BOARD POLICY SERIES NUMBER: 5025
TITLE: DEBT MANAGEMENT
To provide a framework for the appropriate planning, issuing, and monitoring of debt
The debt management policy provides the general framework for planning, issuing, and monitoring debt and ensures sufficient funds to meet debt service obligations while adequately providing for reoccurring operating requirements. The issuance of debt limits the college's flexibility to respond to future learning priorities; consequently, the college shall issue and manage debt in a manner that maintains a sound fiscal position, protects its creditworthiness, and complies with ORS 341.675 and ORS 341.715.
To meet the objectives of this policy, the Board shall ensure that the college incurs and services all debts in a manner that will:
- Maintain a balanced relationship between debt service requirements and current operating needs.
- Maintain and enhance the college's ability to obtain access to credit markets, at favorable interest rates, in amounts needed for capital improvements and to provide essential services.
- Prudently incur and manage debt to minimize costs to the taxpayers and ensure that current decisions do not adversely affect future generations.
- Preserve the college's flexibility in capital financing by maintaining an adequate margin of statutory debt capacity.
The Board may authorize borrowing for the college, in compliance with state laws, by resolution stating the upper limit to be obligated at any one time. The president or designee may initiate emergency borrowing prior to Board approval should a quorum of the Board not be available to authorize borrowing. Long-term debt (due more than a year in the future) shall not be issued to fund normal operating needs.
TYPES OF DEBT
- Direct debt
The college may consider debt payable from general revenues, including but not limited to capital leases, certificates of participation (COP's), pension obligation bonds, full faith and credit obligations (FFCO's), and tax/revenue anticipation notes (TRAN's).
- General obligation bonds
Debt payable from property tax levies lawfully approved by the voters of the district in an election. This debt is preferred for major capital construction, acquisition, and renovation projects. Other options should be considered for less major projects.
- Inter-fund borrowing
Loans for short term cash flow needs. This type of debt will be authorized by the Board annually as needed by resolution.
- Legal debt limit
Oregon Revised Statute (ORS) 341.675 (3) limits the aggregate amount of bonded indebtedness to no more than "one and one-half percent (.015) of the real market value of all taxable property within the district, computed in accordance with ORS 308.207."
- The college's outstanding debt at any time shall not exceed 65 percent of the college's legal debt limit.
- Obligations such as tax/revenue anticipation notes issued in anticipation of taxes and other revenue shall not exceed 80 percent of the amount budgeted to be received for the fiscal year. Such debt generally shall not be issued prior to the beginning of, and shall mature not later than, the end of the fiscal year in which the taxes or other revenue are expected to be received. However, an exception could be made to go longer if the situation warrants. The director of accounting and budget will determine, in consultation with the vice president of finance and operations, whether such an exception is warranted. Regardless, the college shall follow the federal and state laws and regulations governing this type of obligation.
- The college will not incur general fund debt which places an unreasonable drain on resources for educational purposes or adversely impacts the district's ability to maintain its desired fund. General fund debt, excluding pension obligation bonds, will not exceed seven (7) percent of annual general fund revenues.
- Maximum term
Maturity schedules will not be utilized that are longer than a conservative estimate of the useful life of the asset to be financed. The college will attempt to keep the average maturity of general obligation bonds at or below 20 years.
- Debt service pattern
The college will attempt to match the debt service pattern to balance the goals of stability of payments with matching payment streams with revenue streams. In general, equal payments are preferred over equal principle amortization.
- In order to maintain a stable debt service burden, the college will attempt to issue debt that carries a fixed interest rate. However, it is recognized that certain circumstances may warrant the issuances of variable rate debt. In those instances, the college should attempt to stabilize debt service payments through the use of an appropriate stabilization arrangement.
- Method of sale
- The college shall use the competitive bid process when issuing debt obligations, except for as provided in section (3) below.
- The college shall prepare and make available upon request, to bidders and investors, a preliminary official statement containing all relevant information required by federal and state law.
- The college may use an alternative method such as negotiated sale, private placement, or limited public offering if it can be clearly demonstrated that such method will produce the most cost effective results.
- The college shall maintain a debt rating of no lower than A on all its outstanding indebtedness. For short-term debts (such as TRANs) or longer term debt under $2 million, it may not be beneficial for the college to get ratings because of cost. The vice president of finance and operations will determine whether the college should secure rating for such debts on a case-by-case basis.
- The college may obtain credit enhancement devices providing additional security for the payment of all or any portion of the amounts owing on the debt obligations, or for the purpose of funding, in lieu of cash, all or any portion of any debt service reserve. Credit enhancement may be in the form of letter of credit, municipal bond insurance, or other device or facility used to enhance the creditworthiness of the debt obligations. Credit enhancements will be used only in instances where the anticipated present value savings in terms of reduced interest expense exceeds the cost of the credit enhancement.
- The college shall employ professional, technical, and legal services to ensure the most cost-effective method of selling the debt. These services may include legal services (bond counsel), financial advisory services, and paying agent services. The college shall avoid, when appropriate, employing the services of financial advisors who can also be underwriters, in order to avoid the conflict of interest and get the best benefits for the college.
- The college shall secure ratings from Moody's, Standard and Poor's, and/or other ratings agencies on all sales of indebtedness when it is deemed to be beneficial to the college.
- Cash surpluses, to the extent available and appropriable, should be used to finance scheduled capital improvements.
- The college shall not construct or acquire a public facility if it is unable to adequately provide for the subsequent annual operation and maintenance costs of the facility.
- The college should consider coordinating with other local government entities to the fullest extent possible, so as to minimize the overlapping debt burden to citizens.
- Investment of the proceeds from the bond sales will be governed by Board Policy 5020 and Administrative Rule 5020-01.
- The college will follow a policy of full disclosure in its comprehensive annual financial statements, as well as in preliminary official statements and offering documents when issuing debt. Significant financial reports affecting or commenting on the college will be forwarded to the ratings agencies.
- The college will ensure that an adequate system of internal control exists so as to provide reasonable assurance as to compliance with appropriate laws, rules, regulations, and covenants associated with outstanding debt, including arbitrage rebate monitoring and filing.
- The college shall maintain a debt service fund to account for property tax revenues levied to pay for the maturing principal and interest of general obligation bonds and to establish adequate fund balance to meet the cash outlay requirements of non- general obligation bond financings.
- Non-voter-approved obligations do not have a dedicated source of revenue for repayment
and need to be handled differently than voter-approved obligations. Indebtedness under
this category includes, but is not limited to: certificate of participation bonds
(COPs), revenue bonds, limited taxable general obligation bonds, pension obligation
bonds, and certain long-term lease financings.
- Unlike voter-approved obligations where payment for debt service is made through annual additional property tax levy, the resources to pay the debt service on non-voter-approved obligations comes from general operating resources of the college. It is essential to set aside a reserve to pay the debt service of the obligations to prevent default in times of financial difficulty.
- As a guide, the college shall consider maintaining a debt service reserve equal to 100 percent of one year debt service requirements. This is to allow the college to have more time to implement measures due to contract obligations. The exact level will be determined on a case-by-case basis by the Board, upon recommendation from the president.
- Exceptions to the standard reserve requirement may be made if the annual debt service payment on the indebtedness is less than $125,000. For debts more than $125,000, exceptions may be made on a case-by-case basis by the Board, upon recommendation from the president.
DATE OF ADOPTION: 06/21/06
DATE(S) OF REVISION(S): 7/20/16
DATE OF LAST REVIEW: 01/19/11, 7/20/16