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:

1. 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.
2. 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.
3. 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.
4. 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.

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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)

1. Role of Compliance Coordinator/Board Treasurer: 

The board treasurer shall:

1. Be responsible for monitoring post-issuance compliance;
2. Maintain a copy of the transcript of proceedings or minutes in connection with the issuance of any tax-exempt obligations and obtain records that are necessary to meet the requirements of this regulation;
3. Consult with bond counsel, rebate consultant, financial advisor, IRS publications, and such other resources as are necessary to understand and meet the requirements of this regulation; and
4. Seek out training and education to be implemented upon the occurrence of new developments in the area and upon the hiring of new personnel to implement this regulation.

2. Financing Transcripts Filing and Retention: The board treasurer shall confirm the proper filing of an IRS 8038 Series return and maintain a transcript of proceedings and minutes for all tax-exempt obligations issued by the school district including but not limited to all tax exempt bonds, notes, and lease-purchase contracts. Each transcript shall be maintained until 11 years after the tax exempt obligation documents have been retired. The transcript shall include, at a minimum:

1. Form 8038
2. Minutes, resolutions, and certificate
3. Certifications of issue price from the underwriter
4. Formal elections required by the IRS
5. Trustee statements
6. Records of refunded bonds, if applicable
7. Correspondence relating to bond financings
8. Report of any IRS examinations for bond financings

3. Proper Use of Proceeds: The board treasurer shall review the resolution authorizing issuance for each tax exempt obligation issued by the school district and the district shall:

1. Obtain a computation of the yield on such issue from the district’s financial advisor.
2. Create a separate Project Fund (with as many sub-funds as shall be necessary to allocate proceeds among the projects being funded by the issue) into which the proceeds of issue shall be deposited.
3. Review all requisitions, draw schedules, requests, invoices, and bills requesting payment from the Project Fund.
4. Determine whether payment from the Project Fund is appropriate and, if so, make payment from the Project Fund (and appropriate sub-fund, if applicable).
5. Maintain records of payment requests and corresponding records showing payment.
6. Maintain records showing the earnings on, and investment of, the Project Fund.
7. Ensure that all investments acquired with proceeds are purchased at fair market value.
8. Identify bond proceeds or applicable debt service allocations that must be invested with a yield restriction and monitor the investments of any yield-restricted funds to ensure that the yield on such investments do not exceed the yield to which such investments are restricted.
9. Maintain records related to any investment contracts, credit enhancement transactions, and bidding of financial products related to the proceeds.

4. Timely Expenditure and Arbitrage/Rebate Compliance: The board treasurer shall review the tax exemption certificate (or equivalent) for each tax exempt obligation issued by the school district and the expenditure records provided in Section II of this regulation above and shall:

1. Monitor and ensure that proceeds of each such issue are spent within the temporary period set forth in such certificate.
2. Monitor and ensure that the proceeds are spent in accordance with one or more of the applicable exceptions to rebate as set forth in such certificate if the school district does not meet the small issuer exception for said obligation.
3. Not less than 60 days prior to a required expenditure date, confer with bond counsel and a rebate consultant if the school district will fail to meet the applicable temporary period or rebate exception expenditure requirements of the tax exemption certificate. In the event the school district fails to meet a temporary period or rebate exception:

• Procure a timely computation of any rebate liability and, if rebate is due, file a Form 8038-T and arrange for payment of such rebate liability.
• Arrange for timely computation and payment of yield reduction payments (as such term is defined in the Code and Treasury Regulations), if applicable.

5. Proper Use of Bond Financed Assets: The board treasurer shall:

1. Maintain appropriate records and a list of all bond financed assets. Such records shall include the actual amount of proceeds (including investment earnings) spent on each of the bond financed assets.
2. Monitor and confer with bond counsel with respect to all proposed bond financed assets:
   • Management contracts
   • Service agreements
   • Research contracts
   • Naming rights contracts
   • Leases or sub-leases
   • Joint venture, limited liability or partnership arrangements
   • Sale of property
   • Any other change in use of such asset
3. Maintain a copy of the proposed agreement, contract, lease, or arrangement together with the response by bond counsel with respect to said proposal for at least three years after retirement of all tax exempt obligations issued to fund all or any portion of bond financed assets.
4. Contact bond counsel and ensure timely remedial action under IRS regulations Sections 1.141-12, in the event the school district takes an action with respect to a bond financed asset which causes the private business tests or private loan financing test to be met.

6. General Project Records: For each project financed with tax exempt obligations the board treasurer shall maintain, until three years after retirement of the tax exempt obligations or obligations issued to refund those obligations, the following:

1. Appraisals, demand surveys, or feasibility studies
2. Applications, approvals, and other documentation of grants
3. Depreciation schedules
4. Contracts respecting the project

7. Advance Refunding: The board treasurer shall be responsible for the following current, post issuance, and record retention procedures with respect to advance refunding bonds.

1. Identify and select bonds to be advance refunded with advice from internal financial personnel and a financial advisor.
2. Identify, with advice from the financial advisor and bond counsel, any possible federal tax compliance issues prior to structuring any advance refunding.
3. Review the structure with the input of the financial advisor and bond counsel of advance refunding issues prior to the issuance to ensure:

• That the proposed refunding is permitted pursuant to applicable federal tax requirements if there has been a prior refunding of the original bond issue.
• That the proposed issuance complies with federal income tax requirements which might impose restrictions on the redemption date of the refunded bonds.
• That the proposed issuance complies with federal income tax requirements which allow for the proceeds and replacement proceeds of an issue to be invested temporarily in higher yielding investments without causing the advance refunding bonds to become arbitrage bond.
• That the proposed issuance will not result in the issuer’s exploitation of the difference between tax exempt and taxable interest rates to obtain a financial advantage nor overburden the tax exempt market in a way that might be considered an abusive transaction for federal tax purposes.

4. Collect and review data related to arbitrage yield restriction and rebate requirements for advance refunding bonds. To ensure such compliance, the board treasurer shall engage a rebate consultant to prepare a verification report in connection with the advance refunding issuance. Said report shall ensure said requirements are satisfied.

5. Whenever possible, purchase state and local government series (SLGS) to size each advance refunding escrow. The financial advisor shall be included in the process of subscribing SLGS. To the extent SLGS are not available for purchase, the board treasurer shall, in consultation with bond counsel and the financial advisor, comply with IRS regulations.
6. Ensure, after input from bond counsel, compliance with any bidding requirements set forth by the IRS regulations to the extent as issuer elects to the purchase of a guaranteed investment contract.
7. In determining the issue price for any advance refunding issuance, obtain and retain issue price certification by the purchasing underwriter at closing.
8. After the issuance of an advance refunding issue, ensure timely identification of violations of any federal tax requirements and engage bond counsel in attempt to remediate same in accordance with IRS regulations.

8. Continuing Disclosure: The board treasurer shall assure compliance with each continuing disclosure certificate and annually, per continuing disclosure agreements, file audited annual financial statements and other information required by each continuing disclosure agreement. The board treasurer will monitor material events as described in each continuing disclosure agreement and assure compliance with material event disclosure. Events to be reported shall be reported promptly, but in no event not later than 10 business days after the day of the occurrence of the event. Currently, such notice shall be given in the event of:

1. Principal and interest payment delinquencies
2. Non-payment related defaults, if material
3. Unscheduled draws on debt service reserves reflecting financial difficulties
4. Unscheduled draws on credit enhancements relating to the bonds reflecting financial difficulties
5. Substitution of credit or liquidity providers, or their failure to perform
6. Adverse tax opinions, the issuance by the IRS of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB), or other material notices or determinations with respect to the tax exempt status of the bonds or material events affecting the tax exempt status of the bonds
7. Modifications to rights of Holders of the Bonds, if material
8. Bond calls (excluding sinking fund mandatory redemptions), if material and tender offers
9. Defeasances of the bonds
10. Release, substitution, or sale of property securing repaying of the bonds, if material
11. Rating changes on the bonds
12. Bankruptcy, insolvency, receivership, or similar event of the issuer
13. The consummation of a merger, consolidation, or acquisition involving the issuer or the sale of all or substantially all of the assets of the issuer other than in the ordinary course of business, the entry into a definitive agreement to undertake such action, or the termination of a definitive agreement relating to any such actions other than pursuant to its terms, if material
14. Appointment of a successor or additional trustee or the change of name of a trustee, if material

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Adopted: 12/13
Reviewed: 5/15; 12/18; 1/22
Related Policy: 802.9; 802.9-R1
IASB Reference: 704.02-R(1)