Debt & Investment Policies for Smaller Entities

Transcription

1 2018 WPTA Conference Chelan Debt & Investment Policies for Smaller Entities Toni Nelson, Finance Consultant, MRSC Agenda Where do we begin? Who should be involved? Project timeline? Debt Management Investment Frequency of updating 1

2 What is needed? Varies from entity to entity depending upon: Size Scope of Activities Organizational and staffing structures Contractual and program structures Technology Governing body s values and priorities Most importantly your financial policy documents should be designed to meet your management and fiscal needs Where to begin? There are numerous areas that need policy guidance for your entity to work effectively and maintain fiscal health. Financial Policies provides stability and continuity over the years as staff and elected officials turnover. MRSC/SAO-LGPC project revealed essential policy areas: Fund Balance Reserves Asset Management Debt Management Investments Cost Allocation Additionally add to the list: Purchasing & Disbursement 2

3 Identify your fiscal policy objectives What s your financial policy needs? Local goals and objectives for sound financial health? Debt level and capacity Investment approach or, only meet Audit requirements? Would a comprehensive set of financial policies better meet the needs of your entity that includes all of the cores areas plus? Budgeting Accounting, auditing and financial reporting Revenues and Expenditures Consider the impacts of too much control vs. too little policy control. Flexibility vs. Accountability Accountability vs. Flexibility Accountability Will affect efficiency Investment Debt Reserves Revenue & Expenditure Operational Budgeting Capital Budgeting Flexibility 3

4 Developing policies that meets the needs of your entity Using the guidance provided by participants and outside sources such as MRSC and GFOA Have a Conversation Thoughtful discussion allows best policies to emerge The policies developed will be the guardrails for staff, management and elected officials to follow in the future Set scope and timeline Identify which funds will be included within the policies, not all funds should be included Identify participants in the development process Finance committee members? Management? Staff? Identify resources to be used to assist with development Long range financial outlook GFOA best practices Establish a timeline for completion to assure adoption and implementation 4

5 Debt & Investment Policies Do you currently have Debt and/or Investment policies? When was the last time that it was updated? Longer than 5 years? Time to update What format was used or should you use to get started and/or update? WPTA boiler plate and certification program for smaller entities APT US & C Debt Policy Handbook Investment Policy Program GFOA Financial Policies publications GFOA- Government Finance Review Dec Developing an Investment Policy Debt Management Policies Why develop debt management policies? Demonstrates fiscal management Articulates goals of your entity Exhibits a commitment to long-term financial planning Provides rating agencies with insight to fiscal objectives 5

6 Debt Management Key Components Key Components Scope and purpose Explain the overall objective Uses of debt When is it appropriate to use debt? Because you can does not necessarily mean that you should Pay-as-you-go or Pay-as-you-use? Length of indebtedness should it exceed the life expectancy of the asset? Types of debt GO / Revenue Limited GO / Unlimited GO what s the difference? when should they be used? Debt Management Key Components Key Components Debt limitations How much debt can you safely issue? What type of resources will repay the debt? It will determine the ability to repay Should you incorporate debt ratio s as a tool? Structure and repayment Equal installments? Front loaded? Variable rate? Issuance practices How will you select a professional service provider? What s your criteria? When is it appropriate to restructure outstanding debt? 6

7 Debt Management Policies- Additional Considerations What are other areas that should be considered? Short-term debt Define (3, 6, 9 months?) Should there be a medium term definition for equipment? Equipment needs are more impactful on budgets Interfund loans When to use? Impacts on future budgets Projections are important!! Investment Policies Why adopt investment policies? Provides a structured and transparent process to the purchase of investments Improves overall financial security Provides guidance and protection to both staff and elected 7

8 Investment Policies Key Components Scope and investment objectives Example: The purpose of this document is to identify those funds that are considered available for investment, to invest funds to the fullest extent possible, and to formalize the investment-related activities to assure the highest return with maximum security. Considerations: Identify funds to invest Objectives are: Safety, Liquidity & Return In what order? Investment Policies Key Components cont d. Delegation of authority and responsibility Designate officer responsible for implementing the policy How much discretionary authority? Select an alternate investment Officer Authorizes financial dealers and institutions Criteria for selecting RFP process? How many bids? 8

9 Investment Policies Key Components cont d. Types of investments authorized Confirm types of securities What is your entity the most comfortable with? Keep in mind the objectives of safety, liquidity and return Investment diversification and performance standards What percentage of portfolio is assigned to: LGIP U.S. Treasury bills, notes & bonds Certificates of deposit WA State & Local bonds Bonds of other states or local government Investment Policies Key Components Reporting and Oversight Frequency of reporting May depend upon oversight body Oversight bodies Management Legislative Type of Information in report Set minimum standards Recent Market conditions Returns on Investment Investment values Cost Fair Market 9

10 Financial Policy Adoption Will require several conversations that includes: Best practice guidance Past experiences Discussion of issues and influences that may come into play in the future Resolution or Ordinance (?) Will vary depending upon type of local government entity Policy Updates Annual review of financial policies to assure they are timely and still meet the needs of your entity Incorporate into the prebudget process Changes in policy could potential have fiscal impacts on the budget process. 10

11 Resources Available MRSC Financial Policies Expanded web pages in 2017 Asset Management Fund Balance and Reserves Cost Allocation Procurement and Purchasing Expanded library of sample policies and resources for policy development Additional Resources Available GFOA Financial Policies Publication A step by step approach to developing and implementing financial policies. GFOA Best Practices pdf documents available to download GFOA Government Finance Review 11