2017/03/08 Council Agenda Packet

1.5. The City shall pursue a moderate capital improvement program through a careful balance of moderate debt issuance and substantial pay-as-you-go capital projects. 1.6. Subject to federal and state law, interest may be capitalized from the date of issuance of debt obligations through the completion of construction for revenue producing projects. 1.7. The City shall not use debt to finance operating needs except in the case of an extreme financial emergency that is beyond its control or reasonable ability to forecast. 2. Limitations 2.1. The City shall seek to limit outstanding general obligation debt to a maximum of 75% of its statutory debt limit as set out in RCW 39.36.020. 2.2. Long-term debt will have a maximum maturity of the earlier of: 1)the estimated useful life of the projects financed; 2) thirty (30)years; or 3)the final maturity of debt obligations being refinanced, unless a longer term is recommended by the Council Budget and Finance Committee. 2.3. When appropriate,the City may choose to issue general obligation securities that pay a rate of interest that varies according to a pre-determined formula or results from a periodic remarketing of the securities. However, the City will avoid over use of variable-rate debt due to the potential volatility of such instruments. 2.4. The City will not engage in derivative instruments,such as interest rate swaps, due to the risk associated with those financial products. 3. Utility Debt 3.1. The City shall maintain a utility rate structure that preserves its revenue debt coverage ratio at no less than 2.0. 3.2. The City shall maintain an operating cash reserve balance in Utility Fund 401 of no less than 90 days of operating expenses, plus annual debt service requirements. 3.3. The City shall maintain a minimum capital cash balance in its construction fund equal to the six-year average of renewal and replacement projects for each Utility function. This average shall be based on annual depreciation for each Utility function. 3.4. The City will emphasize level debt service structures and avoid issuing variable rate instruments for Utility debt to maintain a predictable and manageable basis for long- term capital and utility rate planning. 4. Bond Issues 4.1. Every project proposed for financing should be accompanied by a full analysis of associated future operating and maintenance costs. 4.2. Prior to submitting a financing project to City Council for approval, Finance Department staff will undertake an analysis that examines the following: 2 I Page 3