§ 2-578. Types of debt permitted and the criteria for issuance.

(a) Short term debt. Current revenues and/or working capital reserves are expected to cover the expenses associated with the day-to-day operations of the city. However, short-term obligations may be issued to finance projects or portions of projects for which the city ultimately intends to issue long-term debt. Short term debt shall be defined as any debt that is fully due within a twelve-month period. It can be used to provide interim financing which will be refunded with the proceeds of long-term obligations. Interim financing may be appropriate when long-term interest rates are expected to decline in the future. In addition, some forms of short-term obligations can be obtained quicker than long term obligations and thus can be used in emergencies until long-term financing can be obtained.

The city will conduct an analysis of the cost differential of issuing short-term debt to provide for immediate needs versus long-term debt to cover both immediate and future needs taking into account the carrying costs of long term financing which does not have an immediate use.

(b) Long term debt. The city will consider the issuance of long-term debt under the following conditions:

(1) One (1) time capital projects or capital improvement projects, when the project is included in the city's capital improvement program and appropriated in the budget.

(2) An unusual equipment purchase for which it is determined to be economically beneficial for the city to purchase through financing. For unusual equipment purchases, city staff shall provide the city commission with a comparison of the annual cost of renting the equipment compared to the annual debt service obligation of purchasing the equipment. An estimate of the useful life expectancy of the equipment shall also be provided.

(3) When a project is not included in the city's capital improvement plan, but it is an emerging critical need whose timing was not anticipated or it is a project mandated immediately by state or federal requirements. An analysis of the project's impact on the city's capital improvement plan and future budget forecasts will be presented at the time of approval.

(4) To finance the acquisition or implementation of a self-supporting proprietary or governmental program/activity.

(c) General obligation bonds. When determined to be the most appropriate method of debt issuance, the city will seek approval through voter referendum to issue general obligation bonds. General obligation bonds are either backed by the full faith and credit of the city, with a pledge to levy the necessary ad valorem tax rate to meet the debt service requirements; or of a limited nature were the voters approve a specified millage rate to pledge.

(d) Revenue debt. As part of the city's financing activities, specific general fund revenue sources may be identified to pledge for repayment of revenue debt. Recognizing the limited capacity of the city's general fund to support both ongoing operating programs and secure debt obligations, use of the general fund to secure such obligations must be approved after careful review of financial forecasts. Key factors that will be considered in determining whether or not the general fund should be used to secure a particular debt obligation will include the following:

(1) Demonstration of underlying self-support, thus limiting potential general fund financial exposure.

(2) Use of general fund support as a transition to a fully stand alone credit structure, where interim use of general fund credit support reduces borrowing costs and provides a credit history for new or hard to establish credits.

(3) General fund support is determined by the city commission to be in the city's overall best interest.

The city will finance the capital needs of its revenue producing proprietary activities through the issuance of revenue-secured debt obligations. Prior to approval of such debt, the city commission will evaluate financial plans and projections showing the feasibility of the planned financing, required rates and charges needed to support the planned financing, and the impact of the planned financing on ratepayers, property owners, city revenues, and other affected parties. The amount of the debt obligations issued by a city will be limited by the feasibility of the overall financing plan on the proprietary activity.

(e) Variable rate debt. The city commission chooses not to issue securities that pay a rate of interest that varies according to pre-determined formula or results from a periodic remarketing of the securities, consistent with state law and covenants of pre-existing bonds, and depending on market conditions.

(f) Leasing. When found to be advantageous, the city may lease equipment and facilities rather than purchase them outright. Leasing may be appropriate for assets that will be needed for only a short period of time, or which are subject to rapid technological obsolescence. Leasing may also be determined to be appropriate for procuring assets that are too expensive to fund with current receipts in any one (1) year, but with useful lives too short to finance with long-term debt. The decision to lease will be supported by an analysis of lease vs. purchase.

(g) Conduit debt. Conduit debt are securities issued by a government agency to finance a project of a third party, such as a non-profit organization or other private entity. The city may sponsor conduit debt for those activities (e.g., economic development, housing) that have a general public purpose and are consistent with the city's overall service and policy objectives. Unless a compelling public policy rationale exists, such conduit debt will not in any way pledge the city's full faith and credit.

(h) Taxable debt. The cost of taxable debt is higher than tax exempt debt. The issuance of taxable debt is mandated in certain circumstances, and may allow valuable flexibility in subsequent contracts with users or managers of the improvement constructed with the debt proceeds. Therefore, the city may issue taxable obligations when determined to be the best method for the intended purpose.

(i) Bond anticipation notes. Use of short-term borrowing, such as bond anticipation notes and tax-exempt commercial paper, will be undertaken only if the transaction costs plus interest of the debt are less than the cost of internal financing, or available cash is insufficient to meet working capital requirements.

(j) Interfund borrowing. Interfund borrowing will be considered to finance high priority needs on a case-by-case basis, only when planned expenditures in the fund making the loan would not be affected. Interfund borrowing may be used when it would reduce costs of interest, debt issuance, and/or administration.

(k) Other borrowing facilities. The city may maintain or procure a special facility that will allow for borrowing on short notice, either in the form of short-term or long-term notes, for small amounts not economical to finance through a regular bond issuance. The facility can be used as an interim financing mechanism when cost effective.

(Ord. No. 2013-03, § 1, 2-5-13)