Transfers, Debts, & Administrative Rules. IMFOA Fall Conference 2018 October 19, 2018

Transcription

1 Transfers, Debts, & Administrative Rules IMFOA Fall Conference 2018 October 19, 2018

2 TRANSFERS

3 Transfer Basics Transferring means moving from one location to another within the city DOES NOT LEAVE THE CITY Do not count as new expenditure NO NEW MONEY INVOLVED Do not count as new revenue DOES NOT CHANGE THE OVERALL FUND BALANCE The total amount of balance you have is same after transfer as before 3

4 Transfer Basics Fund Transfers do not equal bank transfers and vice versa FUND TRANSFER Moving money from one budgeted fund/sub-fund to another fund Happening on paper, does not mean money is moving at the bank level 4

5 Transfer Basics Fund Transfers do not equal bank transfers and vice versa BANK TRANSFER Moving money from one bank account/investment vehicle to another Actual money is moving in the bank, though it may not move on paper at the fund level 5

6 Fund Transfers When Needed? Anytime money in one fund needs to be in another Matching revenues to expenditures Common Example: Employee Benefits paid from Gen Fund Common Example: LOST transfers to other funds for expenditure 6

7 Fund Transfers When Needed? There are times when a transfer is required by law or contract Use of the Emergency Levy Abatement of General Obligation debt payments TIF Payments Sinking fund payments 7

8 Use of Emergency Levy Transfer Emergency levy revenue can only be spent through transfer 119 Emergency to 001 General

9 Abatement of GO Debt Transfer General Obligation debt payments may be abated from multiple sources. All money used to abate GO Debt payments must be transferred to Debt Service Fund. Example: GO debt abated by Water Fund Transfer from 600 Water to 200 Debt Service, payment then made out of 200 Debt Service Example: GO debt abated by Local Option Transfer from 121 LOST Fund to 200 Debt Service Fund, payment then made out of 200 Debt Service 9

10 TIF Payment Transfer Most debt payments made out of TIF must be made by transfer GO abatement Internal Loans Only TIF revenue bonds/notes and TIF agreement payments can be made directly out of the TIF Fund 10

11 Sinking Fund Transfer Transfer required by revenue bond covenants Usually states that 1/12 th of payment must be deposited in separate sinking fund monthly Money is not leaving the Fund, only moving between sub-funds Example: Water Revenue Debt 600 Water Operations fund 605 Water Sinking Fund Does not leave the Proprietary Fund, which contains utility sub-funds 11

12 Budgetary Funds A Quick Digression Major funds required to be budgeted on State forms Non-Budgetary Sub-funds Divisions within budgetary funds; not required Room in the Chart of Accounts to create sub-funds At least 2 between Special Funds, 10 between Proprietary Funds 12

13 How Does One Transfer? Transfers must be approved via resolution State the amount to be transferred State the originating fund and the receiving fund Known transfers should be budgeted The budget adoption resolution can be used to approve the transfers Outline the transfer amounts and funds separately for each transfer that is budgeted 13

14 How Does One Transfer? There are two dedicated transfer lines in the budget forms NON-TIF REGULAR TRANSFERS Revenues Line 37 Expenditures Line 75 TIF TRANSFERS Revenues Line 38 Expenditures Line 76 Each line must balance transfer in matches transfer out no money is leaving the city 14

15 How Does One Transfer? Each line must balance transfer in match transfer out no money is leaving the city 15

16 DEBT ISSUANCE & MAINTENANCE

17 Issuing Debt It s Decision Tree Time!!! Above Threshold - Referendum General Corporate Purpose Below Threshold No Ref. Needed Competitive Sale General Obligation Debt Projects & Not to Exceed Amount Repayment Source Essential Corporate Purpose Reverse Referendum Negotiated Sale Revenue Debt Competitive Sale Negotiated Sale Program Participation 17 State Revolving Fund (SRF) United States Dept. of Agriculture (USDA)

18 Debt Issuance Basics Different Types of Debt General Obligation Revenue Secured Different Ways to Issue Competitive Sale Negotiated Bank Sale 18

19 Debt Issuance Basics No matter what type of debt is issued and through what mechanism Must hold a public hearing Must approve debt with a resolution after the hearing Mayor cannot just go to bank, Council must approve formally Bond proceeds should never be received into the Debt Service Fund Debt Service is for servicing of debt 19

20 Choose Your Own Debt-venture What are the projects to be funded? What are the possible sources of repayment? Use cash on hand and avoid the whole thing? Debt Service Levy? Revenue pledge? Have a bake sale? Make lenders compete or negotiate terms? 20

21 General Obligation debt can be repaid by taxing directly for repayment Debt Service Levy Types of Debt - GO Comes with restrictions Constitutional Debt Limit Essential Corporate purpose & General Corporate Purpose Reverse Referendum 21

22 Constitutional Debt Limit Iowa Constitution, Article XI, Section 3 No county, or other political or municipal corporation shall be allowed to become indebted in any manner, or for any purpose, to an amount, in the aggregate, exceeding five per centum on the value of the taxable property within such county or corporation to be ascertained by the last state and county tax lists, previous to the incurring of such indebtedness. READ TAXABLE AS ASSESSED (ASSESSED DIDN T EXIST) 22

23 Constitutional Debt Limit Everyday speech translation: Cities can take on principal equal to 5% of their total assessed property value Total assessed valuation can be found on the DOM website 23

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26 Use the column to the right, which removes untaxable military exemption value 286,806,125 5% (or 0.05) 14,340,306 The City can have no more than $14.3M in outstanding GO principal during FY19 Only use the total lines the next slide will show why 26

27 Ignore SSMIDs Do not include overlay districts, such as SSMIDs These are a subdivision of the regular assessed value 5,907,660,998 5% (or 0.05) 295,383,049 The City can have no more than $295.3M in outstanding GO principal during FY19 27

28 Net Constitutional Debt Limit The City can hold no more than $295,383,049 of GO principal during FY19 Currently held debt must be subtracted from calculated debt limit Bonds, notes, bank loans, leases approved as GO Annual Appropriation GO debt must only count the current yearly principal payments Annual appropriation is debt that has its repayment approved one maturity at a time, yearly Includes TIF revenue debt and TIF rebate debts Only the current yearly payment counts against limit due to annual appropriation 28

29 Net Constitutional Debt Limit 5,907,660, ,383, ,259,762 The City could take on $202.2M more GO debt in FY2019 before they would max out City is at 31.5% of Constitutional Debt Limit 29

30 Types of Debt - GO General Obligation debt has two distinct flavors: Essential Corporate Purpose (COI 384.3) Horizontal Improvements: Roads, Utilities, Parks Also: Refundings, Public Safety Equipment General Corporate Purpose (COI 384.4) Vertical Improvements: Public Buildings 30

31 Essential Corporate Purpose Less hurdles to cross to issue this type of GO Process is covered under COI Hearing need after notice period of 4-20 days Subject to reverse referendum Petition of twenty percent of the persons in the city who voted for the office of president of the United States at the last preceding general election Required to have bond issuance put to a vote Referendum must pass with 60% approving 31

32 General Corporate Purpose The harder type of GO to issue Process is covered under COI Hearing need after notice period of 4-20 days Most Gen Purpose subject to referendum Referendum must pass with 60% approving No referendum required for: Issuance of $400K or less in city of 5,000 or less Issuance of $700K or less in city of 5,001 to 75,000 Issuance of $1M in cities of 75,001 or more * Could still have reverse referendum petition and vote 32

33 Debt Service Levy Types of Debt - GO Allowed to be used for all or part of the repayment of debt approved as a general obligation of the city Unlimited levy each year Makes sure your city has thought not only about this year, but several years into the future with each issuance of GO COI 76.2 puts County in charge of making sure cities levy enough to pay their debts 33

34 Types of Debt - Revenue Debt can be issued by a city with only the promise of future charge/fee revenue as payment Has a higher rate than GO due to riskier source of payment (in theory) Comes with a lot of strings attached Parity Test Coverage Ratio Covenants Debt Service Reserve Fund Sinking fund requirements 34

35 Types of Debt - Revenue DOES NOT COUNT AGAINST CON. DEBT LIMIT Requires a notice and hearing in the same manner as GO debt 4 & 20 day prior notice Must be approved by resolution after the hearing Secured only by revenues of the system indebted, abating payment from outside sources is not allowed System has to stand on its own RATE INCREASES! 35

36 Parity Test Revenue Debt Hurdles Must prove that future revenues of the system will be sufficient to pay current and proposed debt Debt Service Coverage Ratio Requirement in revenue debt agreements that the city have a certain percentage more revenue available than debt payment Usually payment amount plus 10-50% Expressed as 1.xx times coverage (ex: 1.10x means extra 10% above payment amount) 36

37 Debt Service Reserve Fund Revenue debt agreements may require that an amount be held in reserve to avoid missing payments Sometimes funded by deposits over time, sometimes funded with proceeds of the debt Sinking Fund Revenue Debt Hurdles Agreement requirement that the city put aside 1/12 th of principal and 1/6 th of interest payment each month 37

38 Revenue Debt Hurdles Can you tell that revenue bond purchasers are not a trusting bunch? 38

39 Revenue Debt Hurdles State Revolving Fund & USDA Require that work be completed and reimbursed by drawing off of a line of credit established for the city Competitive or Negotiated debts fully fund at time of closing Debt schedule does not get finalized until the draw downs are complete and projects verified Competitive or Negotiated debts have a set schedule at time of closing 39

40 Debt Issuance Methods Competitive Sale City offers an amount of debt with a pre-arranged debt schedule Banks and investors bid with their best rate offer Often requires cities to get a rating ($$$) Negotiated Sale City will work with a specific lender or investor on terms of the debt Commonly used for non-rated or unique risk debt 40

41 Handling The Debt Proceeds Debt proceeds should Never be placed in the Debt Service or TIF funds Usually be placed in the Capital Projects Fund Proprietary and General funds may also take in debt proceeds Allows the debt proceeds to be easily tracked for project reimbursement and reporting Only be spent on the projects for which they were taken out Excess proceeds should be used to repay the debt 41

42 Budgeting Debt Debt payments required on LT Debt need to be budgeted on Exp P2 Total obligation from LT Debt tab should equal the sum of line 54 and line 70 of the Budget column on Exp P2 Non-proprietary debts should be budgeted on line 54 regardless of if they are paid from Debt Service Fund Revenue debts supported by Proprietary Fund systems can be budgeted as Enterprise Debt Service on line 70 42

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44 Administrative Rules

45 What are Administrative Rules? Additional Iowa legal text that allow the Code of Iowa to work in the real world Implement the Code Interpret the Code Describes the function of a department, organization or practice 45

46 How are Cities Impacted? Many law changes that are passed affecting cities are administered through Admin Rule Multiresidential Property Water Excise Service Tax (WET) Sanctuary Government Penalty City Finance Committee is also outlined by Admin Rule ARC 545, it is a riveting read! 46

47 ARC 545 City Finance Committee Outlines some items important to all cities Chapter 2 Budget Amendments & Transfers When amendments are necessary When are transfers allowed, and how are they to be completed (more on this in a minute) Chapter 3 Budget Forms CFC has the authority to propose changes to the budget forms, and must be consulted on form changes (384.16) Chapter 4 Employee Benefits Outlines what may be considered an employee benefit for levying 47

48 Proposed Change to ARC 545 The City Finance Committee is currently working on an amendment to Chapter 2 Require that all transfers be approved by a resolution including Fund sending the transfer Fund receiving the transfer Amount of transfer Reason for transfer Require that calculation of Utility Surplus be shown in resolutions of Utility Surplus Transfers 48

49 I HAVE COMPLETED MY TALKING. QUESTIONS? Ted Nellesen Iowa Department of Management