HomeMy WebLinkAbout1952 Resolution No . 1952
(Amending or Repealing Resolutions)
Passed 12/7/2017
Repeals Resolution 1882 and adopting financial policies intended to provide
general guidance for the issuance and management of all City debt, and for
the establishment and maintenance of fund balance reserves.
Repeals Res. 1882
RESOLUTION NO. l -152-
A RESOLUTION of the City Council of the
City of Kent, Washington, repealing Resolution 1882
and adopting financial policies intended to provide
general guidance for the issuance and management
of all City debt, and for the establishment and
maintenance of fund balance reserves.
RECITAL.
A. The city periodically updates it financial policies to better
align with the city's long and short-term financial or budgetary goals, as
well as to reflect changes in best practices for government finances, or
changes in city, state, or federal laws and regulations.
B. The city council established the current financial policies in
2012, through Resolution 1859. Those policies were then updated in 2014
through Resolution 1882. This Resolution now revises the city's Fund
Balance Reserves and Debt Management policies.
C. The objective of the new Finance Policy for Debt Management
is to provide guidance for the issuance and management of all City debt,
and to establish criteria for evaluating debt issuance to ensure the City's
financial integrity.
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D. The objective of the new Finance Policy for Fund Balance
Reserves is to provide guidance for the establishment and continued
maintenance of Fund Balance Reserves. This policy will establish the
amounts to be maintained in Fund reserves, how those Reserves will be
funded, and the conditions under which the Reserves may be used.
E. These policies reflect the financial goals and vision for the city
and will provide guidance to this and future councils as they develop the
city's biennial budgets.
NOW THEREFORE, THE CITY COUNCIL OF THE CITY OF KENT,
WASHINGTON, DOES HEREBY RESOLVE AS FOLLOWS:
RESOLUTION
SECTION 1.- Recitals. The foregoing recitals are incorporated by
this reference.
SECTION 2.- Repealer. Resolution No. 1882, adopted on February
4, 2014, is repealed in its entirety.
SECTION 3. - Poticies Adopted. The city of Kent Financial Policies
attached as Exhibit A are adopted.
SECTION 4. - Severabftity. If any one or more section, subsection,
or sentence of this resolution is held to be unconstitutional or invalid, such
decision shall not affect the validity of the remaining portion of this
resolution and the same shall remain in full force and effect.
SECTION 5. - CQrrectians by Cft . Upon approval of the city
attorney, the city clerk is authorized to make necessary corrections to this
resolution, including the correction of clerical errors; resolution, section, or
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subsection numbering; or references to other local, state, or federal laws,
codes, rules, or regulations.
SECTION 6. - Effective Date. This resolution shall take effect and
be in force immediately upon its passage.
PASSED at a regular open public meeting by the City Council of the
City of Kent, Washington, this day of , 20171.
y,�C,�ONCURRED in by the Mayor of the City of Kent this M" —day of
brl 20 .
S E E COOKE, MAYOR
ATTEST:
. Q - v
KIMBERLEY A. AOTO, CITY CLERK
APPROVED AS TO FORM:
AA A A . P A- LIA w w.
TO BRUBA ER, CITY ATTORNEY
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EXHIBIT A
City of Kent Finance Policy: Debt Management
Policy':
The objective of this policy is to provide general guidance for the issuance and
management of all City debt. The City issues debt in accordance with the Revised
Code of Washington (RCW), in particular chapters 39.36, 39.46, and 39.53, along
with all other City, State, and federal laws, rules, and regulations.
Further, this policy establishes criteria to protect the City's financial integrity while
providing a mechanism to fund the City's capital needs. The City will only utilize
debt financing to fund capital improvement projects that cannot be reasonably
funded on a pay-as-you-go basis.
The City's Finance Department is charged with ensuring compliance with all debt
management policy requirements.
Debt Issuance:
State law (RCW 39.36.020) allows for the issuance of general obligation (GO) debt,
through a public vote, of up to 7.5% of the City's assessed property valuation. The
limit of 7.5% of assessed valuation for GO debt is divided between three different
use types: 1) 2.5% for municipally owned water, sewer, or electric facilities; 2)
2.5% for open space and parks; and 3) 2.5% for general government purposes.
Within the 2.5% limit for general government purposes, State law allows the
Council to issue debt without a vote of the people. This non-voted debt (also called
councilmanic debt) cannot be greater than 1.5% of the assessed property valuation
of the jurisdiction.
All City projects proposed to be financed through debt must have a full analysis of
a) alternative methods of financing the project, b) future operating and
maintenance costs, including debt service expense, associated with the project, c)
projected cash inflows which can reasonably be applied to reduce the amount being
financed, and d) projected cash outflows for construction/equipment in order to
ensure arbitrage compliance.
The City will, unless otherwise justified, use tax-exempt bond proceeds within the
established time frame pursuant to the bond ordinance, contract, or other
document to avoid arbitrage. The City will maintain a system of recordkeeping and
reporting to meet the arbitrage rebate compliance requirement of the IRS (Internal
Revenue Service, IRC 148) regulation. For each bond issue not expended within
the established time frame, the recordkeeping will include tracking investment
Page 1 of 5
EXHIBIT A
earnings on bond proceeds, calculating rebate payments, and remitting any rebate
earnings to the federal government in a timely manner in order to preserve the tax-
exempt status of the outstanding debt obligation.
The City will repay principal plus interest in accordance with the payment terms of
the bond or contract. Furthermore, the City will comply with all bond or contract
covenants. This includes, but is not limited to, any undertakings to provide ongoing
disclosure and notice of certain listed events under SEC (Securities and Exchange
Commission) Rule 15C2-12. Annual disclosure will take the form of the City's
Comprehensive Annual Financial Report (CAFR) as well as other information
required by the bond or contract that is not reasonably contained in the CAFR. The
City will comply with all post-issuance compliance policies and procedures related to
Federal tax law and policies and procedures relating to initial and ongoing
disclosure.
Prior to any general obligation bond proposition being placed before the voters, the
capital project under consideration must, unless otherwise justified and have found
to be in the best interest of the City, have been included in the City's Capital
Improvement Plan. The source of funds for the project should reflect the intended
use of bond financing.
Debt cannot be issued for a longer maturity than a conservatively estimated useful
life of the asset to be financed.
The City will maintain good communications with bond rating agencies and
investors about its fiscal condition. The City will provide full disclosure on financial
reports and in disclosure documents.
Short-term debt:
The City may use short-term debt, defined as a period not to exceed three years, to
fund cash flow needs, which may be caused by a delay in receipting tax revenues or
issuing long-term debt. The City will not issue short-term debt for current
operations.
The City may issue interfund loans rather than issuing outside debt to meet short-
term cash flow needs. The issuance of an interfund loan will be permissible only
after an analysis of the loaning fund(s) indicate(s) that excess funds are available
and the use of these funds will not impact the loaning fund(s) current operations or
constitute a permanent diversion of funds. All interfund borrowing will bear interest
based upon at least the prevailing LGIP (Local Government Investment Pool) rate.
Interfund debt issuance must comply with KCC 3.40.040.
As allowed in KCC 3.40.040, the City's Finance Director has the authority to
approve short-term interfund loans for a period not to exceed three calendar
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EXHIBIT A
months. The Mayor has the authority to approve loans for a period not to exceed
12 calendar months. Notification to the City Council's Operations Committee is
required of any use of directorial or mayoral approved loans at the first reasonable
opportunity.
Lona-term debt:
The City will issue long-term debt, defined as a period of time greater than three
years, for capital projects, which cannot reasonably be financed on a pay-as-you-go
funding strategy from anticipated cash flows.
Acceptable uses of bond proceeds are one-time capital projects that can be
capitalized and depreciated in accordance with GAAP (Generally Accepted
Accounting Principles). Refunding debt is also an acceptable use. See refunding
debt section below.
The City may issue interfund loans rather than issuing outside debt instruments as
a means of financing capital improvements. The issuance of an interfund loan will
be permissible only after an analysis of the loaning fund(s) indicate that excess
funds are available and the use of these funds will not impact the loaning fund(s)
current operations or constitute a permanent diversion of funds. All interfund
borrowing will bear interest based upon at least the prevailing LGIP (Local
Government Investment Pool) rate. Interfund debt issuance must comply with KCC
3.40.040.
The decision to use an interfund loan rather than outside debt to fund capital
projects will be based on which is deemed to be the most cost effective approach to
meet City capital needs. The City's Finance Department is responsible for making
such an assessment.
The City will not issue long-term debt for current operational needs.
The following is a description of the types of long-term debt the City may issue.
Limited Tax General Obii aton Bonds LTGO : LTGO debt is backed by the full faith
and credit of the City. These bonds can be issued without a vote of registered
voters but are limited in that debt service payments must be paid from existing city
revenue sources. Furthermore, LTGO's are also limited in the amount and
percentage of assessed valuation as defined by the City's debt capacity in
accordance with state law.
Unlimited Tax General Obii ati'on Bonds UTGO . UTGO debt is backed by the full
faith and credit of the City. These bonds can only be issued when authorized by a
60% majority vote of registered voters (meeting the minimum voter turnout
Page 3 of 5
EXHIBITA
requirement). The purpose of the vote is to approve an excess tax levy (as a
completely new source of revenue) to pay the debt service.
_Lease Obligatton: Lease debt can be in the form of a lease-purchase arrangement
or a certificate of participation. With this type of contractual obligation a third party,
typically the lessor, issues certificates or bonds where the principal and interest
payments to investors are guaranteed by the lease payments made by the City.
Depending on the security for the lease payments, lease debt may be repaid from
existing City revenue sources, voter-approved property tax, or revenues of an
enterprise.
Revenue Bonds: Revenue bonds are used to finance construction or improvements
to facilities of enterprise systems operated by the City in accordance with the
Capital Improvement Program and are generally payable from the enterprise. No
taxing power or general fund pledge is provided as security. Unlike general
obligation bonds, revenue bonds are not subject to the City's statutory debt
limitation nor is voter approval required.
Special Assessment Bernd: Also referred to as Local Improvement District (LID)
bonds, this type of debt is used to finance capital improvements that benefit
property owners within the LID. LID debt is repaid from annual assessments paid
to the City. LIDS are formed by the Council following the process outlined in State
statutes. The cost is borne only by those who will benefit most from the
improvement. LID debt is not part of the debt capacity calculation.
Other Debt Instruments: Instruments such as Public Works Trust Fund loans or
other financing contracts issued through the State of Washington, bond anticipation
notes (BAN's), tax anticipation notes (TAN's), bank qualified loans, and/or other
legal debt issues may be incurred as allowed by law.
Additionally, the City may issue interfund loans rather than outside debt
instruments to fund capital projects or meet short-term cash flow needs.
Professional Services-
The City's Finance Department will be responsible for the solicitation and selection
of professional services as necessary to administer debt financing. Professional
service providers necessary to issue debt may include, but are not limited to: bond
counsel, financial advisor, underwriters, and fiscal agent.
Refunding Debts
Debt refunding is typically done to take advantage of lower interest rates.
Refunding bonds are an acceptable use of bond proceeds provided that, and unless
otherwise justified and found to be in the best interest of the City, a) the net
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EXHIBIT A
present value (NPV) of the savings is at least 3% and b) the final maturity date is
not extended.
Debt zssuamce Process:
The Finance Director will determine the method of sale best suited for each issue of
debt (competitive sale, negotiated sale, or private placement).
The Finance Director, City Attorney and bond counsel will coordinate their activities
and review all debt issuance to ensure that all securities are issued in compliance
with state and federal legal and regulatory requirements by the State and the
Federal Government's laws, rules and regulations.
For each issue, the City will evaluate the costs and benefits of bond insurance or
other credit enhancements. Any credit enhancement purchases by the City must
be competitively procured.
The Finance Director may institute procedures to implement this policy and other
bond covenants and provisions related to State and federal law applicable to the
City's debt.
Council approval is required prior to the issuance of debt, except where Council
authority has been delegated in KCC 3.40.040.
Periodic Review:
This debt policy must be adopted by Council. The policy will be reviewed
periodically by the Finance Department and modifications must be submitted to and
approved by the Council.
Page 5 of 5
EXHIBIT A
City of Kent Finance Policy: Fund Balance Reserves
polligy:.
The objective of this policy is to provide general guidance for the establishment and
continued maintenance of Fund Balance Reserves. This policy establishes the
amounts the City will strive to maintain in Fund Reserves, how the Reserves will be
funded, and the conditions under which Reserves may be used.
The City classifies available fund balances for specific purposes in accordance with
Government Accounting Standards Board (GASB) Statement #54 as follows:
• Non-spendable - Resources that cannot be spent because of form (e.g.
inventory, prepaid amounts) or because they must be maintained intact.
• Restricted - Resources with limitations imposed by creditors, grantors,
laws, regulations, or enabling legislation.
• Committed - Resources that can only be used for specific purposes
pursuant to constraints imposed by formal action of the highest level of
decision-making authority - the City Council. These amounts cannot be used
for any other purpose unless the City Council removes or changes the
specified use by taking the same action it employed to previously commit the
amounts.
• Assigned - Resources that are intended to be used for specific purposes,
but is neither restricted nor committed.
• Unassigned - Resources that are not non-spendable, restricted, committed
or assigned to specific purposes.
Fund balance is an important indicator of a city's financial position and maintaining
reserves is a prudent management practice. Adequate fund balances are
maintained to allow the city to continue providing services to the community in case
of unexpected emergencies, unfunded mandates, and/or economic downturns.
They may also be used to meet seasonal cash flow shortfalls as needed.
As such, the City has determined targeted fund balances for specific funds as
outlined in the table below:
Page 1 of 5
EXHIBIT A
Fund Fund BallatIlic
...............----_..................--...-...--...........---...--........-.................... ................................................__........................ ______..._—""""--___--_
General Fund Eighteen Percent (18%)of Current-Year Budgeted
Expenses
Street Fund - Unrestricted Sixteen Percent(16%) of Current-Year Budgeted
Expenses
Public Safety Retiree Benefits Twice the IBNR (Incurred But Not Reported) Estimate
per the annual Actuarial Study plus$500,000
Youth/Teen Fund $100,000
Capital Resources Fund $1,500,000
....._................
_......--------------......................... _.m.............
Capital Resources Fund -Parks $500,000
Criminal Justice Fund Sixteen Percent(16%) of Current-Year Budgeted
Expenses
Boat Registration/Safety $2,500
Kent Events Center Operating $500,000
Event Center Lifecycle $300,000
Water Operating Fund Twenty Percent (20%) of Current-Year Budgeted
Operating Expenses
Sewerage Operating Twenty Percent (20%) of Current-Year Budgeted
Operating Expenses
Golf Operating $400,000 or Sixteen Percent (16%) of Current-Year
Budgeted Operating Expenses,whichever is higher.
Fleet Services Fund Sixteen Percent(16%)of Current-Year Budgeted
Expenses plus$500,000
Information Technology Fund $500,000
Facilities Management Fund $700,000 or Sixteen Percent(16%)of Current-Year
Budgeted Operating Expenses, whichever is higher.
Page 2 of 5
EXHIBIT A
Unemployment Comp Fund $100,000 (Plus any downward adjustments in staffing or
changes in policy)
Workers Compensation Fund Seventy Percent (70%)confidence level as provided in
the annual Actuarial Study for the Worker Comp fund
Health Care/Benefits Fund Twice the IBNR (Incurred But Not Reported) Estimate
per Actuary or$2,000,000,whichever is higher.
Liability Insurance Fund Seventy Percent (70%) confidence level as provided in
the annual Actuarial Study for the Liability Insurance
fund
Property Insurance Fund 1.5 times the $100,000 deductible plus projected
premium for the following year.
The City's Finance Department is charged with ensuring compliance with all fund
balance policy requirements.
General Fund:
In an effort to ensure the continuance of sound financial management of public
resources, the City of Kent's Unassigned General Fund Balance will be maintained
to provide the city with sufficient working capital and a comfortable margin of
safety to address emergent needs, sudden loss of revenue, and unexpected
downturns without borrowing.
This policy establishes the amounts the city will strive to maintain in its General
Fund balance, the conditions under which fund balance may be spent, and the
method by which fund balances will be restored. These amounts are expressed as
goals, recognizing that fund balance levels can fluctuate from year to year in the
normal course of operations for any local government.
The city will strive to maintain a General Fund "Operating Reserve" with an upper
goal of eighteen percent (18%) of the adopted current-year budgeted General Fund
expenditures, less any one-time items. It is the intent of the city to limit the use of
Unassigned General Fund balances to addressing unanticipated, non-recurring
needs or known and planned future obligations.
The Operating Reserve is intended to be a reserve for unexpected events such as
unfunded mandates, the failure to receive expected revenues, the continuance of
critical city services due to unanticipated events, or to offset the unexpected loss of
Page 3 of 5
EXHIBIT A
a significant funding source for the remainder of the fiscal year. Any use of
Operating Reserve funds that reduce the fund balance below the minimum required
must include a repayment plan that projects to restore the Operating Reserve to
the minimum level.
Fund balances shall not normally be applied to recurring annual operating
expenditures. Unassigned balances may, however, be used to allow time for the
city to restructure its operations in a deliberate manner, but such use will only take
place in the context of long-term financial planning.
Funds in excess of the reserves described above will be Unassigned General Fund
Balance, unless otherwise assigned in accordance with GASB Statement #54, and
may be considered to supplement "pay as you go" capital outlay and other one-
time expenditures. These funds may not be used to establish or support costs that
are recurring in nature.
The Finance Director is authorized to classify available fund balance for specific
purposes in accordance with Government Accounting Standards Board Statement
#54. It is the policy of the city that expenditures for which more than one category
of fund balance may be used, the order of use will be: Restricted Fund Balance,
Committed Fund Balance, Assigned Fund Balance, and Unassigned Fund Balance.
Other Funds.
In a manner similar to the General Fund, the City desires to maintain a prudent
level of financial resources in its other funds, including Enterprise Funds, Special
Revenue Funds, and Self-Insurance Funds, to guard its stakeholders against service
disruptions in the event of unexpected temporary revenue shortfalls or unpredicted
one-time expenses. Fund reserves are accumulated and maintained to provide
stability and flexibility to respond to unexpected adversity and/or opportunities.
It is the intent of the City to limit use of these fund reserves to address
unanticipated, non-recurring needs. Reserves shall not normally be applied to
recurring annual operating expenses. Reserves may, however, be used to allow
time for the City to restructure its operations in a deliberate manner (as might be
required in an economic downturn), but such use will only take place in the context
of long-term financial planning.
Unless otherwise noted, all parameters of the General Fund Balance are also
applicable to all other fund balances.
Page 4 of 5
EXHIBIT A
Pooled Gash Method:
In order to provide liquidity adequate to meet the needs and demands of providing
government services, including unanticipated reductions in revenues or unplanned
increases in expenses, Reserve levels will be maintained and managed through the
Pooled Cash method in such a way as to minimize short-term borrowing. This
reduces overall cost to taxpayers by minimizing interest expense. The reserves are
intended to support this effort and counterbalance cycles that are experienced in
fee and other revenue collections.
Funding the Reserves:
Funding of reserve targets will generally come from excess revenues over expenses
or one-time revenues.
Ex s of Reserves:
Reserves for specific funds are restricted for the activities of that fund under GASB
principles, with the exception of the General Fund, which can be used for any good
government purpose. In the event fund reserves exceed the minimum balance
requirements at the end of each fiscal year, any excess reserves may be used in
the following ways:
1. Fund accrued liabilities. Priority will be given to those items that relieve
budget or financial operating pressure in future periods;
2. Appropriated to lower the amount of bonds or contributions needed to fund
capital projects in the City's CIP (Capital Improvement Program);
3. One-time expenses that do not increase recurring operating costs that cannot
be funded through current revenues. Emphasis will be placed on one-time
uses that reduce future operating costs; or
4. Start-up expenses for new programs, provided that such action is approved
by the City Council and is considered in the context of multi-year projections
of revenue and expenses as prepared by the City's Finance Department.
Periodic Review:
This fund balance policy must be adopted by the City Council. The policy will be
reviewed periodically by the Finance Department and modifications must be
submitted to and approved by the Council.
Page 5 of 5
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