lowest and highest coupons; b. Coupon requirements relative to the yield curve; c. Method of underwriter compensation -discount or premium coupons; d. Use of true interest rate (TIC) versus net interest rate (NIC); e. Use of bond insurance/other credit enhancements; f. Deep discount bonds; g. Variable rate bonds; and h. Call and Redemption provisions. Page 8 of 13 City of Burlingame, California Financial Policy Document Debt Management Policy • Private Placement: From time to time, the City may elect to privately place its debt. Private placement is a variation of a negotiated sale. Instead of retaining the services of an investment banking firm to underwrite the securities, the City will sell the bonds directly to a limited number of investors. The City may use a placement agent to assist it in identifying likely investors. Professional Assistance — Financial advisors, counsels, trustees, and underwriters will, to the extent practical, be selected through a Request for Proposals (RFP) or a Request for Qualifications (RFQ) process based on the circumstances. The RFP/RFQ process will be conducted by the City's Finance Department. The City's contracting policies will apply to all contracts with finance professionals, as permitted by State and Federal law. Once the financial advisor is selected, the financial advisor will assist the City in the selection of other service providers, including counsels (bond and disclosure), underwriters, trustees, escrow agents, credit enhancers, verification agents, title insurance companies, and financial printer. The City Financial Professionals Team will consist of the following professionals: • Financial Advisors: The City shall utilize the services of independent Financial Advisor(s) on debt financing when deemed prudent by the Finance Director. Services and compensation caps shall be defined by contract. The primary responsibilities of the Financial Advisor are to advise and assist on bond document negotiations, transaction structuring including advising on call provision options and timing of issuance, running debt service cash flow numbers, obtaining ratings on the proposed issuance, and generally acting as an independent financial consultant and economic market expert. Financial Advisors act under a regulatory framework of the Securities and Exchange Commission and the Municipal Securities Rulemaking Board and are required to be licensed as Municipal Advisors. They are required to provide advice solely in the fiduciary interest of their clients, unlike underwriters. • Underwriters: The primary task of the underwriter is to purchase the City's debt offering at a mutually agreeable price, at the advice of the financial advisor. Underwriters often provide other assistance in structuring and marketing the debt issuance. Underwriters acknowledge that they are not required to act in the fiduciary interest of their clients. In the case of a competitive sale, the City will award the bonds to the underwriting firm whose bid results in the lowest True Interest Cost. In the case of a negotiated sale, the Finance Director, once every five years or as needed and/or modified, will determine the best method of selection, taking into consideration all factors involved in each particular sale, using an RFP process to develop a pool of qualified underwriters. • Bond Counsel: Upon consultation with the City's Financial Advisor and the City Attorney's Office, the Finance Department will take the lead in selecting Bond Page 9 of 13 City of Burlingame, California Financial Policy Document Debt Management Policy Counsel, and Disclosure Counsel if needed. Underwriter's Counsel is generally selected by the lead underwriter, with the consent of the Finance Director, on a case - by -case basis. Generally, Disclosure Counsel or Underwriter's Counsel take the lead in preparation of the Official Statement(s) and certain closing documents related to the bond sale. Bond Counsel responsibilities will include preparing the necessary authorizing resolutions, ordinances, agreements and other legal documents necessary to execute the financing. All debt issued by the City will include a customary approving legal opinion of Bond Counsel. • Underwriters and Remarketing Agents, in the context of variable rate debt: For variable rate bonds, the Finance Director shall select underwriters or remarketing agents for each transaction through the RFP process. The City shall monitor performance on a monthly basis. The City may replace a remarketing agent or broker - dealer with notice at any time, consistent with the financing documents. • Trustees: Trustees will be selected for each transaction or program by RFP, unless use of the current trustee is deemed in the City's best interest by the Finance Director. The Trustee (or applicable holding company) shall have a combined capital and surplus of at least $50 million and be subject to supervision or examination by federal and state authorities. • Other Financial Professionals: Rebate Consultants, Liquidity Providers, Arbitrage Consultants, Continuing Disclosure Agents, and Financial Printers may be selected for each relevant issue by RFP or approved competitive process issued by the Finance Department or its agent and subject to negotiation of terms. Compensation for Services — Compensation for bond counsel, underwriter's counsel, financial advisors, and other financial services will be as low as possible, balanced by the given desired qualification levels, and consistent with industry standards. The costs of service providers will be included in the cost of issuance and paid from bond proceeds. The ongoing trustee fee for a bond issuance will be budgeted under administration costs and appropriated in respective bond payment accounts or may be included in cost of issuance. Internal Control Procedures Concerning Proceeds of Debt One of the City's priorities in the management of debt is to assure that the proceeds of the debt will be directed to the intended use for which the debt has been issued. In furtherance of this priority, the following procedures shall apply: • The Finance Department shall retain a copy of each annual report filed with the California Debt and Investment Advisory Commission ("CDIAC") pursuant to Section 8855(k) of the California Government Code concerning (1) debt authorized during the applicable reporting period (whether issued or not), (2) debt outstanding during the reporting period, and (3) the use during the reporting period of proceeds of issued debt. Page 10 of 13 City of Burlingame, California Financial Policy Document Debt Management Policy • In connection with the preparation of each annual report to be filed with CDIAC pursuant to Section 8855(k) of the California Government Code, the Finance Department shall keep a record of the original intended use for which the debt has been issued, and indicate whether the proceeds spent during the applicable one-year reporting period for such annual report comport with the intended use (at the time of original issuance or as modified pursuant to the following sentence). If a change in intended use has been authorized subsequent to the original issuance of the debt, the Finance Department shall indicate in the record when the change in use was authorized and whether the City Council, City Manager, or another City official has authorized the change in intended use. The Finance Director or his or her designee shall report apparent deviations from the intended use in debt proceeds to the City Manager for further discussion, and if the City Manager determines appropriate (in consultation with legal counsel and/or the City Attorney), to the City Council. • If the debt has been issued to finance a capital project and the project timeline or scope of project has changed in a way that all or a portion of the debt proceeds cannot be expended on the original project, the Finance Director shall consult with the City Manager and legal counsel (which may be bond counsel, if applicable, or the City Attorney) as to available alternatives for the expenditure of the remaining debt proceeds (including prepayment of the debt). This determination must be consistent with the original bond documents. Debt Administration, Maintenance, Market Communication, and Disclosure Administration — Ultimate responsibility for all matters relating to debt financings and refinancings rests with the City's Finance Director. The Finance Director and other appropriate City personnel shall also consult with bond counsel and other legal counsel and advisors, as needed, following issuance of debt to ensure that all applicable post -issuance requirements in fact are met. A copy of all debt -related records shall be retained at the City's offices. At minimum, these records shall include all official statements, bond legal documents/transcripts, resolutions, trustee statements, leases, and title reports for each City financing (to the extent available). Records shall also include any contracts or arrangements involving the use of bond -financed or refinanced assets. All such records shall be retained while any bonds of an issue are outstanding and during the three-year period following the final maturity or redemption of the bond issue or, if later, while any bonds that refund bonds of that original issue are outstanding and for the three-year period following the final maturity or redemption date of the latest refunding bond issue. Maintenance — The Finance Director is responsible for efficient cash management that ensures the timely and accurate payment of the City's debt service as delineated in the financial documents governing the debt. Page 11 of 13 City of Burlingame, California Financial Policy Document Debt Management Policy The Finance Director, together with applicable City departments, shall be responsible for monitoring the use of bond proceeds and the use of bond -financed or refinanced assets throughout the term of the bonds to ensure compliance with the covenants and restrictions set forth in any agreement relating to the bonds. Records identifying the assets or portion of assets that are financed or refinanced with proceeds of each issue of bonds, including a final allocation of bond proceeds, shall be maintained in the Finance Department. Unless otherwise provided by Issuer resolutions, unexpended bond proceeds shall be held by the Trustee on behalf of the City, and the investment of bond proceeds shall be managed by the Trustee. The Trustee shall provide regular, periodic (monthly) statements regarding the investments and transactions involving bond proceeds. Rating Agency Relations — The Finance Director shall be responsible for maintaining the City's relationships with S&P Global Ratings, Fitch Ratings, and Moody's Investors Service, as applicable. These agencies' rating criteria often change, and the City cannot control the decisions made by any rating agency. However, for each debt issue that the City will seek a rating assignment for, the City will strive to obtain and maintain the highest possible underlying, uninsured rating. In addition to general communication, the Finance Director shall: a) ensure the rating agencies are provided updated financial statements of the City as they become publicly available; b) communicate with credit analysts at each agency as may be requested by the agencies; and c) prior to each proposed new debt issuance, schedule meetings or conference calls with agency analysts and provide a thorough update on the City's financial position, including the impacts of the proposed debt issuance. Council Communication — The Finance Director should report feedback from rating agencies, when and if available, regarding the City's financial strengths and weaknesses and areas of concern relating to weaknesses as they pertain to maintaining the City's existing credit ratings. Disclosure — The City is committed to full and complete financial disclosure, and to cooperating fully with rating agencies, institutional and individual investors, City departments, other levels of government, and the general public to share clear, comprehensible, and accurate financial information. All relevant financial information and reports related to bond issuance shall, consistent with applicable law, be available for public viewing at the City's website via a link to the Electronic Municipal Market Access (EMMA) site maintained by the Municipal Securities Rulemaking Board (MSRB). • Comprehensive Annual Debt Report: The City will provide its Continuing Disclosure Annual Report (CDAR) using its best efforts to issue the CDAR as soon as practical following the issuance of the City's Comprehensive Annual Financial Report (CAFR). The City will also use its best efforts to issue notices of material events electronically by means of the EMMA site, and to post the link to the EMMA site on the City's website. The CDAR and CAFR will also be on the City's website. Page 12 of 13 City of Burlingame, California Financial Policy Document Debt Management Policy Material Event: The City will issue a material event notice in accordance with the provisions of SEC Rule 15c2-12, and will provide a link on the City of Burlingame's website to these reports. Voluntary Disclosure: The City will covenant to provide annual disclosure for all indebtedness with a stated maturity greater than three years. Proposed Budgets and Adopted Budgets, including associated Annual Appropriation Resolutions, and Comprehensive Annual Financial Reports (CAFR) will be submitted to the Nationally Recognized Municipal Securities Information Repository (NRMSIR) as soon as practical. The City will also take additional efforts to make information available to investors and the public through its website and the City Clerk's Office. Official Statements: The Official Statement shall contain a summary of the continuing disclosure obligations, which may exceed obligations enumerated in Rule 15c2-12. • Ratings: The City will secure underlying ratings on all newly issued obligations from the three major nationally recognized rating organizations, provided it is economical to do so. The City shall promptly provide notice of any changes in the City's ratings or outlook to the City Council and City Manager. Arbitrage Compliance — The Finance Director shall maintain a system of record keeping and reporting to meet the arbitrage rebate compliance requirements of the federal tax code. The City shall calculate arbitrage annually each year that the related project funds (or equivalent) had an outstanding balance. Thereafter, the City shall calculate arbitrage on the fifth anniversary of the bond issuance in accordance with IRS recommended practices, unless bond documents require otherwise or the previous calculation resulted in a positive liability. The Finance Director may elect to engage an arbitrage consultant to prepare calculations required by the Internal Revenue Service. Insurance Certification — The City shall provide annual insurance certification to the Trustee and Bond Insurer on all applicable financings as long as the bonds are outstanding. Periodic Review of Policy The Debt Management policy will be reviewed one year from the passage of this resolution. The Audit Subcommittee of the City Council will review the policy's provisions at the request of the Finance Director, or at any time it is determined that changes are necessary, to safeguard its effectiveness and relevance to the City's long-term needs, and to ensure that the policy remains current with government financial best practices. All changes to this policy will be approved by resolution of the City Council. Page 13 of 13