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DEBT ISSUANCE AND MANAGEMENT

BOARD POLICY - 3470

I. PURPOSE AND GOALS:

The Irvine Unified School District (IUSD) Governing Board is committed to long-term capital and financial planning and recognizes that the issuance of debt is a key source for funding the construction of new facilities as well as the improvement and maintenance of school facilities and managing cash flow. Any debt issued by the District shall be consistent with law and this policy.

This Debt Issuance and Management Policy provides written guidelines for the issuance of indebtedness by IUSD, and any related entity for which the IUSD Governing Board acts as the legislative body, in satisfaction of S.B. 1029, codified as part of Government Code Section 8855. References herein to the District shall, where applicable and not inconsistent herewith or with applicable provisions of law, be deemed to refer to related entities for which the IUSD Governing Board acts as the legislative body.

This policy provides a framework for debt management and capital planning by the District and has been developed to meet the following goals:

  1. Identifying the purposes for which the debt proceeds may be used;
    (b) Identifying the types of debt that may be issued;
    (c) Describing the relationship of the debt to, and integration with, the District’s Capital Improvement Program and Budget;
    (d) Establishing policy goals related to the District’s planning goals and objectives;
    (e) Implementing internal control procedures to ensure that the proceeds of the proposed debt issuance will be directed to the intended use upon completion of the issuance.

II. PURPOSES FOR WHICH DEBT PROCEEDS MAY BE USED:

The laws of the State of California (the “State”) authorize the District to incur debt to make lease payments, contract debt, borrow money, and issue bonds for school improvement projects. The District is authorized to contract debt to acquire, construct, reconstruct, rehabilitate, replace, improve, extend, enlarge, and equip such projects; to refund existing debt; or to provide for cash flow needs.

III. TYPES OF DEBT THAT MAY BE ISSUED AND DEBT STRUCTURE:

The Superintendent or designee shall recommend to the Governing Board potential financing method(s) that result in the highest benefit to the District, with the cost of staff and consultants considered. Potential financing sources may include:

  1. Short-Term Debt:
  1. Short-term debt, such as tax and revenue anticipation notes (TRANs), when necessary to allow the District to meet its cash flow requirements (Government Code 53850-53858);
    b. Bond Anticipation Notes (BANs) to provide interim financing for capital bond projects that will ultimately be paid from General Obligation (GO) Bonds (Education Code 15150);
    c. Grant Anticipation Notes (GANs) to provide interim financing pending the receipt of grants and/or loans from the State or federal government that have been appropriated and committed to the District (Government Code 53859-53859.08);
  1. Long-Term Debt:
  1. GO Bonds for projects approved by voters (California Constitution, Article 13A, Section 1; Education Code 15100-15262, 15264-15276; Government Code 53506-53509.5);
    b. Special Tax Bonds issued pursuant to the Mello-Roos Community Facilities Act of 1982 (Government Code 53311-53368.3);
  1. Lease financing, either short term or long term, including Certificates of Participation (COPs):
  1. Lease financing to fund capital equipment purchases when pay-as-you-go financing is not feasible (Education Code 17450-17453.1);
    b. Lease financing to fund facilities projects when there is insufficient time to obtain voter approval or in instances where obtaining voter approval is either not feasible or unavailable (Education Code 17400-17429, 17456);
  1. Special financing programs or structures offered by the federal or State government, such as Qualified School Construction Bonds, Qualified Zone Academy Bonds or other tax credit obligations or obligations that provide subsidized interest payments, when the use of such programs or structures is determined to result in sufficiently lower financing costs compared to traditional tax-exempt bonds and/or COPs;
  2. Temporary borrowing from other sources such as the County Treasurer.

STRUCTURE OF DEBT ISSUES:

The Superintendent or designee shall retain a financial advisor, municipal advisor, investment advisor, and other financial services professionals as needed to assist with the structuring of the debt issuance and to provide general advice on the District's debt management program, financing options, investments, and compliance with legal requirements. Contracts for services provided by such advisors may be for a single transaction or for multiple transactions, consistent with the contracting requirements in Education Code 17596. In the event that the District issues debt through a negotiated sale, underwriters may be selected for multiple transactions if multiple issuances are planned for the same project. In addition, the District shall select a legal team on an as-needed basis to assist with debt issuances or special projects.

The District shall consider the overall impact of the current and future debt burden of the financing when determining the duration of the debt issue.

The District shall design the financing schedule and repayment of debt so as to take best advantage of market conditions, ensure cost effectiveness, provide flexibility, and, as practical, recapture or maximize its debt capacity for future use. Principal amortization will be structured to meet debt repayment, tax rate, and flexibility goals.

For new money debt issuances for capital improvements, the District shall size the debt issuance with the aim of funding capital projects as deemed appropriate by the Governing Board, as long as the issuance is consistent with the overall financing plan, does not exceed the amount authorized by voters, and, unless a waiver is sought and received from the State, will not cause the District to exceed the limitation on debt issuances specified in the California Constitution or Education Code 15102, 15106, 15268 or 15270, as applicable.

To the extent practicable, the District shall also consider credit issues, market factors, and tax law when sizing the District's bond issuance. The sizing of refunding bonds shall be determined by the amount of money that will be required to cover the principal of, any accrued interest on, and any redemption premium for the debt to be paid on the call date (or, in the case of crossover refundings, the interest on the refunding debt to the crossover date) and to cover appropriate financing costs.

Any GO Bond issued by the District shall mature within 40 years of the issuance date or as otherwise required by law (California Constitution, Article 16, Section 18; Government Code 53508.6).

The final maturity of equipment or real property lease obligations will be consistent with State Law.

METHOD OF SALE:

For the sale of any District-issued debt, the Superintendent or designee shall recommend the method of sale with the potential to achieve the lowest financing cost and/or to generate other benefits to the District. Potential methods of sale include:

  1. A competitive bidding process through which the award is based on, among other factors, the lowest offered true interest cost;
    2. Negotiated sale, subject to approval by an authorized officer of the District to ensure that interest costs are in accordance with comparable market interest rates;
    3. Private placement sale, when the financing can or must be structured for a single or limited number of purchasers or where the terms of the private placement are more beneficial to the District than either a negotiated or competitive sale.

IV. RELATIONSHIP OF DEBT TO DISTRICT CAPITAL IMPROVEMENT PROGRAM AND BUDGET:

Decisions regarding the issuance of debt for the purpose of financing capital improvement shall be aligned with needs for acquisition, development, and/or improvement of District property and facilities as identified in the District's facilities master plan or other applicable needs assessment, the projected costs of those needs, schedules for the projects, and the expected resources.

The cost of debt issued for major capital repairs or replacements shall be evaluated against the potential cost of delaying such repairs and/or replacing such facilities.

When considering a debt issuance, the Governing Board and the Superintendent or designee shall evaluate both the short-term and long-term implications of the debt issuance and additional operating costs associated with the new projects involved. Such evaluation may include, but is not limited to, the projected ratio of annual debt service to the tax burden on the District's taxpayers and the ratio of annual debt service secured by the General Fund to General Fund expenditures.

The District may enter into Credit Enhancement Agreements such as Municipal Bond Insurance, Surety Bonds, Letters of Credit, and Lines of Credit with commercial banks, municipal bond insurance companies, or other financial entities when their use is judged to lower borrowing costs, eliminate restrictive covenants, or have a net economic benefit to the financing.

INVESTMENT OF PROCEEDS:

The District shall actively manage the proceeds of debt issued for public purposes in a manner that is consistent with State Law governing the investment of public funds and with the permitted securities covenants of related financing documents executed by the District. Where applicable, the District's official investment policy and legal documents for a particular debt issuance shall govern specific methods of investment of bond-related proceeds. Preservation of principal shall be the primary goal of any investment strategy, followed by the availability of funds and then by return on investment.

With regard to GO Bonds, the District shall invest new money bond proceeds in the county treasury pool as required by law. The management of public funds shall enable the District to respond to changes in markets or changes in payment or construction schedules so as to ensure liquidity and minimize risk (Education Code 15146).

Refunding/Restructuring:
The District may consider refunding or restructuring outstanding debt if it will be financially advantageous or beneficial for debt repayment and/or structuring flexibility. When doing so, the District shall consider the maximization of the District's expected net savings over the life of the debt issuance and, when using a GO Bond to refund an existing bond, shall ensure that the final maturity of the refunding bond is no longer than the final maturity of the existing bond.

V. POLICY GOALS RELATED TO DISTRICT’S PLANNING GOALS AND OBJECTIVES:

The District's debt issuance activities and procedures shall be aligned with the District's vision and goals for providing adequate facilities and programs that support student learning and well-being. In following this policy, the District shall pursue the following goals:

  1. The District shall strive to fund capital improvements from voter-approved GO or Special Tax Bond issues to preserve the availability of its General Fund for District operating purposes and other purposes that cannot be funded by such bond issues;
  2. The District shall endeavor to attain the best possible credit rating, when appropriate, for each debt issue in order to reduce interest costs, within the context of preserving financial flexibility and meeting capital funding requirements;
  3. The District shall take all practical precautions and proactive measures to avoid any financial decision that will negatively impact current credit ratings on existing or future debt issues;
  4. The District shall, with respect to GO Bonds, remain mindful of its statutory debt limit in relation to assessed value growth within the school District and the tax burden needed to meet long-term capital requirements;
  5. The District shall consider market conditions and District cash flows when timing the issuance of debt;
  6. The District shall determine the amortization (maturity) schedule which will fit best within the overall debt structure of the District at the time the new debt is issued;
  7. The District shall match the term of the issue to the useful lives of assets funded by that issue whenever practicable and economical, while considering repair and replacement costs of those assets to be incurred in future;
  8. The District shall, when planning for the issuance of new debt, consider the impact of such new debt on overlapping debt of local, State and other governments that overlap with the District;
  9. The District shall, when issuing debt, assess financial alternatives to include new and innovative financing approaches, including whenever feasible, categorical grants, revolving loans or other State/federal aid, so as to minimize the encroachment on the District’s General Fund;
  10. The District shall, when planning for the sizing and timing of debt issuance, consider its ability to expend the funds obtained in a timely, efficient and economical manner;
  11. With respect to its Special Tax Bonds, the District shall follow its adopted local goals and policies and the Mello-Roos Act.

VI. PROCEDURES TO ENSURE PROCEEDS ARE DIRECTED TO THE INTENDED USE:

Internal Controls:

The Superintendent or designee shall establish internal control procedures to ensure that the proceeds of any debt issuance are directed to the intended use. Such procedures shall assist the District in maintaining the effectiveness and efficiency of operations, properly expending funds, reliably reporting debt incurred by the District and the use of the proceeds, complying with all laws and regulations, preventing fraud, and avoiding conflict of interest.

The District shall be vigilant in using bond proceeds in accordance with the stated purposes at the time such debt was incurred as defined in the text of the voter-approved bond measure (Government Code 53410).

When feasible, the District shall issue debt with a defined revenue source in order to preserve the use of the General Fund for general operating purposes.

The District shall annually conduct a due diligence review to ensure its compliance with all ongoing obligations applicable to issuers of debt. Such a review may be conducted by general legal counsel or bond counsel. Any District personnel involved in conducting such reviews shall receive periodic training regarding their responsibilities.

In addition, the Superintendent or designee shall ensure that the District completes, as applicable, all performance and financial audits that may be required for any debt issued by the District, including disclosure requirements applicable to a particular transaction.

RECORDS/REPORTS:

At least 30 days prior to the sale of any debt issue, the Superintendent or designee shall submit a report of the proposed issuance to the California Debt and Investment Advisory Commission (CDIAC). Such report shall include a self-certification that the District has adopted a policy concerning the use of debt that complies with law and that the contemplated debt issuance is consistent with that policy (Government Code 8855).

On or before January 31 of each year, the Superintendent or designee shall submit a report to the CDIAC regarding the debt authorized, the debt outstanding, and the use of proceeds of the issued debt for the period from July 1 to June 30 (Government Code 8855).

The Superintendent or designee shall provide initial and any annual or ongoing disclosures required by 17 CFR 240.10b-5 and 240.15c2-12 to the Municipal Securities Rulemaking Board, investors, and other persons or entities entitled to disclosure, and shall ensure that the District's disclosure filings are updated as needed.

The Superintendent or designee shall maintain transaction records of decisions made in connection with each debt issuance, including the selection of members of the financing team, the structuring of the financing, selection of credit enhancement products and providers, and selection of investment products. Each transaction file shall include the official transcript for the financing, interest rates and cost of issuance on the day when the debt was sold ("final number runs"), and a post-pricing summary of the debt issue. In addition, documentation evidencing the expenditure of proceeds, the use of debt-financed property by public and private entities, all sources of payment or security for the debt, and investment of proceeds shall be kept for as long as the debt is outstanding, plus the period ending three years after the financial payment date of the debt or the final payment date of any obligations or series of bonds issued to refund directly or indirectly all of any portion of the debt, whichever is later.

The Superintendent or designee shall annually report to the Board regarding debts issued by the District, including information on actual and projected tax rates, an analysis of bonding capacity, ratings on the District's bonds, market update and refunding opportunities, new development for California bond financings, and the District's compliance with post-issuance requirements.

Exceptions and Modifications:

The District acknowledges that the capital marketplace fluctuates, municipal finance products change from time to time, and that issuer and investor supply and demand may vary. These fluctuations may produce situations that are not anticipated or covered by this policy. As such, the Governing Board may make exceptions or modifications to this policy to achieve the debt management goals outlined above. Management flexibility is appropriate and necessary in such situations, provided specific authorization is granted by the Governing Board.

Policy Development:

The Superintendent or designee may develop additional specific elements of a debt management framework through rules and regulations which, along with this policy, shall be reviewed periodically in consideration of changing laws, District needs and market conditions.

Legal Reference:

EDUCATION CODE

5300-5441 Conduct of elections
15100-15262 Bonds for school districts and community college districts
15264-15276 Strict accountability in local school construction bonds
15278-15288 Citizen's oversight committees
15300-15425 School Facilities Improvement Districts
17150 Public disclosure of non-voter-approved debt
17400-17429 Leasing of district property
17450-17453.1 Leasing of equipment
17456 Sale or lease of district property
17596 Duration of contracts
42130-42134 Financial reports and certifications

ELECTIONS CODE

1000 Established election dates

GOVERNMENT CODE

8855 California Debt and Investment Advisory Commission
53311-53368.3 Mello-Roos Community Facilities Act
53410-53411 Bond reporting
53506-53509.5 General obligation bonds
53550-53569 Refunding bonds of local agencies
53580-53595.55 Bonds
53850-53858 Tax and revenue anticipation notes
53859-53859.08 Grant anticipation notes

CALIFORNIA CONSTITUTION

Article 13A, Section 1 Tax limitation
Article 16, Section 18 Debt limit

UNITED STATES CODE, TITLE 15

78o-4 Registration of municipal securities dealers

UNITED STATES CODE, TITLE 26

54E Qualified Zone Academy Bonds

CODE OF FEDERAL REGULATIONS, TITLE 17

240.10b-5 Prohibition against fraud or deceit
240.15c2-12 Municipal securities disclosure

CODE OF FEDERAL REGULATIONS, TITLE 26

1.103 Interest on state and local bonds
1.141 Private activity bonds
1.148 Arbitrage and rebate
1.149 Hedge bonds
1.6001-1 Records

MANAGEMENT RESOURCES:

CALIFORNIA DEBT AND INVESTMENT ADVISORY COMMISSION PUBLICATIONS
California Debt Issuance Primer
GOVERNMENT FINANCE OFFICERS ASSOCIATION PUBLICATIONS
An Elected Official's Guide to Debt Issuance, 2nd Ed., 2016
Understanding Your Continuing Disclosure Responsibilities, Best Practice, September 2015
Investment of Bond Proceeds, Best Practice, September 2014
Selecting and Managing Municipal Advisors, Best Practice, February 2014
Debt Management Policy, Best Practice, October 2012
Analyzing and Issuing Refunding Bonds, Best Practice, February 2011
INTERNAL REVENUE SERVICE PUBLICATIONS
Tax Exempt Bond FAQs Regarding Record Retention Requirements
Tax-Exempt Governmental Bonds, Publication 4079, rev. 2016
U.S. GOVERNMENT ACCOUNTABILITY OFFICE PUBLICATIONS
Internal Control System Checklist

WEB SITES

California Debt and Investment Advisory Commission: http://www.treasurer.ca.gov/cdiac
Government Finance Officers Association: http://www.gfoa.org
Internal Revenue Service: https://www.irs.gov
Municipal Security Rulemaking Board, Electronic Municipal Market Access (EMMA): http://www.emma.msrb.org
U.S. Government Accountability Office: http://www.gao.gov
U.S. Securities and Exchange Commission: https://www.sec.gov

Policy Adopted: March 21, 2017