[Adopted 11-12-2019 by Res. No. 2160]
A.
The debt management policies ("policies") set forth comprehensive
guidelines for the financing of projects,[1] as defined by the Local Government Unit Debt Act ("Debt
Act"),[2] administered by the Pennsylvania Department of Community
and Economic Development (DCED). Each policy is intended to stand
on its own, and the aggregation is our comprehensive debt management
policies. It is the objective of the policies that:
(1)
The Township obtain financing only when necessary.
(2)
The process for identifying the timing and amount of debt or other
financing be as efficient as possible.
(3)
The most favorable interest rate and other related costs be obtained.
(4)
To the extent feasible, future financial flexibility be maintained.
(5)
It comply with all federal and Commonwealth of Pennsylvania borrowing
statutes and regulations.
B.
Adherence to debt policies helps to ensure that the Township achieves
and maintains a sound debt position and that its credit quality is
enhanced. Advantages of debt policies are as follows:
(1)
Enhances the quality of financing decisions.
(2)
Rationalizes the financing decision-making process.
(3)
Identifies objectives for staff to achieve.
(4)
Demonstrates a commitment to long-term financial planning objectives.
(5)
Is regarded positively by the rating agencies and investors.
(6)
Assists in maintaining a prudent level of financial risk.
C.
The policies establish criteria for the use of debt, create procedures
and policies that minimize the Township's debt service and issuance
costs, achieve and maintain the highest practical credit rating, and
maintain full and complete financial disclosure and reporting. These
policies are guidelines for general use in order to allow for individual
application under various conditions.
D.
Debt policies are an essential tool to ensure the use of the Township's
resources to meet its commitments to provide needed services to the
citizens of the Township and to maintain sound financial management
practices. The Township's debt program will be monitored and
updated to ensure that it is in compliance with statutory and regulatory
requirements and addresses capital market trends.
E.
The Local Government Unit Debt Act (the "Debt Act"),[3] administered by the Pennsylvania Department of Community
and Economic Development (DCED), provides the procedure for Pennsylvania's
local government units to issue debt and tax anticipation notes.
[3]
Editor's Note: See 53 Pa.C.S.A. § 8001 et seq.
F.
Debt financing, which includes general obligation bonds, special
assessment bonds, revenue bonds, guaranteed revenue bonds, temporary
notes, lease/purchase agreements, and other Township obligations permitted
to be issued or incurred under the Debt Act[4] shall only be used for projects, as defined in the Debt
Act, that cannot be acquired from either available current revenues
or fund balances in a fiscally responsible manner.
[4]
Editor's Note: See 53 Pa.C.S.A. § 8001 et seq.
A.
The primary objectives of proceeding with a current refinancing or
a taxable advance refunding shall be to benefit the Township in one
or more of the following areas by:
(1)
Providing net present value debt service savings.
(2)
Eliminating burdensome or restrictive covenants imposed by the terms
of the bonds to be refunded.
(3)
Changing the type of debt instrument.
(4)
Restructuring the Township's overall debt service portfolio/payments
to take advantage of market conditions.
(5)
Achieve other policy objectives.
B.
The Township may consider different financing structures for refunding
issues that typically meet the following guidelines:
C.
Solely meeting one or more of the minimum guidelines will not necessarily
result in the Township executing a refunding issue. All costs and
benefits of the refunding will be taken into account and analyzed
by the Township in consultation with its advisors in determining if
the refunding is in the best interest of the Township.
D.
A present value analysis shall be prepared to identify the economic
effect of any proposed refunding. Target saving thresholds for the
different refunding alternatives, based on the level of risk they
pose to the Township, are presented below, and are to be viewed as
guidelines. The savings shall be calculated net of all issuance fees
and using a net debt service savings approach, which takes into consideration
arbitrage rebate requirements.
E.
Because the level of risk will vary depending on the specific structure
of the transaction and market conditions at the time of issuance,
the Township has the discretion to prescribe higher levels of target
savings to optimize the Township's financial objectives.
F.
In evaluating refunding opportunities and applying the above-referenced
guidelines, the Township shall consider the following factors:
(1)
Taxable advanced refunding.
(a)
For a taxable advance refunding, adjustments to the savings
threshold may be justified based on the length of time before the
call and the length of time from the call to maturity. The longer
the escrow, the higher the savings threshold should be. Conversely,
shorter escrows may justify a lower savings threshold.
(b)
For a taxable advance refunding, adjustments to savings thresholds
may be justified based on where interest rates are at the time of
the refunding relative to historical markets. In low-interest-rate
markets, a lower threshold may be justified while a higher threshold
would be justified in high-interest-rate markets.
G.
The couponing and/or callability of the refunding bonds may also
justify adjustments to the savings threshold. Noncallable refunding
bonds, for example, might justify a higher threshold.
A.
Variable rate debt can be a valuable tool in managing the Township's
debt program. When issued prudently, variable rate debt can help lower
the cost of borrowing and provide a hedge against interest rate risk.
Interest rates on variable rate debt instruments are at the short
end of the yield curve because they are periodically adjusted (e.g.,
daily, weekly, monthly) based on current market conditions. Variable
rate debt should be used for two purposes:
B.
Variable rate debt exposes the Township to risk not present under
the fixed rate structure.
(1)
Interest rate risk: the risk that interest rates will rise, on a
sustained basis, above levels that would have been set if the issue
had been fixed.
(2)
Liquidity risk: the risk of having to pay a higher rate to the liquidity
provider in the event of a failed remarketing.
(3)
Rollover risk: the risk of the inability to obtain a suitable liquidity
facility at an acceptable price to replace a facility upon termination
or expiration of the contract period.
(4)
Remarketing risk: the risk that issuers cannot remarket their bonds.
Issuers should have backup contingencies which include sources of
funds to cover redemptions and provisions for substitution remarketing.
C.
To manage these risks, the Township will limit the amount of unhedged
variable rate debt to no more than 10% of its outstanding portfolio.
As a rule of thumb, the rating agencies consider unhedged variable
rate debt in the range of 20% to 30% of total debt to be acceptable.
The Township will continually monitor the variable rates to determine
whether or not the variable rate debt should be converted to fixed
rate debt.
Taxable debt shall be issued by the Township when more attractive
long-term financing opportunities are not available. The Township
may issue taxable debt in accordance with all federal and Commonwealth
of Pennsylvania borrowing statutes and regulations. For example, the
Township may issue taxable debt to avoid burdensome arbitrage regulations.
A.
Debt limits.
(2)
In accordance with the Local Government Unit Debt Act,[2] the Township can legally incur nonelectoral debt equal
to 250% of its borrowing base. The borrowing base is the average of
total revenues for the past three years minus certain statutory deductions.
[2]
Editor's Note: See 53 Pa.C.S.A § 8001 et seq.
(3)
The Township will maximize the use of pay-as-you go financing to
fund its capital projects whenever financially feasible and practical.
(4)
Growth in debt service should be sustainably consistent with the
projected levels of revenues.
(5)
The Township will attempt to maximize the rapidity of principal repayment
where possible.
(6)
The Township will examine four statistical measures to determine
debt capacity and compare these ratios to other counties, rating agency
standards and the Township's historical ratios to determine debt
affordability. In order to determine its relative debt position, the
Township will use four ratio measures:
(7)
Debt financing shall not exceed 100% of the useful life of the capital
project, but in no event to exceed 40 years.
B.
Debt structuring practices.
(1)
The Township will maintain communication with bond rating agencies
about its financial condition and will follow a policy of full disclosure
in every financial report and official statement provided to bond
rating agencies, to professional service providers for bond issues
and to investors in accordance with Municipal Securities Rulemaking
Board regulation. The Township will meet all debt service obligations
when due and payable and will comply with all federal tax law provisions,
such as arbitrage requirements.
(2)
The Township may use capitalized interest to offset debt service
costs in the first year of repayment.
(3)
Capital projects financed through the issuance of bonds shall not
be financed for longer than the expected useful life of the project.
(4)
The Township will strive to structure debt issues to maintain level
annual debt service payments over time unless, after consulting with
our financial advisor, it is deemed financially advantageous to structure
otherwise.
C.
Debt issuance practices.
(1)
The Board of Commissioners has the sole authority to authorize the
issuance of debt of any kind, and for any purpose. It shall be the
responsibility of the Director of Finance to coordinate the recommendation,
timing, process, and sale of the Township debt required in support
of the adopted and budgeted capital improvement plan.
(2)
Prior to any debt issuance, an analysis of market conditions and
other financing options will be conducted to determine the feasibility
of entering the credit market at that time.
(3)
Conduit debt[3] issued/sponsored shall have a general public purpose.
All conduit financings must insulate the Township completely from
any credit risk or exposure and must be approved by the Township's
bond counsel and financial advisor before being submitted to the Township
Board of Commissioners for authorization.
(4)
Credit enhancements such as insurance, letters of credit, etc., will
be used in those instances where deemed beneficial by the Township
to do so.
(5)
The Township may choose to issue short-term financing tools such
as bond anticipation notes, tax anticipation notes, line of credit
or pooled commercial paper where their use is judged by the Township's
bond counsel and financial advisor to be prudent and advantageous.
(6)
Debt financing will not be used for any recurring purpose such as
current operating and maintenance expenditures except for tax revenue
anticipation notes or court-appointed funding of unfunded debt. The
Township will use debt financing only for the purposes of projects,
as defined in the Debt Act.[4]
[4]
Editor's Note: See 53 Pa.C.S.A. § 8001 et seq.
D.
Debt management practices.
(1)
The Township will manage debt issuance to comply with statutory debt
limits and will evaluate those every year and revise them as necessary.
(2)
The Director of Finance is responsible for providing continuing disclosure
information to established national information repositories and for
maintaining compliance with disclosure standards promulgated by state
and national regulatory bodies.
(3)
In order to comply with federal arbitrage legislation, the Township
will not issue obligations except for identifiable projects with very
good prospects of timely initiation. Debt obligations will be issued
as closely in time as feasible to the time contracts are expected
to be awarded.
A.
The Township has a fiduciary responsibility to manage its funds in
a manner that assures timely and accurate payment of debt service
principal and interest. The responsibility also includes full use
of funds for the benefit of the Township until the payment due date.
The Township will ensure timely payment of funds for payments and
negotiating terms with counterparties that serve both the Township
and bondholders' needs in accordance with bond documents.
B.
The Township requires that trustees/fiscal agents/paying agents invoice
the Township for debt service payments a minimum of 30 days prior
to the due date.
C.
The Township will use electronic fund transfer to assure transfer
to the trustee/fiscal agent/paying agent on the payment date. If payment
must be made by check, the Township will ensure paying the check no
more than five days prior to the payment date through a guaranteed
delivery service.
D.
The Township will ensure that all parties to the transaction (internal
and external) are kept informed of the procedures established.
A.
Purchase and sale of investments. The Finance Director may direct
the investment of bond proceeds in accordance with the permitted investments
for any particular bond issue. Compliance shall be maintained with
all applicable federal state, and contractual restrictions regarding
the use and investment of bond proceeds. This includes compliance
with restrictions on the types of investment securities allowed, restrictions
on the allowable yield of some invested funds as well as restrictions
on the time period over which some bond proceeds may be invested.
To manage compliance, the preferred investment structure will be through
a PLGIT ARM (Arbitrage Rebate Management) account.
B.
Diversification. Invested proceeds shall be diversified in types
of investment products and types of securities held in order to reduce
risk exposure to investment providers.
C.
Disclosure. In the event bond proceeds are invested outside of the
PLGIT ARM account program, the Township shall be required to disclose
all fees and costs resulting from investment services or sale of products.
Underwriters of the bonds, but not the consulting third-party financial
professional, may bid on the sale of investment products for the proceeds.
The consulting third-party financial professional shall document the
bidding process and results and shall certify in writing that a competitive
and fair market price was received, and that all fees and costs are
reasonable.
A.
To ensure the most unbiased process and results, the Board of Commissioners
shall always sell bonds through a competitive sale. Only with a majority
vote of the Board of Commissioners shall the Township enter into a
negotiated sale as opposed to a competitive sale.
B.
In a competitive sale, bids for the purchase of the bonds are opened
at a specified place and time and are awarded to the underwriter (or
syndicate) whose conforming bid represents the lowest true interest
cost to the Township. The Township will coordinate sales of its bonds
through an internet bond sale, and bids will be submitted electronically
in accordance with the internet sale platform being used.
C.
Bond sales shall be advertised as broadly as possible. The financial
advisor for each transaction shall undertake the responsibility to
market the bonds to prospective bidders and investors.
D.
Terms of the bonds shall be amendable as late as possible and ideally
until at least the day prior to the day bids are to be received.
E.
Bond sales shall be cancelable at any time prior to the time bids
are to be received.
F.
Upon award to the bidder whose conforming bid represents the lowest
true interest cost, the Township may restructure the bonds in accordance
with the official notice of sale.
G.
The Township shall reserve the unfettered right to reject all bids
or waive bid irregularities.
A.
Selection of the bond counsel should be based on the following:
(1)
Experience of the firm with municipal financings, or comparable issuers,
and financings of similar size, types and structures, including financings
in Pennsylvania.
(2)
Knowledge and experience in public finance tax law.
(3)
Experience of the firm with, and its approach to, applicable federal
securities laws and regulations.
(4)
Experience and reputation of assigned personnel.
(5)
Fees and expenses.
B.
Bond counsel will be expected to provide all professional services
necessary for the authorization, issuance and sale of the issue(s),
including, but not limited to, the following.
(1)
Assistance with and participation in the structuring of the proposed
bond issue.
(3)
Assistance with the preparation of the debt statement and borrowing
base certificate of the Township.
(4)
Drafting of the ordinance authorizing the issuance and sale of the
bonds.
(5)
Review of the official statement, including the drafting of language
describing the bonds and the tax implications of ownership of the
bonds.
(6)
Review of the bond purchase contract.
(8)
Attendance at any meetings of the Township's Board of Commissioners
at which bonds are authorized or sold.
(9)
Preparation of bond closing documents, including tax certificate,
IRS Form 8038-G and any and all other documents needed to accomplish
the closing.
(10)
Drafting of and advice with respect to continuing disclosure
undertakings of the Township.
(11)
Drafting of the bond forms, arranging for printing of the bonds
and coordination with the depository trust company and the underwriter.
(12)
Attendance at and supervision of bond closings.
(13)
To the extent requested by the underwriter, the rendering of
supplemental opinions as to the accuracy of those portions of the
official statement provided by bond counsel and whether the bonds
are exempt from registration under federal securities law.
(14)
Assembly of bound sets of closing documents for each issue are
to be provided to the Township, the financial advisor, the paying
agent and the underwriter.
A.
The financial advisor may be selected to assist in the debt issuance
and debt administration processes. Selection of the financial advisor
should be based on the following:
B.
Financial advisory services provided to the Township shall include,
but shall not be limited to, the following:
(1)
Evaluation of, and opinion on, the risks and opportunities associated
with debt issuance.
(2)
Monitoring of the debt portfolio and bond proceeds investments to
alert the Township to opportunities to refund or restructure bond
issues or modify investments.
(3)
Evaluation and recommendation regarding proposals submitted by investment
banking firms.
(4)
Structuring and pricing bond issues, financial instruments and investments.
(5)
Preparation of requests for proposals, on an as-needed basis, for
bond counsel, underwriters, remarketing agents, letter of credit banks,
investment products, financial products and financial services (trustee
and paying agent services, printing, credit facilities, remarketing
agent services, investment management services, custody services,
etc.).
(6)
Preparation of invitation to bid, preliminary official statement
and official statement and any other documents necessary for a successful
marketing and sale of the bonds.
(7)
Provide advice, assistance and preparation for presentations with
rating agencies and investors.
As used in this article, the following terms shall have the
meanings indicated:
The present value savings in each year of the refunding transaction
added together.
The gain that may be obtained by borrowing funds at a lower
(often tax-exempt) rate and investing the proceeds at higher (often
taxable) rates. The ability to earn arbitrage by issuing tax-exempt
securities has been severely curtailed by the Tax Reform Act of 1986,[1] as amended.
A security that represents an obligation to pay a specified
amount of money on a specific date in the future, typically with periodic
interest payments.
An attorney (or firm of attorneys) retained by the Township
to give a legal opinion concerning the validity of the securities.
The bond counsel's opinion usually addresses the subject of tax
exemption. Bond counsel may prepare, or review and advise, the issuer
regarding authorizing resolutions or ordinances, trust indentures,
official statements, validations proceedings and litigation.
Short-term unsecured promissory notes issued in either registered
or bearer form and usually backed by a line of credit with a bank.
Maturities do not exceed 270 days and generally average 30 days to
45 days.
The sale of securities in which the securities are awarded
to the bidder who offers to purchase the issue at the best price or
lowest cost.
Conduit debt obligations are certain limited-obligation revenue
bonds, certificates of participation, or similar debt instruments
issued by a state or local governmental entity for the express purpose
of providing capital financing for a specific third party that is
not a part of the issuer's financial reporting entity.
The annual rate of interest payable on a security expressed
as a percentage of the principal amount.
The risk to an investor that an issuer will default in the
payment of interest and/or principal on a security.
Refunding bonds issued less than 90 days before the call
date of the bonds being refunded.
The annual income from an investment divided by the current
market value. Since the mathematical calculation relies on the current
market value rather than the investor's cost, current yield is
unrelated to the actual return the investor will earn if the security
is held to maturity.
The maximum amount of debt that is legally permitted by a
jurisdiction's charter, constitution, or statutes.
The amount necessary to pay principal and interest requirements
on outstanding bonds for a given year or series of years.
The amount by which the par value of a security exceeds the
price paid for the security.
The amount at which an investment could be exchanged in a
current transaction between willing parties, other than in a forced
or liquidation sale.
A consultant who advises an issuer on matters pertinent to
a debt issue, such as structure, sizing, timing, marketing, pricing,
terms, and bond ratings.
A refunding in which the bonds are sold with the intent to
close or deliver at some future point in time, generally more than
30 days after pricing, and often to coincide with a date 90 days prior
to the call date on the refunded bonds, thereby qualifying as a current
refunding.
The excess of a fund's assets over its liabilities.
For accounting purposes, fund balance is identified as nonspendable,
restricted, committed, assigned or unassigned. See also: "working
capital."
A governmental fund used to account for all financial resources
not required to be accounted for elsewhere by legal, contractual or
administrative requirement. The general fund is the main operating
fund of the Township.
Bonds whose repayment is backed by the full faith and credit
of the government issuing them.
The risk associated with changes in general interest rate
levels or yield curves.
All bonds authorized to be sold in respect of a particular
project, whether authorized to be sold at one time or from time to
time in one or more series.
The risk that a given security or asset cannot be traded
quickly enough in the market to prevent a loss (or make the required
profit).
Administered by the Pennsylvania Department of Community
and Economic Development (DCED); provides the procedure for Pennsylvania's
local government units to issue debt and tax anticipation notes. The
Act also provides the borrowing limits for the local government units.[2]
The price at which a security is trading and could presumably
be purchased or sold.
A method of calculating the aggregate amount of savings on
a refunding transaction taking into consideration the time value of
money and net of all issuance fees.
All debt determined, incurred or authorized to be incurred,
except electoral debt and lease rental debt.
This number generally includes underlying and overlapping
debt and indicates how heavy the debt burden is for residents.
Overall net debt to market value; a ratio of the dollar value
of debt to the value of the underlying tax base. This number provides
insight into how heavy or light the debt burden is on taxable property.
In each semiannual period, the present value of the debt
refunded bonds using the arbitrage yield on the refunding bonds as
the discount rate.
Includes any of the following:
Items of construction, acquisition, extraordinary maintenance
or repair which have been undertaken by a local government unit.
Preliminary studies, surveying, planning, testing or design work for any undertaking described in Subsection A of this definition.
Land or rights in land to be acquired.
Furnishings, machinery, apparatus or equipment normally classified
as capital items, but these items must have a useful life of five
years or more if financed separately and not as part of a construction
or acquisition project.
The local government unit's share of the cost of a project
undertaken jointly with one or more other local government units or
the commonwealth or one of its agencies.
Funding or refunding of debt incurred for any or all of the
foregoing purposes.
Any combination of any or all of the foregoing as any or all
of the above may be designated as a project by the governing body
for the financing of which it desires to incur debt.
Any deficit to be funded by bonds or notes as provided in this
article or the creation of a revolving fund for specific improvements.
Where a local government unit has adopted a capital budget,
any unfunded portion of the capital budget selected by ordinance for
current funding.
All the bonds or notes to be sold and delivered at one time
in respect of one project or of any two or more projects which have
been combined for purposes of financing or where the bonds or notes
have been combined for sale as provided in this article.
Taxable bonds issued to refinance an outstanding bond issue
before the date the outstanding bonds become due. Proceeds of the
taxable advance refunding bonds are deposited in escrow with a fiduciary,
invested in U.S. Treasury bonds or other authorized securities and
used to redeem the underlying bonds at their maturity or call date,
to pay interest on the bonds being refunded, or to pay interest on
the advance refunding bonds.
The total amount of debt the issuer is directly responsible
for repaying. It excludes overlapping and underlying debt.
The value of the municipality's taxable property.
A party that guarantees the proceeds to the firm from a security
sale, thereby, in effect, taking ownership of the securities. Or,
stated differently, a firm, usually an investment bank, that buys
an issue of securities from a company and resells it to investors.
The amount of current assets that is in excess of current
liabilities. Working capital is frequently used to measure a firm's
ability to meet current obligations. A high level of working capital
indicates significant liquidity.
The relation between the interest rate (or cost of borrowing)
and the time to maturity of the debt.
