GENERAL
Debt Limits: For general obligation debt, the school district’s outstanding debt limit shall be no more than five percent (5%) of the actual value of property within the school district’s boundaries as prescribed by the Iowa Constitution and statutory restrictions.
For revenue debt, the school district’s goal is to provide adequate debt service coverage of at least 1.20 times the annual debt service costs.
In accordance with Iowa law, the school district may not act as a conduit issuer or issue municipal securities to raise capital for revenue-generating projects where the funds generated are used by a third party (conduit borrower) to make payments to investors.
PURPOSES AND USES OF DEBT
Capital Planning: To enhance creditworthiness and prudent financial management, the school district is committed to systematic capital planning, inter-governmental cooperation and coordination, and long-term financial planning. The district maintains, and annually updates, a 10-year facility plan and holds regular meetings of the Facility Advisory Committee to keep the plan updated.
Capital Financing: The school district may issue long-term debt for capital projects as authorized by Iowa law which include, but are not limited to, the costs of planning, design, land acquisition, buildings, permanent structures, attached fixtures or equipment, and movable pieces of equipment. Capitalized interest may be included in sizing any capital project debt issue. The types of debt instruments to be used by the school district include:
- General Obligation Bonds
- General Obligation Capital Loan Notes
- Bond Anticipation Notes
- Revenue Anticipation Notes
- School Infrastructure Sales, Services, and Use Tax Revenue Bonds
- Lease Purchase Agreements including Certificates of Participation
Working Capital Financing: The school district may issue debt for working capital for operations after cash flow analysis has determined that there is a mismatch between available cash and cash outflows. The school district shall strive to repay working capital debt by the end of the fiscal year in which the debt was incurred. A working capital reserve may be included in sizing any working capital debt issue.
Refunding: Periodic reviews of all outstanding debt will be undertaken to determine if refunding opportunities exist. Refunding will be considered (within federal tax law restraints) if and when there is a net economic benefit of the refunding or if the refunding is otherwise in the best interests of the school district, such as to release restrictive bond covenants which affect the operations and management of the school district.
In general, advance refunding for economic savings will be undertaken either: (a) When a net present value savings of at least four percent of the refunded debt can be achieved or (b) if the escrow structure results in a material negative arbitrage (i.e., the cost of the escrow is more expensive than the permitted cost of the escrow using then-current IRS rules), the net present value savings must be at least five percent of the refunded debt. Current refunding which produces a net present value savings of less than three percent (3%) will be considered on a case-by-case basis taking into consideration bond covenants and general conditions. Refunding with negative savings will not be considered unless there is a compelling, public policy objective for doing so.
DEBT STANDARDS AND STRUCTURE
Length of Debt: Debt will be structured for the shortest period consistent with a fair allocation of costs to current and future beneficiaries or users. Long-term debt will not be issued for periods exceeding the useful life or average useful lives of the project or projects to be financed. All debt issued will adhere to state and federal laws regarding the length of time the debt may be outstanding.
Debt Structure: Debt will be structured to achieve the lowest possible net cost to the school district given market conditions, the urgency of the capital project, the type of debt being issued, and the nature and type of repayment source. To the extent possible, the school district will design the repayment of its overall debt to rapidly recapture its credit capacity for future use.
Generally, the school district will only issue fixed-rate debt. In very limited circumstances, the school district may issue variable rate debt, consistent with the limitations of Iowa law and upon a finding of the board that the use of fixed rate debt is not in the best interest of the school district and a statement of the reasons for the use of variable rate debt.
All debt may be structured using discount, par or premium coupons, and as serial or term bonds or notes or any combination thereof, consistent with Iowa law. The school district should utilize the coupon structure that produces the lowest True Interest Cost (TIC) taking into consideration the call option value of any callable maturities.
The school district will strive to structure their debt in sinking fund installments for each debt issue that achieves, as nearly as practicable, level debt service within an issue or overall debt service within a particular classification of debt.
Derivatives( including but not limited to interest rate swaps, caps, collars, corridors, ceiling and floor agreements, forward agreements, float agreements, or other similar financing arrangements); zero-coupon or capital appreciation bonds are not allowed to be issued consistent with state law.
Decision Analysis to Issue Debt: Whenever the school district is contemplating the issuance of debt, information will be developed concerning the following four categories commonly used by rating agencies assessing the school district’s credit worthiness:
- Debt Analysis: Debt capacity analysis, purpose for which debt is proposed to be issued, debt structure, debt burden, debt history and trends, and adequacy of debt and capital planning.
- Financial Analysis: Stability, diversity, and growth rates of tax or other revenue sources; trend in assessed valuation and collections; current budget trends; appraisal of past revenue and expenditure trends; history and long-term trends of revenues and expenditures; evidence of financial planning; adherence to GAAP; audit results; fund balance status and trends in operating and debt funds; financial monitoring systems and capabilities; and cash flow projections.
- Governmental and Administrative Analysis: Government organization structure, location of financial responsibilities and degree of control, adequacy of basic service provision, inter-governmental cooperation/conflict and extent of duplication, and overall planning efforts.
- Economic Analysis: Geographic and location advantages, population and demographic characteristics, wealth indicators, types of employment, industry and occupation, housing characteristics, new construction, evidence of industrial decline, and trend of the economy.
DEBT ISSUANCE
Credit Enhancement: Credit enhancements (i.e., bond insurance, etc.) may be used but only when the net debt service on the debt is reduced by more than the costs of the credit enhancement.
Costs and Fees: All costs and fees related to issuing the debt will be paid out of debt proceeds and allocated across all projects receiving proceeds of the debt issue.
Method of Sale: Generally, all school district debt will be sold through a competitive bidding process. Bids will be awarded on a TIC basis providing other bidding requirements are satisfied.
The school district may sell debt using a negotiated process in extraordinary circumstances when the complexity of the issue requires specialized expertise, when the negotiated sale would result in substantial savings in time or money, or when market conditions of the school district credit are unusually volatile or uncertain.
Professional Service Providers: The school district will retain external bond counsel for all debt issues. All debt issued by the school district will include a written opinion by bond counsel affirming that the school district is authorized to issue the debt and stating that the school district has met all Iowa constitutional and statutory requirements necessary for issuance and determining the debt’s federal income tax status. The bond counsel retained must have comprehensive municipal debt experience and a thorough understanding of Iowa law as it relates to the issuance of the particular debt.
The school district will retain an independent financial advisor. The financial advisor will be responsible for structuring and preparing all offering documents for each debt issue. The financial advisor retained will have comprehensive municipal debt experience, experience with diverse financial structuring, and pricing of municipal securities.
The board treasurer [or designee] shall have the authority to periodically select other service providers (e.g., escrow agents, verification agents, trustees, arbitrage consultants, rebate specialist, etc.) as necessary to meet legal requirements and minimize net debt costs. These services can include debt restructuring services and security or escrow purchases.
Compensation for bond counsel, financial advisor, and other service providers will be as economical as possible and consistent with industry standards for the desired qualification levels.
DEBT MANAGEMENT
Investment of Debt Proceeds: The school district shall invest all proceeds received from the issuance of debt separate from the school district’s consolidated cash pool unless otherwise specified by the authorizing bond resolution or trust indenture. Investments will be consistent with those authorized by Iowa law and the school district’s investment policy to maintain safety of principal and liquidity of the funds.
Arbitrage and Record Keeping Compliance: The district will maintain a system of record-keeping, reporting, and compliance procedures with respect to all federal tax requirements which are currently or may become applicable through the lifetime of all bonds in accordance with all arbitrage rules and rebate requirements. Such issues of compliance to review should include but are not limited to:
- Post-issuance compliance procedures (including proper use of proceeds, timely expenditure of proceeds, proper use of bond finance property, yield restriction and rebate, and timely return filing);
- Proper maintenance of records to support federal tax compliance;
- Investments and arbitrage compliance;
- Expenditures and assets;
- Private business use; and
- Designation of primary responsibilities for federal tax compliance of all bond financings.
Financial Disclosure: The school district is committed to full and complete financial disclosure and to cooperating fully with rating agencies, institutional and individual investors, other levels of government, and the general public to share comprehensible and accurate financial information. The school district is dedicated to meeting secondary disclosure requirements on a timely and comprehensive basis as promulgated by the Securities and Exchange Commission.
The official statements accompanying debt issues, certified annual financial reports, annual fiscal audits, and continuing disclosure statements will meet the standards articulated by the appropriate regulatory body including but not limited to the Municipal Securities Rulemaking Board (MSRB), the Government Accounting Standards Board (GASB), and the Internal Revenue Service (IRS). The district may hire a consultant to assist with continuing disclosure statements as required by state and federal regulatory bodies. Any significant financial reports affecting or commenting upon the district will be forwarded to rating agencies and any material events will be reported.
The issuance of securities subjects the district to regulation and risk regarding disclosure provided to investors. The district is committed to providing timely, accurate, and complete disclosure. The district shall assess the risk based on the type of security being issued and the type of offering contemplated and shall hire third-party professional experts in their field to assist the district with the bond sale process and assist with risk mitigation.
In the event that the district is selling securities in a full public offering, the district shall engage legal counsel (whether bond counsel, disclosure counsel, or both) whose engagement shall include an opinion (often called a 10b-5 opinion) regarding the accuracy and completeness of the offering materials (often called the bond official statement). Bond counsel’s legal opinion shall cover all material legal and tax-related representations of the district.
The district shall weigh the merits and costs of hiring other third-party professionals including financial advisors, underwriters, bank trustees, registrar and paying agent, and continuing disclosure dissemination agents on a case-by-case basis. The district notes that each potential professional offers specific skill sets not generally available to the district that may be advantageous to the district with respect to the specific offering being contemplated.
Adopted: 12/13
Reviewed: 5/15; 12/18
Revised: 1/22
Related Policy: 802.9; 802.9-R2; 804.1
Legal Reference (Code of Iowa): §§ 74-76; 278.1; 298; 298A
IASB Reference: 704.02; 704.02(R1)