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Budget and Financial Planning

Phone: 913-715-0605

111 S Cherry, Suite 2300, Olathe, KS 66061

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Financial Policies: Section 150 - Debt Management

It is the policy of the BOCC to maintain or improve existing credit ratings through strong financial management, including the avoidance of short-term borrowing for operations. The County seeks to maintain or improve existing credit ratings since better credit ratings result in lower borrowing costs. To help maintain or improve the County’s credit ratings, an established program of managing the County’s debt becomes essential.

The Board of County Commissioners establishes these debt management policies to provide a functional tool to ensure that the County’s debt is managed in a fiscally prudent manner and in the best economic interest of the County. These debt management policies shall provide general guidelines for debt decisions rather than absolute rules or formulas to determine the level of County debt. Each situation requires a thorough review of the County’s debt position, financial health and economic forecast, as well as any mandated or legally imposed obligations.

The County’s debt management policies are established to achieve the following objectives:

  1. To preserve the public trust and prudently manage public assets to minimize costs to the taxpayers and ensure current decisions do not adversely affect future generations.
  2. To maintain the County’s ability to obtain access to the municipal bond market at favorable interest rates in amounts needed for capital improvements, economic development, and facilities or equipment to provide essential County services.
  3. To minimize borrowing costs and preserve access to credit markets.
  4. To seek to minimize debt interest costs whenever prudent in consideration of other cost factors and/or tax burden.
  5. To maintain a balanced relationship between debt service requirements and current operating costs, encourage growth of the tax base, actively seek alternative funding sources, minimize interest costs and maximize investment returns.
  6. To assess all financial alternatives for capital improvements prior to issuing debt. These could include categorical grants, loans, or state/federal aid.
  7. To preserve the County’s flexibility in capital financing by maintaining an adequate margin of statutory debt capacity.
  8. To maintain compliance with regulatory standards such as, but not limited to, Internal Revenue Service (IRS) codes and regulations.

Definitions:

Arbitrage: The practice of simultaneously buying and selling an item in different markets in order to profit from a spread in prices or yields resulting from market conditions. Arbitrage profits are created by selling tax-exempt debt and investing the proceeds in higher-yielding taxable securities, when referencing municipal debt. Municipal issuers are allowed to make arbitrage profits under certain restricted conditions.

Assessed Valuation: A value that is established for real or personal property for use as a basis for levying property taxes.

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 calculating the average life (the total bond years/number of bonds) and net interest costs of an issue. Computations often include bond years for each maturity or for each interest rate, as well as total bond years for the entire issue.

Derivative: Contract whose value depends on, or derives from, the value of an underlying asset, reference rate, or index.

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 of territory or consolidation with another governmental unit.

General Obligation Bond: A bond secured by the issuer’s full faith and credit.

Market Valuation: The estimated appraised value of real and personal property.

Net Debt: Direct debt less sinking fund accumulations and all self-supporting debt.

Net Interest Cost (NIC): A common method of computing the interest expense to the issuer of bonds, and which usually 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. While net interest costs 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.

Overlapping Debt: The issuer’s proportionate share of the debt of 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.

Property Tax-Base Supported: Supported by property tax-base generated revenues, such as general property tax. Includes all general obligation pledges of the County, even those bonds supported by dedicated revenue sources.

Property Tax Supported: Directly supported by property taxes. Includes all net debt bond issues and the portions of those issues that are paid for by property taxes.

Revenue-Supported: Non-general 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.

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.

Special Obligation Revenue Bonds: Revenue bonds for which the County 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.

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.

Responsibilities:

  1. The Director of Budget and Financial Planning is responsible for establishing a solicitation and selection process for securing professional services that are required to develop and implement the County’s debt management program. Goals of the solicitation and selection process shall include encouraging participation from qualified service providers and securing services at competitive prices. In addition, the Director of Budget and Financial Planning is responsible for monitoring outstanding debt issues to identify opportunities of reducing interest costs through refinancing of existing debt.
  2. The Director of Treasury and Financial Management is responsible for monitoring outstanding debt issues to ensure compliance with debt covenants and regulatory standards such as, but not limited to, Internal Revenue Service (IRS) codes and regulations and to establish and maintain procedures and guidelines to facilitate that compliance.
  3. The County’s bond counsel shall render opinions on the validity, enforceability, and tax-exempt status of County debt and related matters, and prepare the necessary resolutions, agreements, and other documents.
  4. The County’s financial advisor shall advise on the structuring of obligations to be issued, inform the County of various options, advise the County as to how choices will impact the marketability of County obligations and provide other services as defined by contract. In addition, the financial advisor shall maintain complete independence from the underwriting process.

150.110 IRS Post Issuance Compliance

1. In General.

The Internal Revenue Service (the “IRS”) has strongly recommended that issuers of municipal bonds assist with the efforts to administer the income tax laws by adopting written policies and procedures that are intended to assure that appropriate compliance measures are implemented by such issuers after their bonds have been issued.

2. Definitions.

“Authorized Representative” means the Post-Issuance Compliance Officer (PICO) of Johnson County (the “Issuer”) designated below and any officer or staff of the Issuer designated by the Post-Issuance Compliance Officer to perform any of the functions described in this Post Issuance Compliance Procedure (PICP).

“Bad Use” means expenditure on projects to be used by other than a governmental user, a loan to a non-governmental person or use of a bond-financed facility by a non-governmental person. As indicated herein, such use may arise pursuant to a management agreement, research agreement, naming rights agreement, lease or any similar agreement relating to a bond-financed facility.

“Bad Payments” means any payments derived from Bad Use of bond‑financed property.

“Bond Counsel” means any nationally recognized bond counsel engaged by or on behalf of the Issuer to review or opine on matters covered by this PICP.

“Code” means the Internal Revenue Code of 1986, as amended.

“Governing Body” means the Board of County Commissioners of Johnson County, Kansas and the Chairman of the Board of County Commissioners.

“Regulations” means the Income Tax Regulations promulgated pursuant to the Code.

“Tax-Advantaged Bonds” means, collectively, any of the Issuer’s Tax Credit Bonds and Tax Exempt Bonds.

“Tax Closing Documentation” means any and all covenants, certificates, instructions and information reporting documentation contained in the closing transcript or record of proceedings for any series of Tax-Advantaged Bonds, whether executed in connection with the issuance of any such series of obligations or executed post-closing.

“Tax Credit Bonds” means the one or more series of governmental purpose tax credit bonds or other form of obligations that the Issuer has previously issued or may in the future issue that entitle the Issuer, the owners of the Tax Credit Bonds, or any other permitted party to either a credit against federal income tax liability or a refundable credit from the United States Treasury.

“Tax Exempt Bonds” means the one or more series of governmental purpose bonds or other form of tax exempt obligations that the Issuer has previously issued or may in the future issue, the interest on which is excludable from gross income of the owners thereof pursuant to Sections 103 and 141-150 of the Code and Regulations.

3. Incorporation of Tax Closing Documentation.

This PICP shall be deemed to include and hereby incorporates all Tax Closing Documentation for each issue of the Issuer’s Tax-Advantaged Bonds.

4. Incorporation of Appendices.

This PICP shall be deemed to include and hereby incorporates all special post-issuance compliance policies and procedures set forth in each of the Appendices hereto.

5. Overall Responsibility for Compliance.

a. Assignment of Responsibility.

Oversight responsibility for post-issuance compliance responsibilities are divided and assigned to the individual designated by the Finance Director. Such officer is hereby designated the Post-Issuance Compliance Officer (“PICO”). Certain specific compliance responsibilities may be assigned by the PICO to a designated Authorized Representative of the Issuer.

b. Consultation with Outside Professionals.

The PICO and any Authorized Representative may consult with any Bond Counsel or other municipal finance advisors or professionals that they deem appropriate to meet the requirements of this PICP.

6. Tax Documentation and Closing Filing Requirements.

a. Tax Documentation Assembly.

The PICO will assemble and document to his or her satisfaction the location of all the Tax Closing Documentation for each issue of Tax-Advantaged Bonds of the Issuer. The PICO will keep all post-closing documentation as a supplement to the Tax Closing Documentation.

b. Closing Filing Requirements.

1) The PICO will confirm to his or her satisfaction the filing of the appropriate Form 8038-G or Form 8038-TC no later than the 15th day of the second calendar month after the close of the calendar quarter during which bonds are issued.

2) The PICO will confirm to his or her satisfaction whether Tax Exempt Bonds have been issued as ‘bank qualified’ bonds pursuant to Section 265(b) of the Code and Regulations. If the Tax Exempt Bonds are “bank qualified,” the PICO will note as part of the Issuer’s books and records the limits on additional Tax Exempt Bonds that may be issued in the remaining portion of the calendar year.

c. Coordination with Accounting Systems. With respect to all compliance topics set forth in this PICP and where relevant, the PICO will confirm recording of all information relating to any of the compliance topics set forth in this PICP in either the Issuer’s or any third-party or trustee accounting system.

7. Arbitrage Investment Limitations and Rebate Requirements.

a. Information Assembly, Collection and Procedures.

If not already set forth in the Tax Closing Documentation for an issue, the PICO will determine and record the following information and establish the following procedures:

1) Determine whether the Tax-Advantaged Bonds are a fixed yield issue of bonds or are variable yield issue of bonds.

2) Determine whether the Issuer has entered in a hedging transaction (e.g., interest rate swap, cap, floor or collar) either before, during, or after the bond issue date.

a. With respect to all hedging transactions, determine or confirm with Bond Counsel prior to entering into any hedging transaction (including interest rate swaps and caps) with respect to the bonds whether or not such swap agreement is to be identified as a qualified hedge as defined in the Regulations, and if such a qualified hedge is to be entered into, determine or confirm with Bond Counsel prior to amending or terminating the hedge the impact of any amendment or termination of such a qualified hedge. A qualified hedge must be identified in the first information reporting form relating to a bond issue filed with the IRS on or after the date on which the qualified hedge contract is executed.

3) Determine whether the bonds are secured by a bond insurance policy, letter of credit, or other form of credit enhancement or liquidity facility. With respect to all bond insurance, letter of credit, other credit enhancement or liquidity facilities entered into with respect to the bonds, determine or confirm with Bond Counsel the impact of such a transaction on the bonds prior to entering into or amending or terminating any such credit enhancement.

4) Identify or provide for the computation of the bond yield for each issue of the Tax-Advantaged Bonds.

5) Identify each fund or account containing “gross proceeds” of the bonds (as that term is defined in the Regulations), including any fund or account established under agreements other than the bond ordinance, resolution, indenture or Tax Closing Documentation, particularly any fund or account that may be expected to be used to pay debt service on the bonds.

6) Identify the applicable temporary periods and investment yield restrictions with respect to each such fund or account, including the investment yield restrictions applicable at the end of each temporary period.

7) Confirm that the size of any “reasonably required reserve fund” for the bonds (as that term is defined in the Regulations) has not been funded in an amount more than 10% of the issue price or principal amount of the bonds as may be applicable. Identify any investment yield restrictions applicable for deposits of any other moneys into such a reserve fund in excess of the applicable limits for such reserve fund as set forth in the Tax Closing Documentation.

8) Record each type of investments in which gross proceeds have been invested. Record whether investments were purchased at a fair market value and whether they were purchased on a negotiated basis or were put out for bid. If by bid, obtain all documentation relating to whether there was compliance with the bidding rules established for the specific investment. Consult with Bond Counsel and/or financial advisors, if needed.

9) Provide for the documentation, computation and payment of any yield reduction payments in the same manner as set forth for rebate payments below.

b. Rebate Information.

1) Determine for each issue of Tax-Advantaged Bonds no later than the date set forth in the Tax Closing Documentation (and in no event later than the fifth anniversary date of the date of issuance of each issue), if a rebate consultant needs to be retained and the timing for hiring of such a rebate consultant. Obtain a copy of all rebate reports provided by a rebate consultant.

2) Establish whether each issue is eligible for any spending or small issuer exception to the rebate requirements.

3) Except as may otherwise be provided in the Tax Closing Documentation, establish a calendar of each date for each of the Issuer’s bond issues that the Issuer will be required to make any rebate payment to the United States (generally, every 5 years and upon final payment of all bonds). Such a calendar must recognize that the dates of any required rebate payment to the United States must be adjusted to reflect any redemption date of a bond issue prior to final maturity.

4) Provide a procedure for timely filing of any required rebate payment to the United States, including the completion of any IRS Form 8038-T.

5) For Special Arbitrage and Rebate Spending Procedures. To the extent that any bond proceeds are used to reimburse the Issuer for expenditures paid prior to the date of issuing the bonds, the PICO will assure that such proceeds are allocated to the reimbursement of such expenditures no later than 18 months after the later of (i) the date the expenditure was paid, or (ii) the date that the project was placed in service, but in no event more than 3 years after the expenditure was paid.

6) For Error Correction Procedures the PICO will document, as soon as practicable after bond closing, all steps to be taken in order to correct any investment and rebate compliance errors. These steps may include, but are not limited to, consultation with Bond Counsel or any of the procedures described below as may be applicable.

8. Bond Proceeds Spending Requirements.

a. Assignment of Compliance Duty.

With respect to this compliance topic, the PICO will coordinate compliance for each issue of Tax-Advantaged Bonds under this PICP and the Tax Closing Documentation for each such issue.

b. Information Assembly, Collection and Procedures.

If not already set forth in the Tax Closing Documentation for an issue, the PICO, with the assistance of the County departments or agencies utilizing the bond proceeds, will determine and record the following information and establish the following procedures:

1) Assemble a list of all purposes and projects to be financed by the bonds, including information on the expected useful lives of projects.

2) Designate which of these purposes represent capital expenditures or working capital.

3) Establish the exact amount of bond proceeds and all other sources of funding for the project. In connection with this procedure, the PICO will document all requirements applicable to such other sources of funding.

4) Determine the amount, if any, of bond proceeds that may be expended on payment of interest on the bonds (i.e., capitalized interest) and all applicable spending and time limits applicable to such payment of interest on the bonds.

5) Identify and calendar any time periods that may be applicable as to when bond proceeds must be spent.

c. Spending Limitation Procedures.

The PICO will determine and record the following information and establish the following procedures:

1) Establish such accounting controls as are necessary to guarantee that no more than the lesser of (i) 10% of the net proceeds or (ii) $15 million will be expended on projects used by persons other than a governmental unit.

2) Establish such accounting controls as are necessary to guarantee that no more than 5% of net proceeds of the bonds may be used for a purpose that is unrelated to, or disproportionate to, the governmental purpose of the bond issue (e.g., a privately operated cafeteria in a government office building is generally related use; leasing of space in the government office building to private commercial tenants is unrelated use).

3) Establish such accounting controls as are necessary to guarantee that no more than 5% of net proceeds of the bonds are loaned to a non-governmental person.

4) Establish such accounting controls, calendars and reporting procedures as are necessary to confirm that any time periods limiting spending have been met. For new money issues, establish such accounting reports as are necessary to determine at least annually the amounts and percentages of bond proceeds that have been spent on the intended projects.

5) Establish such accounting controls as are necessary to confirm that the proceeds are spent on the approved projects.

6) Establish such accounting and review procedures as are necessary to record and approve a change from an expected qualified project to a qualified substitute project.

7) Establish such accounting and review procedures as are necessary to arrange for qualified expenditures of any unspent moneys that remain after completion of the original list of projects to be financed by the Tax-Advantaged Bonds.

In connection with this procedure, the PICO will prepare a written, detailed explanation regarding why such proceeds remain unspent. Also, if Tax Exempt Bond proceeds or any amount of Tax Credit Bond proceeds remain unexpended as of the third anniversary date of the date of issue of the bonds, the PICO will confirm with Bond Counsel the proper steps to take to protect the qualified status of such bonds (including but not limited to the continued investment of such amounts) and will confirm with Bond Counsel whether the existence of such unspent proceeds impacts the ability of the Issuer to issue any new issue of Tax-Advantaged Bonds.

8) Establish such accounting controls, calendars and reporting procedures and such other review procedures as are necessary to confirm the actual expenditure or deemed allocation to expenditure of all bond gross proceeds by the date that is no later than 18 months after the later of the date the expenditure is paid or the date any project that is financed by the issue is placed in service. A final record of all actual expenditures or deemed allocations to expenditures must in all events be made by the date that is 60 days after the fifth anniversary date of the issuance of the bonds or 60 days after the retirement of the bonds, if earlier.

9. Use of Bond‑Financed Property and Bad Use or Bad Payments Limitations.

a. Assignment of Compliance Duty.

With respect to this compliance topic, the PICO will coordinate compliance for each issue of Tax-Advantaged Bonds under this PICP and the Tax Closing Documentation for each such issue. The PICO will work with the County departments or agencies utilizing the bond proceeds to accomplish these procedures.

b. Information Assembly, Collection and Procedures.

If not already set forth in the Tax Closing Documentation for an issue, the PICO will determine and record the following information and establish the following procedures:

1) Basic Information.

a) Determine as of the date of issue of the bonds how each source of funding is to be expended on or allocated to any Bad Use.

b) Determine the amount of bond proceeds loaned or granted to non-governmental entities.

c) Determine the list of payments to be derived from operation of the bond‑financed property and whether the bond‑financed property secures the repayment of the bonds.

2) Bad Use and Bad Payments Control Procedures.

a) The PICO will establish such monitoring procedures as are necessary to bring to the attention of the PICO for approval prior to execution any lease, sales contract or other disposition of bond‑financed property.

b) With respect to the operation of bond‑financed property, the PICO will establish such monitoring procedures as are necessary to bring to the attention of the PICO for approval prior to execution any naming rights, sales or licensing contract; any management or service contract, research contract; any output contracts; cell phone tower agreements; solar power contracts or windmill-generation contracts or similar types of contracts.

c) Immediately upon the execution of any lease, sale or other disposition that constitutes a Bad Use, and in all events no less than annually during the term of any bond issue, the PICO will provide a calculation of the amount of Bad Use and Bad Payments with respect to bond‑financed property.

d) Should the amount of Bad Use and Bad Payments approach the limits described above, the PICO will refer to the Change in Use and Remediation requirements of this PICP and shall immediately consult with Bond Counsel as to the best course of action to respond to such a situation.

10. Change in Use and Remediation.

a. Assignment of Compliance Duty.

With respect to this compliance topic, the PICO will coordinate compliance for each issue of Tax-Advantaged Bonds under this PICP and the Tax Closing Documentation for each such issue. The PICO will work with the County departments or agencies utilizing the bond proceeds to accomplish these procedures.

b. Information Assembly, Collection and Procedures.

If not already set forth in the Tax Closing Documentation for an issue, the PICO will determine and record the following information and establish the following procedures. The PICO will locate any information with respect to this compliance topic including any list of options stated in the Tax Closing Documentation that is available to remediate excess Bad Use and Bad Payments.

c. Change in Use and Remediation Procedures.

1. Should the information collected by the PICO with respect to Bad Use and/or Bad Payments indicate that the use or payments are in excess of the prescribed limits for the bond issue, the PICO will consult with Bond Counsel as to the remedial actions available under the Regulations to correct such excess use or payments.

2. Should the information collected by the PICO with respect to Bad Use and/or Bad Payments indicate that the use or payments are in excess of the prescribed limits for the bond issue and the remedial actions set forth in the Regulations are not applicable, the PICO will consult with Bond Counsel as to the options that are available for voluntary correction of failures by entering into a closing agreement under the Tax Exempt Bonds Voluntary Closing Agreement Program described in IRS Notice 2008-31.

11. Refundings.

a. Assignment of Compliance Duty.

With respect to this compliance topic, the PICO will coordinate compliance for each issue of Tax-Advantaged Bonds under this PICP and the Tax Closing Documentation for each such issue. The PICO will work with the County departments or agencies utilizing the bond proceeds to accomplish these procedures.

b. Information Assembly, Collection and Procedures.

If not already set forth in the Tax Closing Documentation for an issue, the PICO will determine and record the following information and establish the following procedures:

1. Basic Information.

a) Determine the redemption dates for all refunded bonds.

b) Determine the list of projects being refinanced with proceeds of the bonds and any Bad Use or Bad Payments incurred with respect to such bond‑financed property.

2. Refunding Procedures.

a) The PICO will establish such accounting reporting procedures as are necessary to assure that any refunded bonds are redeemed or retired within 90 days of the date of issue of the refunding bonds or, if the refunded bonds are not callable within 90 days, that such refunding is permitted under the Tax Closing Documentation or the Regulations and that such call date is the first call date for the refunded bonds required by the Tax Closing Documentation or the Regulations.

b) The PICO will apply the same policies and procedures as set forth in sections 7 and 8 of this PICP to any refunding bonds. With respect to this procedure, the PICO will ensure that any final rebate calculations for the refunded bonds will be performed within 60 days of redemption of refunded bonds and timely filing of Forms 8038-T or Forms 8038-R with such payment as may be required, as appropriate, will be made.

c) The PICO will apply the same policies and procedures as set forth in sections 7 and 8 of this PICP to the property being refinanced by the refunding bonds.

12. Modification of Bond Terms and Events of Default.

a. Assignment of Compliance Duty.

With respect to this compliance topic, the PICO will coordinate compliance for each issue of Tax-Advantaged Bonds under this PICP and the Tax Closing Documentation for each such issue. The PICO will work with the County departments or agencies utilizing the bond proceeds to accomplish these procedures.

b. Information Assembly, Collection and Procedures.

If not already set forth in the Tax Closing Documentation for an issue, the PICO will determine and record the following information and establish the following procedures:

1. Basic Information.

The PICO will assemble, and make all gathered information and documentation regarding the modification of bond terms or events of default, part of the Issuer’s books and records.

2. Modification of Bond Terms and Events of Default Procedures.

a) The PICO will establish such accounting and reporting procedures as are necessary to confirm that any tax levy, tax credits or other revenues securing the bonds have been received and that the debt service on the Tax-Advantaged Bonds has been paid and compliance with non-payment covenants with respect to the Tax-Advantaged Bonds has occurred.

In the event that any payment or other type of default occurs, the PICO will consult with Bond Counsel.

b) The PICO will establish such reporting requirements and information gathering procedures as are necessary to identify whether any events have occurred that would have or could have triggered a deemed discharge or reissuance of the bonds. Such reporting requirements will include assembling, prior to execution, if possible, information concerning (i) changes (modifications) of any of the contractual terms of the bonds (including modifications of the bond interest rates, maturity dates or payment schedule), (ii) changes to the credit enhancement of or liquidity facility for the bonds, (iii) changes in the nature of the security for the bonds, (iv) purchase of the Tax-Advantaged Bonds by the Issuer, or (v) any deferral or default of payment of principal and interest due on the Tax-Advantaged Bonds.

With respect to this procedure, the PICO should consult with Bond Counsel as to the options that are available to the Issuer for dealing with such events, including acquiring any bond security from a federal agency or instrumentality.

13. General Recordkeeping Requirements and Records Retention.

a. Assignment of Compliance Duty.

With respect to this compliance topic, the PICO will coordinate compliance for each issue of Tax-Advantaged Bonds under this PICP and the Tax Closing Documentation for each such issue. The PICO will work with the County departments or agencies utilizing the bond proceeds to accomplish these procedures.

b. Information Assembly, Collection and Procedures.

If not already set forth in the Tax Closing Documentation for an issue, the PICO will determine and record the following information and establish a General Recordkeeping Requirement and Records Retention Procedure. Pursuant to this procedure, the PICO will record in a retrievable paper or electronic form all of the information required by this PICP. At a minimum for each issue of Tax-Advantaged Bonds, the PICO shall record and keep copies of:

1) The bond transcript of proceedings;

2) all resolutions, ordinances and reimbursement declarations and minutes pertaining to the projects financed, if not included in the bond transcript;

3) all surveys, feasibility or demand studies with respect to the bonds, if not included in the bond transcript;

4) all bond yield computations including supporting certificates and investment records (including, if applicable, trustee records) pertaining to the issue price of the bonds, proceeds of the bonds, investment agreements and related bidding documents, credit enhancement and liquidity documents, swap documents, rebate reports and rebate payments;

5) all documents pertaining to the expenditure or granting of bond proceeds for the acquisition, construction or renovation of bond‑financed property including, if applicable, any trustee records, requisitions, reimbursements, draw schedules, draw requests, construction contracts, invoices, bills, land/project related appraisals, payment records, requisition statements, reimbursement records, cancelled checks, a final schedule of property financed by the bonds and final allocations of bond proceeds;

6) all formal elections made for the bond financing (e.g., an election to employ an accounting methodology other than specific tracing)

7) all records of trade or business use, purchase, lease, sublease or sale of bond‑financed property including any leasehold improvement contracts and ownership documentations such as joint venture arrangements, limited liability corporation arrangements or partnership arrangements;

8) all management contracts and other service agreements, research contracts, naming rights contracts and other contracts listed in this PICP;

9) all accounting audits for bond‑financed property;

10) all information reports filed for the bonds;

11) all documentation pertaining to any prior IRS examination of Issuer and/or tax exempt bonds; and

12) all correspondence related to the above (faxes, emails and letters).

c. Record of payments.

The PICO will develop such procedures as are necessary to document the payments made of all principal, interest and any redemption payments on the Tax-Advantaged Bonds.

d. Retention.

All records accumulated for the bond issue shall be maintained for a period of six years following the later of (i) final maturity of the bonds or (ii) any Tax-Advantaged Bonds issued to refund the bonds.

14. IRS Correspondence and Audits.

The PICO will consult with Bond Counsel immediately upon receipt of any correspondence from, or opening of an examination of any type, with respect to Tax-Advantaged Bonds by the IRS. All Bond Counsel assistance with IRS examinations is included in the original cost of issuance and no additional fees shall be charged.

15. Periodic Review Requirements.

The PICO will review the implementation of this PICP with the County Manager at least annually prior to October 1st during the term of any Tax-Advantaged Bonds. The PICO will also periodically seek the advice of Bond Counsel or other municipal finance advisors or professionals that he or she deems appropriate to review and/or revise the terms of this PICP. Such revisions will need to be approved by the County Manager. The PICO may approve clarifications to this PICP that he or she deems appropriate in consultation with Bond Counsel.

16. Continuing Disclosure Obligations.

a. Annual Report.

In each year that the Issuer has Tax-Advantaged Bonds or taxable obligations outstanding subject to SEC Rule 15c2-12, no later than the SEC report date included in the Issuer’s transcript of proceedings for such obligations (the “Annual Report Due Date”), the PICO shall file, or cause its dissemination agent, if applicable, to file, its annual report (the “Annual Report”) with the Municipal Securities Rulemaking Board (the “MSRB”) through its Electronic Municipal Market Access facility for municipal securities disclosure (“EMMA”). In preparing its Annual Report, the PICO shall review each of its outstanding continuing disclosure undertakings (collectively, the “Undertakings”) to determine the quantitative financial information and operating data which, together with the audited financial statements, shall constitute the content of the Annual Report.

b. Event Filings.

1) Obligations Issued before December 1, 2010. For its Undertakings with respect to bonds or other obligations issued before December 1, 2010, the PICO shall monitor the following events and provide notice of such events to the MSRB through EMMA as required by the applicable Undertaking:

a) Principal and interest payment delinquencies;

b) Non-payment related defaults;

c) Unscheduled draws on debt service reserves reflecting financial difficulties;

d) Unscheduled draws on credit enhancements reflecting financial difficulties;

e) Substitution of credit or liquidity providers, or their failure to perform;

f) Adverse tax opinions or events affecting the tax exempt status of the security;

g) Modifications to the rights of security holders;

h) Bond calls;

i) Defeasances;

j) Release, substitution or sale of property securing repayment of the securities; and

k) Rating changes.

2) Obligations Issued after December 1, 2010. For its Undertakings with respect to bonds or other obligations issued on or after December 1, 2010, the PICO shall monitor the following events and provide notice of such events to the MSRB through EMMA as required by the applicable Undertaking, but not later than 10 business days after occurrence:

a) Principal and interest payment delinquencies;

b) Nonpayment‑related defaults, if material;

c) Unscheduled draws on debt service reserves reflecting financial difficulties;

d) Unscheduled draws on credit enhancements reflecting financial difficulties;

e) Substitution of credit or liquidity providers, or their failure to perform;

f) Adverse tax opinions, the issuance by the IRS of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701‑TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security;

g) Modifications to rights of security holders, if material;

h) Bond calls, if material, and tender offers;

i) Defeasances;

j) Release, substitution or sale of property securing repayment of the securities, if material;

k) Rating changes;

l) Bankruptcy, insolvency, receivership or similar event of the Issuer; (This event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for the Issuer in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Issuer, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Issuer.)

m) The consummation of a merger, consolidation or acquisition involving the Issuer or the sale of all or substantially all of the assets of the Issuer, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and

n) Appointment of a successor or additional trustee or the change of name of a trustee, if material.

Resolution No. 122-02
Revision Number: 1
Date of Last Review: Adopted 5/17/13

It is the policy of the BOCC for County debt to be administered according to the following guidelines:

  1. The County shall maintain good communications with bond rating agencies to ensure a complete and clear understanding of the creditworthiness of the County.
  2. Every financial report and bond prospectus will follow a policy of full and complete disclosure of financial conditions and operating results, in conformance with guidelines issued by applicable entities to meet the disclosure needs of rating agencies, underwriters, investors, agencies, and taxpayers. These disclosures shall be reported in appropriate financial documents as enumerated in section 150.9 Appropriate Disclosure Documents.
  3. The County should market its debt issues on a competitive basis, unless specific criteria are met.
  4. If a negotiated sale is advised, the County will competitively select the underwriter(s) needed to accomplish the structuring, marketing, pricing, and sale of the bonds.
  5. A negotiated sale process will only be considered if specific criteria are met, specifically tests relating to unusual credit quality, issue size and market access.
  6. All pricing for negotiated sales will be performed with direct involvement by County staff and the County’s financial advisor. The administration and management of the pricing sessions should always be conducted with the understanding that pricing can be done another day.
  7. For capital needs of enterprise operations, debt financing should be considered so that the ratepayers who utilize the capital improvement over the life of the improvement are required to support the capital financing. Although a pay-as-you-go (cash) strategy for enterprise operations may reduce interest costs, it may also increase user rates well above equitable and affordable levels.
  8. Tax-supported debt for settlements should be used only when payments from the self-insurance fund (Risk Management Fund) are not sufficient to provide for the payment. Payment of litigated judgments against the County shall be reviewed on a case-by-case basis by the Legal Department and Treasury and Financial Management to determine the best strategy for payment and least cost method. Based upon that review, a recommendation will be presented to the Board for consideration.
  9. The County shall identify a reserve level for debt service equal to a minimum of 5% of the annual principal and interest due on outstanding debt in order to ensure adequate debt service liquidity while minimizing the exposure to arbitrage liability, subject to debt covenants requiring a specific reserve in excess of this amount. Specific policies on reserve levels are described in section 110 Reserves for Working Capital.
  10. Proceeds from long-term debt should not be used to fund current operating costs.
  11. The scheduled maturities of long-term obligations should be less than the expected economic life of the capital project or asset(s) financed.
  12. The County shall seek to maintain a minimum of 20% of its statutory debt capacity.
  13. In determining the type of bond to issue, the following factors should be considered:
    1. The direct and indirect beneficiaries of the project. A significantly large proportion of citizens should benefit from projects financed by general obligation bonds.
    2. The time pattern of the stream of benefits generated by the project, and the asset’s useful life.
    3. The revenues that may be raised by alternative types of user charges.
    4. The cost-effectiveness of user charges.
    5. The effect of proposed bond issues on the County’s ability to finance future projects of equal or higher priority.
    6. The interest costs for each type of bond.
    7. The impact on the County’s financial condition and credit ratings.
    8. The impact on statutory debt limit.
  14. In determining when to issue bonds, the following factors should be considered:
    1. The timing of other proposed issues.
    2. The availability of the County’s audited financial statements for the previous fiscal year.
    3. The potential impact on the County’s bond ratings.
    4. The general condition of the municipal bond market.
    5. The need for capital to complete the project.
    6. Call dates of existing debt issues (refinancing opportunities).
    7. Present value interest savings (refinancing opportunities).
    8. Current reserves (refinancing opportunities).
  15. Where debt repayment relies on a limited number of principal revenue sources, the County will review the principal revenue sources with both a profile and a sensitivity analysis. Monitoring these revenue sources will have a positive impact from a credit rating perspective as well as future property tax impact.
  16. 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 County; and refunding of outstanding bond issues.
  17. The County will use “true interest costs” as the means to determine the best bid on its debt issues.
  18. The County will consider refinancing outstanding debt when legally permissible and financially advantageous. In addition, the County may consider refinancing outstanding debt for restructuring purposes where revenue streams have declined and it is necessary to avoid default. When refinancing outstanding debt to reduce interest costs, the County shall seek to achieve a net present value benefit of at least 3% of the present value of the refunded debt service. This 3% level is only a minimum target when refinancing to reduce interest costs – the County may elect not to refinance outstanding debt even if the 3% savings target can be achieved.
  19. The County will maintain adequate debt service coverage ratios for the 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.
  20. The County will establish separate accounts to monitor investment earnings from dept proceeds in order manage potential arbitrage liability. Any investment earnings retained by the County (i.e., not rebated as an arbitrage liability) will be used according to relevant debt covenants, including the financing of debt issuance costs and retirement of outstanding debt. Investment earnings may not be used to finance project costs unless formally approved by the BOCC.

It is the policy of the BOCC for the County to plan future debt issuance according to the following guidelines:

  1. The County shall establish and maintain limitations on the issuance of new property tax-base supported bonded indebtedness which will promote a balanced relationship between expenditures for debt service and current County costs while assisting in minimizing the overall property tax burden.
  2. The County shall monitor the absolute amounts and year-to-year trends of key financial and debt ratios. If credit market norms exist, the County should strive to meet those standards.
  3. The County shall monitor the following trends:
    1. Ratio of property tax-supported debt service to discretionary revenues.
    2. Ratio of property tax-supported debt service to total revenues.
  4. All bond issues shall have a post sale analysis that will include the Delphis Hanover and any Kansas or other similar types of issues that have sold in the same recent market.

It is the policy of the BOCC for the County to plan issuance of general obligation bonds supported by property taxes according to the following guidelines:

  1. General obligation bonds supported by property taxes 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 County.
  2. General obligation bonds supported by property taxes should be used only after considering alternative funding sources, such as federal and state grants and other revenues.
  3. Excess balances in completed project accounts should be utilized as a substitute for new debt issues to fund projects that have been approved by the BOCC.

It is the policy of the BOCC for the County to plan issuance of revenue-supported bonds according to the following guidelines:

  1. Utilize revenue-supported bonds, whether solely revenue backed or issued as general obligations with non-property tax revenue pledges, to finance public improvements that can be shown to be self-liquidating or fully supported by dedicated revenue sources, and needed for the infrastructure and economic development of the County.
  2. Revenue-supported bonds should be used to limit potential dependence on property taxes for those projects with available revenue sources, whether self-generated or dedicated from other sources.
  3. Adequate financial and, if necessary, engineering feasibility studies should be performed for each project to provide assurances as to the self-liquidating nature of the project or adequacy of dedicated revenue sources.
  4. General obligation revenue bonds should be issued for projects in order to obtain the lowest possible interest costs, unless the revenue bonds benefit only specific users, but not the community as a whole or where specific authority to issue general obligation backed bonds does not exist.

It is the policy of the BOCC for the County to plan issuance of special obligation revenue bonds according to the following guidelines:

  1. Special obligation revenue bonds, those bonds for which the County 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 County and its citizens.
  2. Written assurances should be received that the proposed project will contribute to the economic goals of the County and to the growth of employment and other services for the citizens.
  3. Adequate financial feasibility studies should be performed for each project to provide assurances as to the financial viability of the project, and the marketability of the bonds.
  4. Adequate written assurances should be obtained that the 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.

It is the policy of the BOCC for the County to plan issuance of lease obligations and other long-term financing agreements according to the following guidelines:

  1. Lease financing is appropriate in the following situations:
    1. Whenever the introduction of leased equipment or a capital improvement results in verifiable operating savings that, properly discounted, outweigh the lease financing costs.
    2. To purchase important capital equipment or finance improvement projects for which lease financing costs can be paid for by:
      1. existing non-general fund revenues; or
      2. new, earmarked revenues approved by the voters; or
      3. incremental general fund revenues that can be specifically attributed to the introduction of the capital project.
    3. To finance projects deemed important enough (for safety, legal requirements, efficiency, or other reasons) to justify a reallocation of existing revenues.
  2. The Budget and Financial Planning Department and Treasury and Financial Management will determine and document the justification for each proposed lease transaction. The justification should include the following:
    1. detailed explanation of the factors listed in the capital improvement guidelines;
    2. reasons for not recommending a “current payment” alternative;
    3. explanation for not recommending financing through general obligation or other non-lease revenue option or non-lease revenue bond issuance.

The Budget and Financial Planning Department will advise the respective department with the appropriate financing mechanism using short-term general obligation bonds/notes as the first financing option and lease-purchase option as a subsequent option. The analysis shall be conducted using appropriate analytical tools to make such evaluations.

  1. The project lease payments and a cash flow statement over the life of the transaction are required for every proposed lease agreement.
  2. The scheduled maturity should be less than the expected useful life of the capital project or asset(s) financed.
  3. An analysis of various financing strategies should be performed to allow for the lowest possible costs to the County.

It is the policy of the BOCC for the County to cautiously plan for the potential use of any derivative products. The County will carefully examine these products, which usually take the form of non-traditional financing structures, on a case-by-case basis with particular attention to the life-cycle costs and benefits of the given product.

It is the policy of the BOCC to meet the disclosure needs of rating agencies, underwriters, investors, agencies, taxpayers, and other interested parties through the following documents:

  1. Comprehensive Annual Financial Report – This report shall contain audited financial statements in conformity with generally accepted accounting principles on the County’s reporting entity. The notes shall disclose all aspects of the debt structure for both enterprise and non-enterprise functions.
  2. Annual Financial Trend Monitoring Report – This report shall review the historic trends of revenues, expenditures/expenses, operating position and fund balance, debt ratios, and various tax structures, demographic and economic conditions.
  3. Annual Financial Forecasts – This report shall review the future forecasts for revenues, expenditures/expenses, operating position and fund balance.
  4. Operating Budget Document – This document shall include the annual operating budget adopted by the BOCC.
  5. Five-Year Capital Improvement Program (CIP) - This document shall include a schedule of capital improvement projects by year, including the estimated total capital cost, estimated annual operating costs or savings, and anticipated funding sources(s) for each project.