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HomeMy WebLinkAboutAgenda Packet - Finance & Human Resources Committee - 02/28/2017FINANCE AND POLICY COMMITTEE February 28, 2017 - 3:30 PM 31111 Greenspot Road, Highland CA 92346 AGENDA CALL TO ORDER PLEDGE OF ALLEGIANCE PUBLIC COMMENTS NEW BUSINESS 1.Approve the January 24, 2017 Finance and Policy Standing Committee Meeting Minutes 2.Review Debt Management Policy Update 3.Human Resources Update Customer Service Recruitment Update ADJOURN PLEASE NOTE: Pursuant to Government Code Section 54954.2(a), any request for a disability-related modification or accommodation, including auxiliary aids or services, that is sought in order to participate in the above- agendized public meeting should be directed to the District Clerk at (909) 885-4900 at least 72 hours prior to said meeting. Page 1 of 2 Minutes 1/24/17 cmk Subject to Approval EAST VALLEY WATER DISTRICT January 24, 2017 FINANCE AND POLICY STANDING COMMITTEE MEETING MINUTES Ms. Koide called the meeting to order at 3:30 p.m. and Mr. Tompkins led the flag salute. PRESENT: Directors: Morales, Smith ABSENT: None STAFF: John Mura, General Manager/CEO; Brian Tompkins, Chief Financial Officer; Kerrie Bryan, Human Resources/Risk & Safety Manager; Nate Paredes, Business Services Manager; Christi Koide, Administrative Assistant GUEST(s): None PUBLIC COMMENTS Ms. Koide declared the public participation section of the meeting open at 3:33 p.m. There being no written or verbal comments, the public participation section was closed. APPROVE THE OCTOBER 5, 2016 FINANCE AND POLICY STANDING COMMITTEE MEETING MINUTES M/S/C (Smith-Morales) to approve the October 5, 2016 Finance and Policy Standing Committee meeting minutes as submitted. REVIEW THE REQUEST FOR PROPOSAL FOR PROFESSIONAL AUDITING SERVICES 2017 The Chief Financial Officer explained that although not mandated by law , it is Best Practices for public agencies to send out a Request for Proposal (RFP) for Professional Services every five years for auditing services. The Business Services Manager explained there are new guidelines for auditing federal expenditures during the Single Audit, which is outlined and included in the RFP. Staff selected six firms to send the RFP to, all of which, belong to the California Society of Municipal Finance Officers (CSMFO), a statewide organization serving all California municipal finance professionals. Page 2 of 2 Minutes 1/24/17 cmk REVIEW WASTEWATER TREATMENT RATE CHANGES The Chief Financial Officer provided the Committee with an overview of the proposed wastewater treatment rate increases to reflect the City of San Bernardino increases effective July 1, 2017. ADJOURN The meeting adjourned at 4:11 p.m. James Morales, Jr., David E. Smith, Governing Board Member Governing Board Member STAFF REPORT Agenda Item #2. Meeting Date: February 28, 2017 Discussion Item To: FINANCE AND POLICY COMMITTEE From: Chief Financial Officer Subject: Review Debt Management Policy Update RECOMMENDATION: Staff recommends that the Finance and Policy Standing Committee review the attached Debt Management Policy. BACKGROUND / ANALYSIS: On September 12, 2016, Governor Brown signed SB 1029 into law, amending California Government Code (CGC) §8855 and the reporting requirements on issuers of public debt in California. For many years, CGC §8855 has required that agencies report on public debt issuance to the California Debt and Investment Advisory Council (CDIAC), but effective January 1, 2017, issuers must certify that they have adopted local debt policies concerning the use of debt and that new debt issues are consistent with those policies. In offering guidance on the new requirements, CDIAC has stipulated that debt policies must include the following: The purpose for which debt proceeds may be used The types of debt that may be issued The integration of the new debt with the issuers capital improvement program or budget Policy goals related to the issuers planning goals and objectives Internal controls that will ensure that debt proceeds will be directed to the intended use EVWD’s Debt Management Policy was last updated in August of 2010 and does not succinctly address some of the areas specifically listed in CDIAC guidelines. For that reason, and because policies must be compliant before an agency issues new debt, staff has made updating the District’s Debt Management Policy a priority. AGENCY IDEALS AND ENDEAVORS: Ideals and Endeavor II - Maintain An Environment Committed To Elevated Public Service (E) – Practice transparent & accountable fiscal management FISCAL IMPACT : There is no fis c al imp act assoc iated with this agend a item. ATTACHMENTS: Description Type 7.3 Debt Manage ment P olicy Backup Material CDIAC Guidanc e Backup Material EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Debt Management Policy Original Approval Date: August 10, 2010 Last Revised: March 8, 2017 Policy No: 7.3 Page 1 of 10 Purpose The purpose of this Debt Management Policy is to establish guidelines for the issuance and management of District debt, and to provide guidance for decision makers with respect to options available for financing infrastructure, and other capital projects, so that the most prudent, equitable, and cost effective financing can be chosen. This policy documents the objectives to be achieved by staff both prior to, and subseque nt to, issuance of debt, and is designed to promote objectivity in the decision making process, and to facilitate the financing process by establishing important policy decisions in advance. Goals It is a goal of the District to provide for the infrastruct ure and capital project needs of its ratepayers, financing those capital project needs from a combination of current revenues, available reserves, and prudently issued debt. Debt is an equitable means of financing projects and represents an important mean s of providing for the infrastructure and project needs of the District's customers. Debt will be used to finance projects if: Debt is issued and managed prudently Maintain a sound fiscal position Protect credit quality The District's goal of equitable treatment of all customers, both current and future, would be met; It is the most cost-effective means available to the District; and It is fiscally responsible under the prevailing economic conditions. EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Debt Management Policy Original Approval Date: August 10, 2010 Last Revised: March 8, 2017 Policy No: 7.3 Page 2 of 10 Budget Integration Issuance of debt may only be utilized to finance a capital project(s). Debt proceeds are not to be used to fund operating expenses. The decision to incur new indebtedness should be integrated with the Board adopted annual Operating Budget and Capital Improvement Program (CIP) Budget. Issuance of debt for a capital project will not be considered unless such project has been incorporated into the District’s CIP, or is otherwise approved by the Board. Annual debt service payments shall be included in the Operating Budget. Standards for Use of Debt Financing When appropriate, the District will use long-term debt financing to:  Achieve an equitable allocation of capital costs / charges between current and future system users  Provide more manageable rates in the near and medium term  Minimize rate volatility For growth-related projects, debt financing will be utilized, as needed, to better match the cost of anticipated facility needs with timing of expected new connections to the system and spread the costs evenly over time. Capacity / Connection Fees will be maintained at a level sufficient to finance a portion of growth -related capital costs and cover related annual debt service requirements. The District shall not construct or acquire a facility if it is unable to adequately provid e for the subsequent annual operation and maintenance costs of the facility throughout its expected life. Capital projects financed through debt issuance will not be financed for a term longer than the expected useful life of the project. EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Debt Management Policy Original Approval Date: August 10, 2010 Last Revised: March 8, 2017 Policy No: 7.3 Page 3 of 10 Methods of Financing The Finance Department will investigate all possible project financing alternatives including, but not limited to, annual operating revenue, reserves, bonds, loans, and grants. When applicable, capacity fees collected from developers will be used to pay for increased capital costs resulting from new development. The District may legally issue both short term and long term financing using the debt instruments described below. 1. Cash Funding – The District funds a significant portion of capital improveme nts on a pay-as-you-go basis. Sources for pay-as-you-go may include appropriations from annual operating revenue, reserves, and grants. 2. Inter-fund Borrowing - The District may borrow internally from other funds with temporarily surplus cash to meet short t erm needs in lieu of issuing debt. Purposes for such could include short term cash flow imbalances due to grant terms (i.e., the need to incur costs prior to reimbursement) and interim financing pending the issuance of long term debt. The District funds from which the money is borrowed shall be repaid with interest, accruing quarterly based upon the apportionment rate set by the State of California Local Agency Investment Fund (LAIF). To the extent any inter-fund borrowing is undertaken in anticipation of l ong-term financing, the District shall adopt a Resolution of its intention to repay such funds out of tax - exempt debt proceeds so as to meet the requirement of federal tax law for such borrowing. 3. Line of Credit – The District may consider a line of credit as a short-term borrowing option. The Chief Financial Officer (CFO) shall determine when it is prudent to recommend that the District enter into an agreement with a commercial bank or other financial institution, for the purpose of acquiring a line of lett er of credit. 4. State Revolving Fund Loans - The State Revolving Fund (SRF) is a low or zero interest loan program generally for the construction of water and wastewater infrastructure projects. The SRF loan interest rate is typically calculated by taking half of the True Interest Cost (TIC) of the most recent State of California General Obligation Bonds sale. The repayment term of the loans ranges from 20 to 30 years . EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Debt Management Policy Original Approval Date: August 10, 2010 Last Revised: March 8, 2017 Policy No: 7.3 Page 4 of 10 5. Capital Lease Debt - A lease purchase obligation placed with a lender without the issuance of securities may be used to finance certain equipment purchases if the aggregate cost of the equipment exceeds $50,000 and the terms of financing are cost-effective. The term of a capital lease must be at least five years, and shall not exceed the useful life of the equipment or ten years, whichever is shorter. 6. Certificates of Participation – The District may issue Certificates of Participation (COP) which provide financing through a lease, installment sale agreement, or contract of indebtedness and typica lly do not require voter approval. Board action is legally sufficient to authorize a COP issue, and District revenues are pledged for repayment of COPs under terms specified in the indenture. 7. JPA Revenue Bonds – The District may obtain financing through the issuance of debt under a joint exercise of powers agreement (East Valley Water District Financing Authority) with such debt payable from amounts paid by the District under a lease, installment sale agreement, or contract of indebtedness. Financing Team – Roles and Responsibilities The primary responsibility for developing debt financing recommendations rests with the CFO. In developing such recommendations, the CFO shall consider the need for debt financing and assess progress on the current capital impro vement program (CIP). The CFO will present all proposed debt financings to the Board who has sole authority to approve the issuance of debt. 1. Bond Counsel - The District will retain external bond counsel for all debt issues. Bond counsel will prepare the necessary authorizing resolutions, agreements and other documents necessary to execute the financing. All debt issued by the District will include a written opinion by bond counsel affirming that the District is authorized to issue the debt, stating that t he District has met all state constitutional and statutory requirements necessary for issuance, and determining the de bt's federal income tax status. EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Debt Management Policy Original Approval Date: August 10, 2010 Last Revised: March 8, 2017 Policy No: 7.3 Page 5 of 10 2. Financial Advisors - The District will utilize the services of independent financial advisors when deemed prudent by the CFO. 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 analysis’, assistance in obtaining ratings on the proposed issuance, and generally acting as an independent financial consultant and economic market expert. 3. Underwriters - For negotiated sales, the District will generally select or pre-qualify underwriters through a competitive process. This process may include a request for proposal or qualifications to firms considered appropriate for the underwriting of a particular issue or type of bonds. The Chief Financial Officer, with the concurrence of the General Manager/CEO, will determine the appropriate method to evaluate the underwriter submittals and then select or qualify firms on that basis. The District will not be bound by the terms and conditions of any underwriting agreements; oral or written, to which it was not a party. Structure and Term 1. Term of Debt – Debt will be structured for the shortest period possible, consistent with a fair allocation of costs to current and future users. The standard term of long - term debt borrowing is 10 to 30 years. Consistent with its philosophy of keeping capital facilities and infrastructure systems in good condition and maximizing a capital assets useful life, the District will budget to set aside operating revenue to finance ongoing maintenance and to provide reserves for rehabilitation and replacement. No debt will be issued for periods exceeding the useful life of projects to be financed. 2. Debt Repayment – In structuring a bond issue, the District will manage the amortization of the debt and, to the extent possible, match its cash flow to the anticipated debt service payments. In addition, the District will seek to structure debt with aggregate level debt service payment over the life of the debt. A non-level debt service structure will be considered if it is beneficial to the District’s overall debt payment schedule, or i f such structuring will allow debt service to more closely match project revenues during the early years of a project’s operation. EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Debt Management Policy Original Approval Date: August 10, 2010 Last Revised: March 8, 2017 Policy No: 7.3 Page 6 of 10 3. Interest Rate Structure – The District currently issues debt on an affixed interest rate basis only. Fixed rate securities ensure budget certainty through the life of the issue and avoid the volatility of variable rates. 4. Credit Enhancement - The District will consider the use of credit enhancement on a case-by-case basis. Types of credit enhancement include letters of credit, bo nd insurance, and surety policies. Only when clearly demonstrable savings can be realized shall credit enhancement be utilized. 5. Debt Service Reserve Funds – Debt service reserve funds are held by the Trustee to make principal and interest payments to bond holders in the event that pledged revenues are insufficient to do so. The District will fund debt service reserve funds when it is in the District’s overall best financial interest. In lieu of holding a cash funded reserve, the District may substitute a surety bond or other credit instrument in its place. Additionally, the District may decide not to utilize a reserve fund if the District’s financing team determines there would be no adverse impact to the District credit rating or interest rates. 6. Call Provisions - In general, the District's securities should include optional call provisions. The District will avoid the sale of non-callable, long-term fixed rate bonds, absent careful evaluation of the value of the call option. 7. Debt Limits - There is no specific provision within the California Government Code that limits the amount of debt that may be issued by the District. The District’s borrowing capability is limited by the additional bonds test and debt coverage ratio required in the Master Resolution on the Senior Lien and by the existing bond covenants on the Working Lien. The District will be mindful of its overall debt burden in the context of its revenues, expenses, reserves, and overall financial health. 8. Refunding - Current and advance refunding are important debt management tools for the District. They are commonly used to achieve debt service (interest cost) savings, remove or change bond covenants, or restructure debt service o bligations. Since the Federal Tax law allows only one advance refunding after the initial issuance, careful planning and timing must be used. To the extent that debt having fixed interest rates originally structured with a long - term amortization structure (ten years or greater) is refunded with fixed rate debt, EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Debt Management Policy Original Approval Date: August 10, 2010 Last Revised: March 8, 2017 Policy No: 7.3 Page 7 of 10 the District will not generally issue refunding debt which extends the final maturity of the refinanced debt. Extending the final maturity may occur when warranted, such as restructuring of debt to match debt amortization with the useful life of the financed assets. Method of Issuance and Sale The District will select the method of sale, which best fits the type of bonds being sold, market conditions, and the desire to structure bond maturities to en hance the overall performance of the entire debt portfolio. Three general methods exist for the sale of municipal bonds: 1. Competitive Sale - Bonds will be marketed to a wide audience of investment banking (underwriting) firms. The underwriter is selected based on its best bid for its securities. The District will award the sale of the competitively sold bonds on a true interest cost (TIC) basis. Pursuant to this policy, the General Manager /CEO, is hereby authorized to sign the bid form on behalf of the District, fixing the interest rates on bonds sold on a competitive basis. 2. Negotiated Sale – In a negotiated sale, the underwriter or underwriting syndicate is selected through a Request for Proposal (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 District in structuring the financing and marketing of bonds including providing assistance in preparing the bond offering circular. 3. Private Placement - The District may elect to issue debt on a private placement basis. Such method may be considered if it is demonstrated to result in cost savi ngs or provide other advantages relative to other methods of debt issuance, or if it is determined that access to the public market is unavailable and timing considerations require that financing be completed. Creditworthiness Objectives Ratings are a reflection of the fiscal soundness of the District and the capabilities of its management. Typically, the higher the credit ratings are, the lower the interest cost on the District’s debt issues. To enhance creditworthiness, the District is committed to EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Debt Management Policy Original Approval Date: August 10, 2010 Last Revised: March 8, 2017 Policy No: 7.3 Page 8 of 10 prudent financial management, systematic capital planning, and long -term financial planning. The District recognizes that external economic, natural, and other events may affect the creditworthiness of its debt. The District’s most recent bond issues have been assessed by the nationally recognized rating agencies Standard and Poor’s, and Fitch Ratings. When issuing a credit rating, rating agencies consider various factors including but not limited to:  District’s fiscal status  District management capabilities  Economic conditions that may impact the stability and reliability of debt repayment sources  District reserve levels  District debt history and current debt structure  Projects being financed Post Issuance Administration / Internal Control 1. Investment of Proceeds - The proceeds of bond sales will be invested until used for the intended project(s) in order to maximize utilization of the public funds. The investments will be made to obtain the highest level of 1) safety, 2) liquidity, and 3) yield, and may be held as cash. The District’s investment guidelines and bond indentures will govern objectives and criteria for investment of bond proceeds. The Finance Department will oversee the investment of bond proceeds in a manner to avoid, if possible, and minimize any potential negative arbitrage over the life of the bond issuance, while complying with arbitrage and tax provisions. 2. Use of Proceeds - Bond proceeds will be deposited and recorded in separate accounts to ensure funds are not comingled with other District fund s. The District’s Trustee will administer the disbursement of bond proceeds pursuant to each certain Indenture of Trust or Fiscal Agent Agreement, respectively. To ensure proceeds from bond sales are used in accordance with legal requirements invoices are submitted by the Engineering Department and approved by the Finance Department and EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Debt Management Policy Original Approval Date: August 10, 2010 Last Revised: March 8, 2017 Policy No: 7.3 Page 9 of 10 General Manager/CEO for payment. Requisition for the disbursement of bond funds will be approved by the District’s Chief Financial Officer. The Finance Department will be ta sked with monitoring the expenditure of bond proceeds to ensure they are used only for the purpose and authority for which the bonds were issued and exercising best efforts to spend bond proceeds in such a manner that the District will meet one of the spend-down exemptions from arbitrage rebate. Tax-exempt bonds will not be issued unless it can be demonstrated that 85% of the proceeds can reasonably be expected to be expended within the three -year temporary period. 3. Arbitrage Compliance - The use of bond proceeds and their investments must be monitored to ensure compliance with all Internal Revenue Code Arbitrage Rebate Requirements. The CFO shall ensure that all bond proceeds and investments are tracked in a manner which facilitates accurate calculation; and, if a rebate payment is due, such payment is made in a timely manner. 4. Compliance with Bond Covenants – The District is responsible for verifying compliance with all undertakings, covenants, and agreements of each debt issue on an ongoing basis. This typically includes ensuring:  Annual appropriations of revenues to meet debt service payments  Timely transfer of debt service payments to the Trustee  Compliance with insurance requirements  Compliance with rate covenants The District shall comply with all covenants and conditions contained in the governing law and any legal documents entered into at the time of the bond offering or signing of agreements. The CFO or designee will coordinate verification and monitoring of covenant compliance. 5. Rating Agency Communication - The CFO shall be responsible for maintaining the District's relationships with Standard & Poor's Ratings Services, Fitch Ratings and/or Moody's Investment Service. In addition to general communication, the CFO shall EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Debt Management Policy Original Approval Date: August 10, 2010 Last Revised: March 8, 2017 Policy No: 7.3 Page 10 of 10 meet with credit analysts prior to each competitive sale and offer conference calls with the District financing team in connection with the planned sale. 6. Board Communication - The CFO will report to the Board of Directors any feedback from rating agencies and/or investors regarding the District's financial strengths and weaknesses and recommendations for addressing any weaknesses. 7. Continuing Disclosure - The District shall remain in compliance with Rule 15c2-12 by filing its annual financial statements and other fina ncial and operating data for the benefit of its bondholders by December 31 st of each year. The CFO will ensure the District's timely filing with each Nationally Recognized Municipal Securities Information Repository. 8. Record Retention - A copy of all debt-related records shall be retained at the District's offices. At minimum, these records shall include all official statements, bid documents, bond documents / transcripts, resolutions, trustee statements, leases, and title reports for each District financing (to the extent available). Electronic copies - preferably in pdf or CD-ROM format – shall also be retained. Revised: March 8, 2017 CALIFORNIA DEBT AND INVESTMENT ADVISORY COMMISSION Guidance on Complying with SB 1029 Release Date: December 28, 2016 On October 26, 2016, the California Debt and Investment Advisory Commission (CDIAC) issued a Request for Comment on the implementation of Chapter 307, Statutes of 2016 (Senate Bill 1029, Hertzberg). The comments received have helped CDIAC develop guidance for issuers of public debt seeking to comply with the requirements of SB 1029. The guidance offered in this letter dated December 28, 2016 is based upon CDIAC’s current understanding of the information required and its ability to receive that information from issuers. It is likely that CDIAC will offer additional guidance and ultimately adopt regulations in the future as both it and issuers adapt to the requirements of SB 1029. CDIAC is making every effort to provide intuitive, on-line processes that will minimize the efforts of issuers while maximizing compliance and the quality of the information provided. It is committed to working with issuers and members of the public finance community to achieve these outcomes. Guidance on Government Code section 8855(i) Government Code section 8855(i) requires any issuer of public debt to provide to CDIAC no later than 30 days prior to the sale of any debt issue a report of the proposed issuance. CDIAC provides issuers the ability to submit this Report of Proposed Debt Issuance electronically. Effective January 1, 2017, issuers must certify on the Report of Proposed Debt Issuance that they have adopted local debt policies concerning the use of debt and that the proposed debt issuance is consistent with those policies. The issuer’s local debt policies must include (A) through (E), below. If the issuer has received certification from another governmental entity that will use the proceeds of the debt issue, then the issuer may rely on a certification by that other governmental entity that it has adopted local debt policies that include (C), (D) and (E), below. A) The purposes for which the debt proceeds may be used. B) The types of debt that may be issued. C) The relationship of the debt to, and integration with, the issuer’s capital improvement program or budget, if applicable. D) Policy goals related to the issuer’s planning goals and objectives. E) The internal control procedures that the issuer has implements, or will implement, to ensure that the proceeds of the proposed debt issuance will be directed to the intended use. 1 Section 8855(i) reads “The report of proposed debt issuance shall include a certification by the issuer that it has adopted local debt policies…” For the purposes of applying this section issuers should understand the term “local debt” as being debt issued for the benefit of a local agency. As a result, section 8855(i), as it specifically relates to debt policies, does not apply to state agencies, instrumentalities of the state, or to non-governmental entities such as for-profit or not-for-profit organizations that may issue or receive proceeds from a debt issuance. Similarly, the term “other governmental entity” in section 8855(i)(2) means an entity of local government. Issuers should interpret the meaning of the term “adopted” in section 8855(i) to mean by act of the governing body. If the issuer’s governing body has taken an action to delegate the authority to “adopt” local debt policies to administrative staff, the actions of these staff may meet the requirements of section 8855(i)(1). An issuer’s local debt policies may be contained within a single document or be the composite of more than one documents. Irrespective of the form, the local debt policies must be adopted by the issuer. In order to comply with section 8855(i)(1), then, the issuer must certify on the Report of Proposed Debt Issuance that it has adopted local debt policies concerning the use of debt and that the contemplated debt issuance is consistent with those local debt policies. Issuers will be able to make this certification after January 1, 2017 using the Report of Proposed Debt Issuance. The new form will include the following statement followed by three acceptable responses in the form checkboxes. “The issuer certifies that it has complied with GC section 8855(i) with respect to local debt policies. YES NO NA ” For issuers that issue debt for their own purposes that respond to this statement with a YES response are confirming that they certify that they have adopted local debt policies in compliance with section 8855(i). A response of NO indicates that they cannot certify that they have adopted local debt policies in compliance with section 8855(i)(1). Issuers that are not issuing local debt, such as the state or instrumentality of the state, may respond NA because they do not issue local debt. If the issuer is a conduit issuer, a YES response means that the issuer certifies that it has adopted local debt policies in compliance with section 8855(i)(1). Furthermore, the local debt policies include (A) through (E) of section 8855(i)(1) OR the issuer is certifying that it has adopted local debt policies in compliance with section 8855(i)(1) and the policies include (A) and (B) AND they have relied upon a certification from the other governmental entity that it has adopted local debt policies in compliance with section 8855(i)(1) and the local debt policies of the other government entity includes (C), (D) and (E). A NO response means that it does not certify that it has adopted local debt policies in compliance with section 8855(i) or it has not received a certification from the other governmental entity that it has. An NA response indicates that the entity that will use the proceeds of the sale of debt is a non-governmental entity (e.g., a private non-profit) or the conduit is not itself an issuer of local debt (e.g. state instrumentality). 2 It is incumbent upon the issuer to interpret and apply subparts (A) through (E) to their local debt policies as it is for the governmental entity that may use proceeds from the sale of debt to interpret and apply subparts (C), (D) and (E) to their local debt policies. Guidance on Government Code section 8855(k) Effective January 1, 2017, state and local issuers will be required to submit an annual debt transparency report for any issue of debt for which they have submitted a Report of Final Sale during the reporting period. The annual debt transparency report is due to CDIAC within seven (7) months of the close of the reporting period, defined as July 1st to June 30th. This provision makes January 31st the effective deadline for submittal of the annual debt transparency report. Issuers will continue to submit an annual debt transparency report to CDIAC on or before January 31st each year until the later date on which the debt is no longer outstanding or the proceeds have been fully spent. Debt issued between January 1, 2017 and June 30, 2017, and reported to CDIAC on or after January 21, 2017 will be required to submit an annual debt transparency report no later than January 31, 2018. CDIAC will provide an online form to enable issuers to submit information to CDIAC in compliance with section 8855(k). CDIAC is in the process of both creating the form and developing the underlying functional applications to support data submission and reporting. It is very likely that the form and the process for complying with SB 1029 using the form will evolve over time as CDIAC and issuers adapt to this new reporting requirement. At a minimum, the annual debt transparency report will require issuers to include: A) Debt authorized during the reporting period, which shall include: a. Debt authorized at the beginning of the reporting period. b. Debt authorized and issued during the reporting period. c. Debt authorized but not issued at the end of the reporting period. d. Debt authority that has lapsed during the reporting period. B) Debt outstanding during the reporting period, which shall include the following: a. Principal balance at the beginning of the reporting period. b. Principal paid during the reporting period. c. Principal outstanding at the end of the reporting period. C) The use of proceeds of issued debt during the reporting period, which shall include the following: a. Debt proceeds available at the beginning of the reporting period. b. Proceeds spent during the reporting and the purposes for which it was spent. c. Debt proceeds remaining at the end of the reporting period. In compliance with section 8855(k)(1)(A), issuers must provide in their annual debt transparency report to CDIAC the “debt authorized during the reporting period”. Issuers should understand the term “authorized” to mean a formal action of the governing body or a vote of the electorate or taxpayers establishing a maximum amount to be borrowed. In the case of certain loans, commercial paper programs, and some refunding programs, this action may be a 3 resolution of the governing body establishing a maximum limit that the issuer may borrow. For debt issued in more than one sale or transaction that will generate more than one Report of Final Sale, the “debt authorized” should be understood to mean to total amount approved by the voters or taxpayers or by act of the governing body. For debt issued in a single sale or transactions, the “debt authorized” is expected to equal the amount of the debt reported on the Report of Final Sale. Issuers submitting a Report of Final Sale between January 21, 2017 and June 30, 2017, must include in their annual debt transparency report, due on or before January 31, 2018, the following information: 1) The total amount of debt authorized as of January 1, 2017; 2a) The amount of additional debt authorized during the reporting period; 2b) The amount issued between January 1, 2017 and June 30, 2017 from the authority available in 1) and 2a), combined; 3) The amount of debt authorized that was not issued between January 1, 2017 and June 30, 2017 (logically, the result of (1 plus 2a) minus 2b); and, 4) The amount of debt authority (represented by (1 plus 2a)) that has lapsed between January 1, 2017 and June 30, 2017. The term “authority that has lapsed” will mean authority that is no longer valid and, therefore, does not provide a legal basis to issue debt, including authority that has expired or that the issuer has taken an action to revoke. In subsequent years, the amount of debt authorized at the beginning of the period will be equivalent to the amount of debt authorized but not issued at the end of the prior reporting period less any authority that has lapsed. An issuer that has received authority during the reporting period, but has not issued debt based upon that authority and has not, therefore, submitted a Report of Final Sale is not required to submit an annual debt transparency report with respect to that authority. Once it does issue debt and submits a Report of Final Sale it will be obligated to submit an annual debt transparency report within seven (7) months of the close of the reporting period during which it issued the debt. There may be circumstances in which an issuer has available authority based upon a ballot measure or act of the governing body even though it has paid off or fully refunded the debt previously issued under that authority. In this case, the issuer would not be required to submit an annual debt transparency report. Issuers must provide on the annual debt transparency report the debt outstanding during the reporting period. Issuers should understand the term “debt outstanding” to mean the original principal received from the sale of debt that has not been fully repaid to debtholders. In the case of a zero-coupon bond or capital appreciation structure, issuers should consider the original principal to be the full accreted value of the bonds at the end of the reporting period. Because of the nature of capital appreciation structure an issuer’s annual debt transparency report is likely to report an increase in the “debt outstanding” year over year. 4 Issuers submitting a Report of Final Sale between January 1, 2017 and June 30, 2017, must include in their annual debt transparency report, due on or before January 31, 2018, the following information: 1) The original principal received on the date of sale. 2) The amount of the principal paid off between January 1, 2017 and June 30, 2017. 3) The amount of principal remaining as of June 30, 2017. Issuers must provide on the annual debt transparency report the use of debt proceeds during the reporting period. Issuers should understand the term “proceeds” to mean all funds received from the sale of debt inclusive of premium and discount. Issuers submitting a Report of Final Sale between January 21, 2017 and June 30, 2017, must include in their annual debt transparency report, due on or before January 31, 2018, the following information: 1) Debt proceeds available upon the date of settlement. 2) The amount of proceeds spent between the date of settlement and June 30, 2017 and the purposes for which these proceeds were spent. 3) The amount of proceeds remaining as of June 30, 2017. CDIAC does not anticipate defining or categorizing “purposes” for which the proceeds were spent. Instead, CDIAC will provide a reporting form that will enable issuers to self-identify categories of “purpose” on their annual debt transparency report. Issuers must continue to submit annual debt transparency reports until the debt has been paid off or the bond proceeds have fully spent. There are special considerations issuers of refunding debt must take into account. If the issuer fully refunds a debt with a refunding debt, the issuer must submit an annual debt transparency report on both the refunding debt and a final annual report on the refunded debt. If there are any proceeds left in the refunded debt, the issuer must continue to report on the refunded debt until the proceeds have been spent. If the issuer partially refunds a debt with a refunding debt, the issuer must report on the refunded debt and the refunding debt until either the debtholders are full repaid or the proceeds have been fully spent, whichever is later. In other words, even though the proceeds of the refunding debt were used to pay off the refunded debt, the issuer must take the approach that the purpose of the annual debt transparency report is to account for the use of proceeds received from the original debt issuance. If the refunding debt includes new money, the issuer must report the use of proceeds of the portion of refunding debt used to refund the refunded debt as “refunding <debt identifier>” AND the use of new money proceeds for their intended uses. If the refunding debt includes no new money, the issuer must report the use of proceeds of the refunding debt as “refunding <debt identifier>”. The debt identifier is currently the CDIAC Issue Number. 5 In reporting on the use of proceeds that are received from the sale of debt but are comingled with other funds not received from the sale of debt, the issuer should report on the proceeds from the sale of debt only. Issuers of conduit bonds must report on the use of proceeds as used by the borrower. Conduit issuers should not report that the proceeds were “lent to a borrower”, but for the purposes to which the borrower used the proceeds. The issuer may wish to assign responsibility to the borrower to report on the use of proceeds. Conduit issuers issuing lease revenue bonds must also comply with section 8855(k). 6