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HomeMy WebLinkAbout2019 03-28 FCA[; p o K [ Y CE Sr;'.rx!;R '' AT THEICENTER AGENDA Brooklyn Center Financial Commission Thursday, March 28, 2019 — 6:30 PM All American Conference Room (Main Level of City Hall) I. Call to Order II. Approval of Agenda - Motion to approve agenda as revised III. Introductions/Financial Commission Background IV. Approval of Minutes for May 24, 2018 - Motion to approve minutes from May 24, 2018 V. Election of Commission Chairperson - Motion to elect commission chairperson VI. Election of Commission Vice Chairperson - Motion to elect commission vice chairperson VII. Debt Policy Proposed Changes - Motion to recommend debt policy proposed changes to City Council VIII. Post Issuance Compliance Policy for Tax -Exempt Bonds - Motion to recommend post issuance compliance policy for tax-exempt bonds to City Council IX. Future Dates a. All Commissions Meeting — Tuesday, April 2, 2019 @ 6:OOpm b. Work Session w/City Council: Auditor — Monday, June 3, 2019 @ 6:30pm X. Adjournment City of Brooklyn Center FINANCIAL COMMISSION Financial Commission meets on the 3rd Thursday of each month, 6:30 p.m., at City Hall, as well as in joint session with the City Council during the budget planning process. The Financial Commission advises the City Council on financial matters in Brooklyn Center. Commissioners serve a three-year term. Chairperson and six members. [Minn. Stat. 13.601, Subd. 3(b) states that once an individual is appointed to a public body the following data are public: (1) the residential address; (2) and either a telephone number or electronic mail address where the appointee can be reached, or both at the request of the appointee.] Teneshia Kragness, Chair 5906 Vincent Ave N (30) 763-412-7248 mrskragnessgyahoo. com 8/23/ 10-12/31 /20 David Dwapu 1701 691h Ave N #303 (30) 612-229-9316 ddwapukyahoo.com 1/8/18-12/31/20 Tia Hedenland 2613 65th Ave N (30) 612-636-8672 marie.t.m(a, -gmail.com 4/24/ 17-12/31 /20 Vacant (2 Positions) Updated 315119 Abate Terefe 5101 Howe Lane (29) 763-531-8001 badhasa(ib, gmail. com 4/10/ 17-12/31 /19 Dean Van Der Werf 6736 Regent Ave N (29) 763-561-0146 deanvanderwerf@gmail.com 7/11/11-12/31/20 2019 Council Liaison —Marquita Butler councilmemberbutlerkci.brooklyn-center.mn.us Staff Liaison Nathan Reinhardt nreinhardtkci.brooklyn-center.mn.us Financial Commission Agenda Item No. IV R Q o K e r CK AT THE'CENTER / I Financial Commission Regular Meeting Minutes May 24, 2018 1. Call to Order The meeting was called to order by Chairperson Ms. Kragness at 6:36 PM. Members Present: Commissioners Burke, Kragness, Terefe, Van Der Werf, Dwapu Members Absent: Commissioners Dobbs, Hedenland (excused) Finance Director Reinhardt was present. Council Liaison Lawrence -Anderson was absent. 2. Adoption of the Agenda Ms. Burke moved adoption of the May 24th, 2018 agenda. The motion was seconded by Mr. Terefe. With all voting in favor, the agenda was adopted. 3. Minutes Ms. Burke moved adoption of the minutes from the February 15th, 2018 meeting. The motion was seconded by Mr. Dwapu. With all voting in favor, the motion was approved. 4. Comprehensive Plan Engagement Activity Meg Beekman, Community Development Director provided background on the City of Brooklyn Center's 2040 Comprehensive Plan and process. The comprehensive plan is a requirement of all municipalities in the Twin Cities Metropolitan Area that expresses and regulates public purpose policies on transportation, utilities, land use, recreation and housing. The Commission Members participated in a mapping exercise and responded to a series of questions related to elements of the community that currently exist, are missing or could be improved. The Planning Commission is the primarily responsible for creation and execution of the plan. 5. Mayor and City Council Compensation for 2019-2020 Chairperson Kragness introduced and provided background on Mayor and City Council Compensation to the Financial Commission. Commissioner Van Der Werf discussed how the last time the compensation was set was based on anticipated wage adjustments for City employees and that the next opportunity to provide an adjustment wouldn't be for two years. Commissioner Burke commented that the City was on the higher end in comparison cities and was in favor of an incremental increase. Chairperson Kragness would be in favor of a higher increase, to make the City more comparable to New Hope, however a two percent increase for of the two years would be a fair compromise. The Financial Commission discussed the number of meetings Council attends and appreciated the work they have done for the City as a reason an increase should be recommended. Commissioner Terefe made a motion to recommend an increase of two percent for 2019 and a two percent increase for 2020 for Mayor and City Council Compensation. The motion was seconded by Commissioner Dwapu. With all voting in favor, the motion was approved. 6. City Investment Presentation Chairperson Kragness made a motion to table this item to a further meeting, with no objections, this item was tabled. 7. Future Meeting Dates Commissioners were made aware the joint work session with the City Council on June 4th1 2018 to review the auditor's report. Commissioners were also provided a schedule for joint City Council/Financial Commission Budget Work Sessions Adjournment With no other business to transact, Ms. Kragness adjourned the meeting at 7:43 PM. 061 Financial Commission Agenda Item's No. V & VI 1 RESOLUTION NO. 91-115 RESOLUTION NO. 92-99 RESOLUTION NO. 92-168 RESOLUTION NO.95-78 RESOLUTION NO. 98-13 RESOLUTION NO. 99-110 RESOLUTION ESTABLISHING A BROOKLYN CENTER FINANCIAL COMMISSION AND DEFINING DUTIES AND RESPONSIBILITIES WHEREAS, the Brooklyn Center City Council established by Resolution Nos. 91-115 and 92-99 an ad hoc task force for the express purpose of reviewing the fiscal impacts of State of Minnesota budgetary problems on Brooklyn Center and assisting the City Council in formulating priorities and responses to a limited fiscal resource situation; and WHEREAS, on June 22, 1992, the ad hoc City Financial Task Force presented to the City Council a report entitled "General Fund Budget Prioritization Process" which was accepted by the City Council; and WHEREAS, there is an ongoing need to formulate priorities and responses to continuing limited fiscal resources. NOW, THEREFORE, BE IT RESOLVED by the Brooklyn Center City Council that there is hereby established within the City of Brooklyn Center an advisory Financial Commission as follows: Subdivision 1. TITLE: This organization shall be known as the Brooklyn Center Financial Commission. Subdivision 2. SCOPE: The scope of activity of this Commission shall consist of advising -the City Council regarding matters relevant to the City's financial status. Subdivision 3. PURPOSE: The Commission shall serve as an advisory body to assist the City Council in evaluating and developing fiscal policies, fiscal procedures, Mayor and Council Member total compensation, budgetary and capital matters, and such other issues .asmay be assigned to the Commission by the City Council or referred to it by the City Manager. The Commission may also identify and recommend to the City Council issues and matters for Commission and/or staff review. Subdivision 4. COMPOSITION: The Commission shall be composed of a chairperson and six (6) members, all of whom shall be appointed and serve as set forth in Subdivision 5. 2 Subdivision 5. MEMBERS METHOD OF SELECTION -TERM OF OFFICE - REMOVAL: Chairperson: The Chairperson shall be elected by majority vote of the Financial Commission membership. The election shall be conducted at the Financial Commission's first regular meeting of the calendar year, or in the case of a vacancy, within two regularly scheduled Financial Commission meetings from the time a vacancy of the chair occurs. The Chairperson may be removed by majority vote of the Financial Commission membership. The Chairperson shall assure fulfillment of the following responsibilities in addition to those otherwise described herein: 1. Preside over meetings of the Commission; 2. Appear or appoint a representative to appear, as necessary, before the City Council to present the viewpoint of the Commission in matters relevant to the City's financial status as it relates to business under consideration by the City Council; 3. Review all official minutes of the City Council and other advisory commissions for the purpose of informing the Financial Commission of matters relevant to city finances. Vice . Chairperson: A Vice Chairperson shall be appointed annually by the Chairperson from the members of the Commission. The Vice Chairperson shall perform such duties as may be assigned by the Chairperson and shall assume the responsibilities of the chair in the absence of the Chairperson. Members' Term of Office: Members of the Commission shall be appointed by the Mayor with majority consent of the Council. The terms of office shall be staggered three-year terms, except that any person appointed to fill a vacancy occurring prior to the expiration of the term for which his or her predecessor was appointed shall be appointed only for the remainder of such term. Upon expiration of his or her term of office, a member shall continue to serve until his or her successor is appointed and shall have qualified. Terms of office for members of the Commission shall expire on December 31 of respective calendar years. In the event an appointed Commissioner suffers from an extended illness, disability, or other activity preventing proper fulfillment of duties, responsibilities, rules and regulations of the Commission, the Commissioner may be temporarily replaced by an interim Commissioner appointed by the Mayor with majority consent of the City Council. 3 Oualifications for Membership: Members of the Commission shall be residents of the City of Brooklyn Center while serving on the Commission and have an interest in the financial operations of the City. Representation Requirements: Members shall be appointed upon the basis of qualification and interest and to reflect a general representation ofthe diversity of the community. Conflict of Interest: Commissioners shall comply with provisions of the City of Brooklyn Center's business ethics policy. Resignations -Removal from Office -Vacancies: Commissioners may resign voluntarily or may be removed from office by the Mayor with consent by majority vote of the City Council. Three consecutive unexcused absences from the duly called Commission meetings or unexcused absences from a majority of duly called -- Commission meetings within one calendar year shall constitute automatic resignation from office. The City Council liaison shall inform the Mayor and City Council of such automatic resignations. Vacancies in the Commission shall be filled by Mayoral appointment with majority consent of the City Council. The procedure for filling Commission vacancies is as follows: 1. Notices of vacancies shall be posted for 30 days before any official City Council action is taken; 2. Vacancies shall be announced in the City's official newspaper; 3. Notices of vacancies shall be sent to all members. of standing advisory commissions; 4. Applications for Commission membership must be obtained in the City Clerk's office and must be submitted in writing to the City Clerk; 5. The City Clerk shall forward copies of the applications to the Mayor and City Council; 6. The Mayor shall identify and include the nominee's application form in the City Council agenda materials for the City Council meeting at which the nominee is presented; 7. The City Council, by majority vote, may approve an appointment at the City Council meeting at which the nominee is presented. Compensation: Commissioners shall serve without compensation. 0 Subdivision 6. RULES AND PROCEDURES: The Commission shall adopt such rules and procedures not inconsistent with these provisions asmay be necessary for the proper execution and conduct of business. Subdivision 7. MEETINGS: The initial meeting of the Commission shall be convened at the call of the Chairperson within thirty (30) days after appointment by the Council. Thereafter, regular meetings shall be held with date and time to be determined by the Commission. Special.meetings maybe called by the Chairperson. Subdivision 8. STAFF: The City Manager shall assign one member of the administrative staff to serve as staff to the Commission. The staff member assigned shall perform such clerical and research duties on behalf of the Commission as may be assigned the City Manager. Subdivision 9. EX OFFICIO MEMBERS. The Mayor, or his or her City Council designee, shall serve as an ex officio member of the Commission, privileged to speak on any matter but without a vote, and shall provide a liaison between the Commission and the City Council. Financial Commission Agenda Item No. VII FINANCIAL COMMISSION ITEM MEMORANDUM DATE: March 21, 2019 TO: Financial Commission FROM: Nathan Reinhardt, Finance Director SUBJECT: Financial Management Policies Debt Section Background: Staff has reviewed the City's Financial Management Policies Debt Section last updated by City Council on October 18, 2006. The policy provides guidelines for outstanding debt limits, debt structuring, debt issuance practices, and debt management practices. During the debt rating review performed by Standard and Poor's leading up to the 2018 bond issuance it was noted that the City's debt policy was "limited and outdated." As a result, Finance department staff has performed a thorough review of the debt section of the City's Financial Management Policies, compared with other City's debt policies, and compared to Best Practice recommendations provided by the Government Finance Officers Association. A revised policy was further reviewed and revised by Springsted Inc., the City's Fiscal Advisor. Attached is the redlined policy with deletions in stFi!Eethrough and additions underlined. Budget Issues: The primary objective of the policy is to establish conditions for the use of debt and to create policies that minimize the City's debt service and issuance costs, retain a high credit rating in the financial community, and to maintain full and complete financial disclosure and reporting. The City's Debt policies are a component of the review performed by rating agencies when evaluating the City's bonds. A complete debt policy could contribute to a higher bond rating which would, in turn, decrease the price the City pays for interest on future debt issuances. Strategic Priorities: • Financial Stability Mission: Ensuring an attractive, clean, safe, inclusive community that enhances the quality of life for all people and preserves the public trust C. Debt Policies 1. The City will confine long-term borrowing to capital improvements or projects which cannot be financed from current revenues. 2. When the City finances capital projects by issuing bonds, it will pay back the bonds within a period not to exceed the expected useful life of the project. 3.5090; of the pr-ineipal shall be retired within firs. The City's goal is to amortize 65% of outstanding debt within 10 years; however, in no case shall the City amortize less than 50% of outstanding debt within 15 years. 4. State law limits general obligation debt to 30 years in most circumstances. The City will attempt to keep the avefage stated maturity of General Obligation Bonds at or below 20 years. fry:�rersfrl.erzs�rers�rersst+rsr�: E 6. Total General Obligation debt will not exeeed two pe t of the market vahia4ieft of taxable pr-epefty will not exceed the statutory limit of 3% of the estimated Market Value of taxable property in the City as required by Minnesota Statute, Section 475.53. 7. Where possible, the City will use special assessment, revenue or other self-supporting bonds instead of General Obligation Bonds repaid with a property tax levy. 8. The City will not incur debt to support current operations. 9. The City will maintain good communications with bond rating agencies regarding its financial condition. The City will follow a policy of full disclosure in every financial report and bond prospectus. The City shall comply with SEC rule 15©2(,12) on primary and continuing disclosure. Continuing disclosure reports shall be filed no later than 180 days after the end of the fiscal year. 10. Tree. net debt (gross debt loss debt fully supported by r-eventtes4 pef r;t., shall not o e $600 pe ea-pita. Total governmental fund debt service cannot exceed 25% of the City's governmental fund expenditures. 11. The City will require Minimum Assessment (Taxable Valuation) Agreements on all projects in which the City is providing development assistance through tax increment financing or committing its bonding authority. This will ensure minimal cash flow (increment) to repay obligations, provide another level of review before commitment (by the City Assessor), and to the minimal value agreed upon, eliminate tax appeals during the agreement period. 12. The City shall use variable rate debt only if total principal and interest of the debt constitutes less than 20% of the City's total debt payments and only if circumstances dictate the need for a short term call date. The City will not use derivative based debt. 13. The City shall use an outside bond attorney, an independent municipal advisor to structure the sale of debt, and a pa. iyg agent for book entry transactions. 14. The Citv shall invest bond proceeds in a separate account in order to account for earnings on invested proceeds for the purposes of complying with arbitrage regulations. The City shall complete and arbitrage rebate report for each issue no less than ever five ive years after its date of issuance. Debt Policy — Comments on Proposed Changes 3) On all projects, at least 501 of the principal shall be retired ,.,;+h; ten years. The City's goal is to amortize 65% of outstandine debt within 10 vears: however, in no case shall the Citv amortize less than 50% of outstanding debt within 15 vears. Comments — It appears this is saying that 50% of the principal has to be paid in 10 years for each bond issue. This would mean we couldn't issue a 20 year bond with level debt service. For the construction of the water treatment plant, we issued debt over 20 years at 1%. In this case I think it made sense to do because of the larger $ amount (approximately $20 million) and low interest rate. This also might restrict what we do for development projects, where the bonds might be re -paid with TIF dollars and often you delay principal to the end to allow development to occur. 4) State law limits general obligation debt to 30 years in most circumstances. The City will attempt to keep the wage stated maturity of General Obligation Bonds at or below 20 years. Comments — Modified to show the restriction by state law to not exceed 30 years and clarified that we will attempt to keep the stated maturity at 20 years or below. Actual practice is that we have issued all bonds in 10 years terms with the exception of the water treatment plant construction. 5) geneFated operating revenue in the geReral, speEial revenue, and pFE)pFietary fund-sq. Comments —The 2018 debt service payments were $6,014,482 which exceeds 5% of the 2017 revenues. Policy did not anticipate the large PFA loan for the water treatment plant construction. Approximate total revenues for the year are around $54 million. 6) Total General Obligation debt 404" ^^+ exceed twe n Rt of the Market alua+;^^ of taxable . ^r+„ will not exceed the statutory limit of 3% of the estimated Market Value of taxable oroaerty in the Citv as uired by Minnesota Statute. Section 475.53. Comments — Updated to current state statute terminology. 7) Where possible, the City will use special assessment, revenue or other self-supporting bonds instead of General Obligation Bonds repaid with a property tax levy. Comments — clarified to show the intention here is to issue bonds with other repayment sources other than the property tax levy. 9) The City will maintain good communications with bond rating agencies regarding its financial condition. The City will follow a policy of full disclosure in every financial report and bond prospectus. The City shall comply with SEC rule 15©2(12) on primary and continuing disclosure. Continuing disclosure reports shall be filed no later than 180 days after the end of the fiscal year. Comments — Updated with continuing disclosure requirements (such as filling annual financial statements and other required annual operating information with the Municipal Securities Rulemaking Board. 10) DiFec-A AP-t dP_bt (gFOSS debt less debt fUlly SUPPOFted by Fevenues) peF Capita shall Pet exce-e-Ped $600) peF capita. Total governmental fund debt service cannot exceed 25% of the City's governmental fund expenditures. Comments — Discussed with our Financial Advisor and determine this would be a better measure. The original measure doesn't necessarily reflect an ability to repay, where a percentage of expenditures does. 12) The City shall use variable rate debt only if total principal and interest of the debt constitutes less than 20% of the City's total debt payments and only if circumstances dictate the need for a short term call date. The City will not use derivative based debt. Comments — Original policy didn't discuss the use of variable debt of derivatives, which doesn't limit its use. This would limit the use of variable debt to instances where you may need to issue debt prior to having a long-term solution/rate established and eliminates the use of derivative debt. 13) The City shall use an outside bond attorney, an independent municipal advisor to structure the sale of debt, and a paying agent for book entry transactions. Comments — Current practice being established as part of the policy. 14) The City shall invest bond proceeds in a separate account in order to account for earnings on invested proceeds for the purposes of complying with arbitrage regulations. The City shall complete and arbitrage rebate reaort for each issue no less than every five vears after its date of issuance. Comments —This requires the City to separate investment proceeds until they are spent in a separate bank/investment account to ensure compliance with IRS arbitrage regulations. If we were to have investment earnings that exceeded calculated interest expense on tax exempt bonds it would have to be remitted back to the federal government. 2/25/2019 ebt M nagem nt Policy Government Finance Officers Association BEST PRACTICE. Debt M nagem nt Policy Notice: Issuers of m nicipal securities should be aw re of new disclosure requirem nts in SEC Rule 15c2-12, effective on securities issues on or after February 27, 2019. G O recom nds issuers consult counsel prior to the effective date to determ ne how these changes m y im act debt portfolios and debt m nagem nt policies and procedures. The Continuing Disclosure Agreem nts w II include affirm tion by governm nts for debt issues on or after February 27, 2019 to: • disclose additional inform tion about m terial financial obligations (e.g., guarantees, capital leases, and bank loans) for securities entered into after the effective date • m ke event filings of any m terial changes reflecting financial difficulties should any occur to outstanding or new financial obligations BACKG O ND: Debt m nagem nt policies are written guidelines, allowances, and restrictions that guide the debt issuance practices of state or local governm nts, including the issuance process, m nagem nt of a debt portfolio, and adherence to various laws and regulations. A debt m nagem nt policy should im rove the quality of decisions, articulate policy goals, provide guidelines for the structure of debt issuance, and dem nstrate a com tm nt to long-term capital and financial planning. Adherence to a debt m nagem nt policy signals to rating agencies and the capital m rkets that a governm nt is well m naged and therefore is likely to m et its debt obligations in a tim ly m nner. Debt m nagem nt policies should be written with attention to the issuer❑ specific needs and available financing options and are typically im lem nted through m re specific operating procedures. Finally, debt m nagem nt policies should be approved by the issuer❑ governing body to provide credibility, transparency and to ensure that there is a com n understanding am ng elected officials and staff regarding the issuer-i approach to debt financing. RECO NDATIO : G O recom nds that state and local governm nts adopt com rehensive written debt m nagem nt policies. These policies should reflect local, state, and federal laws and regulations. To assist with the developm nt of these policies G O recom nds that a governm nt- Debt M nagem nt Policy (Policy) should be reviewed periodically (and updated if necessary) and should address at least the following: http://www.gfoa.org/print/466 1 /4 2/25/2019 ebt M nagem nt Policy 1. Debt Lim ts. The Policy should consider setting specific lim is or acceptable ranges for each type of debt. Lim is generally are set for legal, public policy, and financial reasons. a. Legal restrictions m y be determ ned by: • State constitution or law, • Local charter, by-laws, resolution or ordinance, or covenant, and • Bond referenda approved by voters. b. Public Policies will address the internal standards and considerations within a governm nt and can include: • Purposes for which debt proceeds m y be used or prohibited, • Types of debt that m y be issued or prohibited, • Relationship to and integration with the Capital Im rovem nt Program and • Policy goals related to econom c developm nt, including use of tax increm nt financing and public -private partnerships. c. Financial restrictions or planning considerations generally reflect public policy or other financial resources constraints, such as reduced use of a particular type of debt due to changing financial conditions. Appropriate debt lim is can have a positive im act on bond ratings, particularly if the governm nt dem nstrates adherence to such policies over tim . Financial lim is often are expressed as ratios custom rily used by credit analysts. Different financial lim is are used for different types of debt. Exam les include: Direct Debt, including general obligation bonds, are subject to legal requirem nts and m y be able to be m asured or lim ted by the following ratios: o Debt per capita, o Debt to personal incom , o Debt to taxable property value, and o Debt service paym nts as a percentage of general fund revenues or expenditures. • Revenue Debt levels often are lim ted by debt service coverage ratios (e.g., annual net pledged revenues to annual debt service), additional bond provisions contained in bond covenants, and potential credit rating im acts. • Conduit Debt lim tations m y reflect the right of the issuing governm nt to approve the borrower_ creditworthiness, including a m nim m credit rating, and the purpose of the borrowing issue. Such lim tations reflect sound public policy, particularly if there is a contingent im act on the general revenues of the governm nt or m rketability of the governm ntlI own direct debt. • Short -Term Debt Issuance should describe the specific purposes and circum tances under which it can be used, as well as lim tations in term or size of borrowing. • Variable Rate Debt should include inform tion about when using non -fixed rate debt is acceptable to the entity either due to the term of the project, m rket conditions, or debt portfolio structuring purposes. 2. Debt Structuring Practices. The Policy should include specific guidelines regarding the debt structuring practices for each type of bond, including: • M xim m term (often stated in absolute term or based on the useful life of the asset(s)), • Average m turity, • Debt service pattern such as equal paym nts or equal principal am rtization, • Use of optional redem tion features that reflect m rket conditions and/or needs of the governm nt, • Use of variable or fixed-rate debt, credit enhancem nts, derivatives, short-term debt, and lim tations as to when, and to what extent, each can be used, and http://www.gfoa.org/print/466 2/4 2/25/2019 ebt M nagem nt Policy • O her structuring practices should be considered, such as capitalizing interest during the construction of the project and deferral of principal, and/or other internal credit support, including general obligation pledges. 3. Debt Issuance Practices. The Policy should provide guidance regarding the issuance process, which m y differ for each type of debt. These practices include: • Selection and use of professional service providers, including an independent financial advisor, to assist with determ ning the m thod of sale and the selection of other financing team m m ers, • Criteria for determ ning the sale m thod (com etitive, negotiated, private placem nt) and investm nt of proceeds, • Use of com arative bond pricing services or m rket indices as a benchm rk in negotiated transactions, as well as to evaluate final bond pricing results, • Criteria for issuance of advance refunding and current refunding bonds, and • Use of credit ratings, m nim m bond ratings, determ nation of the num er of ratings, and selection of rating services. 4. Debt M nagem nt Practices. The Policy should provide guidance for ongoing adm nistrative activities including: • Investm nt of bond proceeds, • Prim ry and secondary m rket disclosure practices, including annual certifications as required, • Arbitrage rebate m nitoring and filing, • Federal and state law com fiance practices, and • O going m rket and investor relations efforts. 5. Use of Derivatives. The Debt M nagem nt Policy should clearly state whether or not the entity can or should use derivatives. If the policy allows for the use of derivatives, a separate and comprehensive derivatives policy should be developed (see G O - Advisory, Developing a Derivatives Policy and Derivatives Checklist). Notes: • Post Issuance Com fiance Checklist • Debt Issuance Checklist: Considerations W en Issuing Bonds The County of San Diego, CA was awarded the G O Award for Excellence for outsanding use of G O 's Best Practice on Debt M nagem nt Policy. To learn m re about the County's im lem ntation process, please visit their award page. References: • G O Advisory: Using Variable Rate Debt Instrum nts, 2010. • G O Advisory: Use of Debt -Related Derivatives Products, 2010. • G O Derivatives Checklist, 2010. • G O Best Practice: Selecting Bond Counsel, 2008. • G O Best Practice: Selecting and M naging M nicipal Advisors, 2014. • G O Best Practice: Selecting Underwriters for a Negotiated Bond Sale, 2008. • G O Best Practice: Post -Issuance Policies and Procedures, 2017. • G O Best Practice: Prim ry M rket Disclosure, 2017. • G O /NABL Post Issuance Com fiance Checklist, 2003. http://www.gfoa.org/print/466 3/4 2/25/2019 ebt M nagem nt Policy • Debt M nagem nt Policy Exam les • Benchm rking and M asuring Debt Capacity, Rowan M randa and Ron Picur, G O , 2000. • A G ide for Preparing a Debt Policy, Patricia Tigue, G O , 1998. 203 N. LaSalle Street - Suite 2700 1 Chicago, IL 60601-1210 1 Phone: (312) 977-9700 - Fax: (312) 977-4806 http://www.gfoa.org/print/466 4/4 Financial Commission Agenda Item No. 8 Springsted MEMORANDUM Springsted Incorporated 380 Jackson Street, Suite 300 St. Paul, MN 55101-3002 Tel: 651.223.3000 Fax: 651.223.3002 www.springsted.com TO: Mr. Nate Reinhardt, Finance Director, City of Brooklyn Center FROM: Doug Green, Client Representative, Springsted Incorporated DATE: March 28, 2019 SUBJECT: Post Issuance Compliance Policy Post -issuance compliance of governmental municipal bonds is dictated by federal rules. There are essentially three areas, the first two of which are interrelated. A brief summary is provided below: 1. Use of Bond Proceeds — The interest earned on tax-exempt municipal bonds is exempt from federal income taxes. As a result, the Internal Revenue Service (IRS) promulgates a number of rules for their use. First, the IRS wants to ensure bond proceeds are used for their intended legal purpose. Secondly, the IRS wants to ensure that the asset financed with tax exempt bond proceeds stays in the public hands and is used for its original purpose while the bonds are outstanding. 2. Arbitrage Monitoring — The IRS has established rules regarding how issuers can invest bond proceeds, which consists of all monies related to the bond issue (i.e. original bond proceeds, annual levies to make debt service payments, investment revenues, etc.). At the most basic level, issuers cannot invest bond proceeds at interest rates higher than what they are paying on the bonds. If issuers have "positive arbitrage," it must rebate excess earnings back to the IRS. 3. Continuing Disclosure (CD) — While the bonds are outstanding, they can be continually traded on the secondary market. As a result, current and potential investors have an interest in monitoring the financial condition of the issuer. This is primarily done by issuers submitting their annual audited financial statements to the Electronic Municipal Market Access (EMMA) website, operated by the Municipal Securities Rulemaking Board (MSRB). There are also fourteen "material events" that issuers must disclose to EMMA within ten days if they occur. Examples of "material events" include credit rating changes, missed payments and early redemptions (payments). The attached Post -Issuance Compliance Policy outlines in detail these obligations of the City, while referencing the applicable IRS statutes. The City has been in full compliance with these post -issuance compliance responsibilities. The adoption of this policy will not change the City's practices or cause it to incur additional expense. The purpose is simply to formalize existing practice in written form. Public Sector Advisors Post -Issuance Compliance Policy for Tax -Exempt Governmental Bonds The City of Brooklyn Center (the "City") issues tax-exempt governmental bonds to finance capital improvements. As an issuer of tax-exempt governmental bonds,the City is required by the terms of Sections 103 and 141-150 of the Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury Regulations promulgated thereunder (the "Treasury Regulations"), to take certain actions subsequent to the issuance of such bonds to ensure the continuing tax-exempt status of such bonds. In addition, Section 6001 of the Code and Section 1.6001-1(a) of the Treasury Regulations, impose record retention requirements on the City with respect to its tax-exempt governmental bonds. This Post- Issuance Compliance Procedure and Policy for Tax -Exempt Governmental Bonds (the "Policy") has been approved and adopted by the City to ensure that the City complies with its post -issuance compliance obligations under applicable provisions of the Code and Treasury Regulations. 1. Effective Date and Term. The effective date of this Policy is the date of approval by the City Council of the City (April 8, 2019) and shall remain in effect until superseded or terminated by action of the City Council of the City. 2. Responsible Parties. The Finance Director of the City shall be the party primarily responsible for ensuring that the City successfully carries out its post -issuance compliance requirements under applicable provisions of the Code and Treasury Regulations. The Finance Director will be assisted by the staff of the Finance Department of the City and by other City staff and officials when appropriate. The Finance Director of the City will also be assisted in carrying out post -issuance compliance requirements by the following organizations: (a) Bond Counsel (the law firm primarily responsible for providing bond counsel services for the City); (b) Municipal Advisor (the organization primarily responsible for providing Municipal Advisor services to the City); (c) Paying Agent (the person, organization, or City officer primarily responsible for providing paying agent services for the City); and (d) Rebate Analyst (the organization primarily responsible for providing rebate analyst services for the City). The Finance Director shall be responsible for assigning post -issuance compliance responsibilities to members of the Finance Department, other staff of the City, Bond Counsel, Paying Agent, and Rebate Analyst. The Finance Director shall utilize such other professional service organizations as are necessary to ensure compliance with the post -issuance compliance requirements of the City. The Finance Director shall provide training and educational resources to City staff who are responsible for ensuring compliance with any portion of the post- issuance compliance requirements of this Policy. 3 Post -Issuance Compliance Actions. The Finance Director shall take the following post- issuance compliance actions or shall verify that the following post -issuance compliance actions have been taken on behalf of the City with respect to each issue of tax-exempt governmental bonds issued by the City: (a) The Finance Director shall prepare a transcript of principal documents (this action will be the primary responsibility of Bond Counsel). (b) • The Finance Director shall file with the Internal Revenue Service (the "IRS"), within the time limit imposed by Section 149(e) of the Code and applicable Treasury Regulations, an Information Return for Tax -Exempt Governmental Obligations, Form 8038-G (this action will be the primary responsibility of Bond Counsel). (c) The Finance Director shall monitor each issue of tax-exempt governmental bonds to ensure the proper allocation of bond proceeds to expenditures in accordance with the provisions of Treasury Regulations, Section 1.148-6(d)(1). (d) The Finance Director, in consultation with Bond Counsel, shall identify proceeds of tax- exempt governmental bonds that must be yield -restricted and shall monitor the investments of any yield -restricted funds to ensure that the yield on such investments does not exceed the yield to which such investments are restricted. (e) In consultation with Bond Counsel, the Finance Director shall determine whether the City is subject to the rebate requirements of Section 148(f) of the Code with respect to each issue of tax-exempt governmental bonds. In consultation with Bond Counsel, the Finance Director shall determine, with respect to each issue of tax-exempt governmental bonds of the City, whether the City is eligible for any of the temporary periods for unrestricted investments and is eligible for any of the spending exceptions to the rebate requirements. The Finance Director shall contact the Rebate Analyst (and, if appropriate, Bond Counsel) prior to the fifth anniversary of the date of issuance of each issue of tax-exempt governmental bonds of the City and each fifth anniversary thereafter to arrange for calculations of the rebate requirements with respect to such tax-exempt governmental bonds. If a rebate payment is required to be paid by the City, the Finance Director shall prepare or cause to be prepared the Arbitrage Rebate, Yield Reduction and Penalty in lieu of Arbitrage Rebate, Form 8038-T,and submit such Form 8038-T to the IRS with the required rebate payment. If the City is authorized to recover a rebate payment previously paid, the Finance Director shall prepare or cause to be prepared the Request for Recovery of Overpayments Under Arbitrage Rebate Provisions, Form 8038-R, with respect to such rebate recovery, and submit such Form 8038-R to the IRS. 4. Procedures for Monitoring, Verification, and Inspections. The Finance Director shall institute such procedures as the Finance Director shall deem necessary and appropriate to monitor the use of the proceeds of tax-exempt governmental bonds issued by the City, to verify that certain post -issuance compliance actions have been taken by the City, and to provide for the inspection of the facilities financed with the proceeds of such bonds. At a minimum, the Finance Director shall establish the following procedures: (a) The Finance Director shall monitor the use of the proceeds of tax-exempt governmental bonds to: (i) ensure compliance with the expenditure and investment requirements under the temporary period provisions set forth in Treasury Regulations, Section 1.148-2(e); (ii) ensure compliance with the safe harbor restrictions on the acquisition of investments set forth in Treasury Regulations, Section 1.148-S(d); (iii) ensure that the investments of any yield - restricted funds do not exceed the yield to which such investments are restricted; and (iv) determine whether there has been compliance with the spend -down requirements under the spending exceptions to the rebate requirements set forth in Treasury Regulations, Section 1.148-7. (b) The Finance Director shall monitor the use of all bond -financed facilities in order to: (i) determine whether private business uses of bond -financed facilities have exceeded the de minimus limits set forth in Section 141(b) of the Code as a result of leases and subleases, licenses, management contracts, research contracts, naming rights agreements, or other arrangements that provide special legal entitlements to nongovernmental persons; and (ii) determine whether private security or payments that exceed the de minimus limits set forth in Section 141(b) of the Code have been provided by nongovernmental persons with respect to such bond -financed facilities. The Finance Director shall provide training and educational resources to any City staff who have the primary responsibility for the operation, maintenance, or inspection of bond -financed facilities with regard to the limitations on the private business use of bond -financed facilities and as to the limitations on the private security or payments with respect to bond -financed facilities. (c) The Finance Director shall undertake the following with respect to each outstanding issue of tax-exempt governmental bonds of the City: (i) an annual review of the books and records maintained by the City with respect to such bonds; and (ii) an annual physical inspection of the facilities financed with the proceeds of such bonds, conducted by the Finance Director with the assistance with any City staff who have the primary responsibility for the operation, maintenance, or inspection of such bond -financed facilities. 5. Record Retention Requirements. The Finance Director shall collect and retain the following records with respect to each issue of tax-exempt governmental bonds of the City and with respect to the facilities financed with the proceeds of such bonds: (i) audited financial statements of the City; (ii) appraisals, demand surveys, or feasibility studies with respect to the facilities to be financed with the proceeds of such bonds; (iii) publications related to the bond financing; (iv) trustee or paying agent statements; (v) records of all investments and the gains (or losses) from such investments; (vi) paying agent or trustee statements regarding investments and investment earnings; (vii) reimbursement resolutions and expenditures reimbursed with the proceeds of such bonds; (viii) allocations of proceeds to expenditures (including costs of issuance) and the dates and amounts of such expenditures (including requisitions, draw schedules, draw requests, invoices, bills, and cancelled checks with respect to such expenditures); (ix) contracts entered into for the construction, renovation, or purchase of bond -financed facilities; (x) an asset list or schedule of all bond -financed depreciable property and any depreciation schedules with respect to such assets or property; (xi) records of the purchases and sales of bond -financed assets; (xii) private business uses of bond -financed facilities that arise subsequent to the date of issue through leases and subleases, licenses, management contracts, research contracts, naming rights agreements, or other arrangements that provide special legal entitlements to nongovernmental persons and copies of any such agreements or instruments; (xiii) arbitrage rebate reports and records of rebate and yield reduction payments; (xiv) resolutions or other actions taken by the governing body subsequent to the date of issue with respect to such bonds; (xv) formal elections authorized by the Code or Treasury Regulations that are taken with respect to such bonds; (xvi) relevant correspondence, including letters, faxes or emails, relating to such bonds; (xvii) documents related to guaranteed investment contracts or certificates of deposit, credit enhancement transactions, and financial derivatives entered into subsequent to the date of issue; (xviii) bidding of financial products for investment securities;(xix) copies of all Form 8038- Ts, Form 8038-Rs, and Form 8038-CPs filed with the IRS and any other forms or documents filed with the IRS; (xx) the transcript prepared with respect to such tax-exempt governmental bonds, including but not limited to (a) official statements, private placement documents, or other offering documents, (b) minutes and resolutions, orders, or ordinances or other similar authorization for the issuance of such bonds, and (c) certification of the issue price of such bonds; and (xxi) documents related to government grants associated with the construction, renovation, or purchase of bond -financed facilities. The records collected by the Finance Director shall be stored in any format deemed appropriate by the Finance Director and shall be retained for a period equal to the life of the tax-exempt governmental bonds with respect to which the records are collected (which shall include the life of any bonds issued to refund any portion of such tax-exempt governmental bonds or to refund any refunding bonds) plus three (3) years. The Finance Director shall also collect and retain reports of any IRS examination of the City or any of its bond financings. 6. Remedies. In consultation with Bond Counsel, the Finance Director shall become acquainted with the remedial actions (including redemption or defeasance) under Treasury Regulations, Section 1.141- 12, to be utilized in the event that private business use of bond- financed facilities exceeds the de minimus limits under Section 141(b)(1) of the Code. In consultation with Bond Counsel, the Finance Director shall become acquainted with the Tax -Exempt Bonds Voluntary Closing Agreement Program described in Notice 2008-31,2008-11 I.R.B. 592, to be utilized as a means for an issuer to correct any post -issuance infractions of the Code and Treasury Regulations with respect to outstanding tax-exempt bonds. 7. Continuing Disclosure Obligations. In addition to its post -issuance compliance requirements under applicable provisions of the Code and Treasury Regulations, the City has agreed to provide continuing disclosure, such as annual financial information and material event notices, pursuant to a continuing disclosure certificate or similar document (the "Continuing Disclosure Document") prepared by Bond Counsel and made apart of the transcript with respect to each issue of bonds of the City that is subject to such continuing disclosure requirements. The Continuing Disclosure Documents are executed by the City to assist the underwriters of the City's bonds in meeting their obligations under Securities and Exchange Commission Regulation,17 C.F.R. Section 240.15c2-12, as in effect and interpreted form time to time ("Rule 15c2-12"). The continuing disclosure obligations of the City are governed by the Continuing Disclosure Documents and by the terms of Rule 1Sc2-12. The Finance Director is primarily responsible for undertaking such continuing disclosure obligations and to monitor compliance with such obligations. 8. Other Post -Issuance Actions. If, in consultation with Bond Counsel, Municipal Advisor, Paying Agent, Rebate Analyst, the City Manager, the City Attorney, or the City Council, the City Finance Director determines that any additional action not identified in this Policy must be taken by the Finance Director to ensure the continuing tax-exempt status of any issue of governmental bonds of the City, the Finance Director shall take such action if the Finance Director has the authority to do so. If, after consultation with Bond Counsel, Municipal Advisor, Paying Agent, Rebate Analyst, the City Manager, the City Attorney, or the City Council, the Finance Director and the City Manager determine that this Policy must be amended or supplemented to ensure the continuing tax-exempt status of any issue of governmental bonds of the City, the City Manager shall recommend to the City Council that this Policy be so amended or supplemented. 9. Taxable Governmental Bonds. Most of the provisions of this Policy, other than the provisions of Section 7, are not applicable to governmental bonds the interest on which is includable in gross income for federal income tax purposes. On the other hand, if an issue of taxable governmental bonds is later refunded with the proceeds of an issue of tax-exempt governmental refunding bonds, then the uses of the proceeds of the taxable governmental bonds and the uses of the facilities financed with the proceeds of the taxable governmental bonds will be relevant to the tax-exempt status of the governmental refunding bonds. Therefore, if there is any reasonable possibility that an issue of taxable governmental bonds may be refunded, in whole or in part, with the proceeds of an issue of tax-exempt governmental bonds then, for purposes of this Policy, the Finance Director shall treat the issue of taxable governmental bonds as if such issue were an issue of tax-exempt governmental bonds and shall carry out and comply with the requirements of this Policy with respect to such taxable governmental bonds. The Finance Director shall seek the advice of Bond Counsel as to whether there is any reasonable possibility of issuing tax-exempt governmental bonds to refund an issue of taxable governmental bonds. 10. Qualified 501(c)(3) Bonds. If the City issues bonds to finance a facility to be owned by the City but which may be used, in whole or in substantial part, by a nongovernmental organization that is exempt from federal income taxation under Section 501(a) of the Code as a result of the application of Section 501(c)(3) of the Code (a "501(c)(3) Organization"), the City may elect to issue the bonds as "qualified 501(c)(3) bonds" the interest on which is exempt from federal income taxation under Sections 103 and 145 of the Code and applicable Treasury Regulations. Although such qualified 501(c)(3) bonds are not governmental bonds, at the election of the City Finance Director, for purposes of this Policy, the Finance Director shall treat such issue of qualified 501(c)(3) bonds as if such issue were an issue of tax-exempt governmental bonds and shall carry out and comply with the requirements of this Policy with respect to such qualified 501(c)(3) bonds.