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DEBT MANAGEMENT POLICY

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DEBT MANAGEMENT POLICY Powered By Docstoc
					DEBT MANAGEMENT POLICY
     ANNUAL UPDATE

HUMBOLDT COUNTY, NEVADA




        July, 2007
                              TABLE OF CONTENTS



I.     INTRODUCTION                                                      1

II.    ABILITY TO AFFORD EXISTING GENERAL OBLIGATION DEBT,               2
       AUTHORIZED FUTURE GENERAL OBLIGATION DEBT AND PROPOSED
       FUTURE GENERAL OBLIGATION DEBT (NRS 350.013 (C)(1)). SOURCES
       OF MONEY PROJECTED TO BE AVAILABLE TO PAY EXISTING GENERAL
       OBLIGATION DEBT, AUTHORIZED FUTURE GENERAL OBLIGATION DEBT
       AND PROPOSED FUTURE GENERAL OBLIGATION DEBT (NRS 350.013
       (C)(6)).

III.   OPERATIONAL COSTS AND REVENUE SOURCES FOR THE ENSUING 5           5
       YEARS ASSOCIATED WITH EACH PROJECT INCLUDED IN ITS PLAN FOR
       CAPITAL IMPROVEMENTS, IF THOSE COSTS AND REVENUES ARE
       EXPECTED TO AFFECT THE TAX RATE (NRS 350.013 (C)(7)).

IV.    CAPACITY TO INCUR AUTHORIZED AND PROPOSED FUTURE GENERAL          5
       OBLIGATION DEBT WITHOUT EXCEEDING THE APPLICABLE DEBT LIMIT
       (NRS 350.013 (C)(2)).

V.     GENERAL OBLIGATION DEBT THAT IS PAYABLE FROM PROPERTY             6
       TAXES PER CAPITA AS COMPARED WITH SUCH DEBT OF OTHER
       MUNICIPALITIES IN THIS STATE (NRS 350.013 (C)(3)).    GENERAL
       OBLIGATION DEBT THAT IS PAYABLE FROM PROPERTY TAXES AS A
       PERCENTAGE OF ASSESSED VALUATION OF ALL TAXABLE PROPERTY
       WITHIN THE BOUNDARIES OF THE MUNICIPALITY (NRS 350.013 (C)(4)).

VI.    POLICY STATEMENT REGARDING THE MANNER IN WHICH THE LOCAL          7
       GOVERNMENT EXPECTS TO SELL ITS DEBT (NRS 350.013 (C)(5)).
I.      INTRODUCTION

Humboldt County (the “County”) has a Capital Improvement Plan (“CIP”) adopted annually by
Resolution of the Board of County Commissioners which is a multi-year planning document that
identifies and prioritizes the need for a variety of public improvements and coordinates financing and
construction time frames. The CIP is a process that provides order and continuity for the repair,
replacement, construction or expansion of the County’s capital assets. With revenue limitations in
mind, the County’s CIP focuses primarily on the County’s more immediate needs.

Legislation described herein requires local governments to prepare a debt management policy prior to
incurring general obligation debt and requires annual updates of that policy. This annual update is not
intended to review the County’s total financial position. Analysis of the County’s debt position is
important, as future growth in the County may result in an increased need for capital financing.
Resources, as well as needs, should drive the County’s debt issuance program. Decisions regarding
the use of debt will be based in part on the long-term needs of the County and the amount of equity
(cash) dedicated in a given fiscal year to capital outlay.

Listed below are excerpts from Nevada Law which require local governments to submit a debt
management policy and annual updates:

        NRS 350.013
        1. Except as otherwise provided in this section, on or before August 1 of each year, the
           governing body of a municipality which proposes to issue or has outstanding any general
           obligation debt, other general obligations or special obligations, or which levies or proposes
           to levy any special elective tax, shall submit to the Department of Taxation and the
           commission:

        …(c) A written statement of the debt management policy of the municipality, which must
        include, without limitation:
                 (1) A discussion of its ability to afford existing general obligation debt, authorized future
        general obligation debt and proposed future general obligation debt;
                 (2) A discussion of its capacity to incur authorized and proposed future general
        obligation debt without exceeding the applicable debt limit;
                 (3) A discussion of its general obligation debt that is payable from property taxes per
        capita as compared with such debt of other municipalities in this state;
                 (4) A discussion of its general obligation debt that is payable from property taxes as a
        percentage of assessed valuation of all taxable property within the boundaries of the
        municipality;
                 (5) Policy regarding the manner in which the municipality expects to sell its debt;
                 (6) A discussion of its sources of money projected to be available to pay existing
        general obligation debt, authorized future general obligation debt and proposed future general
        obligation debt; and
                 (7) A discussion of its operational costs and revenue sources, for the ensuing 5 fiscal
        years, associated with each project included in its plan for capital improvement submitted
        pursuant to paragraph (d), if those costs and revenues are expected to affect the tax rate.

        …3. Except as otherwise provided in subsection 4, the governing body of each municipality
        shall update all statements and plans required by subsection 1 not less frequency than once
        each fiscal year.




PAGE 1 – Humboldt County Debt Management Policy Update 7-1-07
II.      ABILITY TO AFFORD EXISTING, AUTHORIZED FUTURE GENERAL OBLIGAION DEBT
         AND PROPOSED FUTURE GENERAL OBLIGATION DEBT (NRS 350.013 (C)(1)).
         SOURCES OF MONEY PROJECTED TO BE AVAILABLE TO PAY EXISTING,
         AUTHORIZED FUTURE GENERAL OBLIGATION DEBT AND PROPOSED FUTURE
         GENERAL OBLIGATION DEBT (NRS 350.013 (C)(6)).

A. OUTSTANDING GENERAL OBLIGATION (Limited Tax) MEDIUM TERM EVENTS CENTER BONDS

In December 2000, Humboldt County issued $1,600,000 Medium Term Events Center Bonds for the
construction of a multi-purpose Indoor Events center to be built at the County’s fairgrounds facility. These
bonds were issued 12/29/00 and mature on 11/01/10. In July 2003, these bonds were refunded to take
advantage of lower interest rates.

The bonds are expected to be repaid from revenue derived from a 2% increase in room taxes approved by the
City and the County. In addition, private donations in excess of $200,000 have been received (committed) as
well as reserves from the Winnemucca Convention and Visitors Authority.

Room tax revenues are not pledged to secure these bonds and bondholders will not receive a lien on such
revenues.

The County has covenant in its Bond Ordinance to repay these bonds from any available legal resource
received by the County and shall appropriate, annually, the funds necessary for repayment.

Nevada statutes provide that no act concerning these bonds or their security may be repealed,
amended, or modified in such a manner as to impair materially and adversely the bonds or their
security until all of the bonds have been discharged in full or provision for their payment and
redemption has been fully made.

The following table reflects the outstanding Events Center Bonds.
         OUTSTANDING GENERAL OBLIGATION (Limited Tax) MEDIUM TERM EVENTS CENTER BONDS

                                             Humboldt County, Nevada
                                               As of June 30, 2007
           General                      Date                 Original          Outstanding         Retirement
        Obligation Debt                Issued                Amount             Principal            Date
      Events Center Bonds             12/29/00                  $1,600,000          $640,000        11/01/10

            TOTAL                                                                   $640,000


The following table reflects the Debt Service requirements for the Events Center Bonds.
                Fiscal Year                       Events Center Bonds (Refunded)
                 End 6/30               Principal               Interest       Total Amount Due
                     2001                                0                 28,548                28,548
                     2002                          160,000                 79,960               239,960
                     2003                          160,000                 71,520               231,520
                     2004                          160,000                 24,469               184,469
                     2005                          160,000                 25,792               185,792
                     2006                          160,000                 21,824               181,824
                     2007                          160,000                 17,856               177,856
                     2008                          160,000                 13,888               173,888
                     2009                          160,000                  9,920               169,920
                     2010                          160,000                  5,952               165,952
                     2011                          160,000                  1,984               161,984
                    TOTAL                       $1,600,000               $301,713            $1,901,713
PAGE 2 – Humboldt County Debt Management Policy Update 7-1-07                SOURCE: HUMBOLDT COUNTY
The following tables illustrate the County’s ability to retire the Events Center Bonds.

               ROOM TAX RECEIPTS (INCLUDING DONATIONS AND INTEREST)
                   Fiscal year                2004                           2005                     2006                      2007
                   Ended 6/30                Audited                        Audited                  Audited                  Estimated
                Room Taxes                   $19,208                    $218,887                    $248,447                 $220,000
              Interest Earnings              $1,706                       $6,861                     $14,364                   $7,000
                  Donations                  $30,350                     $29,975                       $0                       $0
                    Total                   $231,084                    $255,723                    $262,811                 $227,000


        SOURCE: HUMBOLDT COUNTY

             GENERAL FUND STATEMENT OF REVENUES AND EXPENDITURES
                           HUMBOLDT COUNTY, NEVADA
                       Fiscal year                2003            2004                  2005          2006           2007
                       Ended 6/30                Audited         Audited                Actual        Actual       Estimated

                       REVENUES

        PROPERTY TAXES                          1,285,298       $1,288,745            $1,151,812    $1,213,940    $1,023,501

        LICENSES.& PERMITS                      $1,123,411      $1,152,732            $1,156,370    $1,439,772    $1,186,000

        INTERGOVERNMENTAL                       $4,939,884      $5,586,790            $6,476,804    $7,664,600    $5,557,556

        CHARGES FOR SERVICES                    $360,612        $380,545               $470,363      $443,941      $366,300

        FINES & FORFEITS                        $656,060        $682,561               $509,799      $737,874      $625,000

        MISCELLANEOUS                           $228,304        $196,956               $287,670      $512,958      $272,500

        TOTAL REVENUES                          $8,593,569      $9,288,329            $10,152,818   $12,013,085   $9,030,857

                    EXPENDITURES

        GENERAL GOVERNMENT                      $3,185,195      $3,437,173            $3,537,995    $3,991,314    $4,523,825

        PUBLIC SAFETY                           $3,681,424      $3,703,043            $3,730,176    $4,374,989    $4,583,450

        JUDICIAL                                $1,341,231      $1,319,050            $1,420,152    $1,622,099    $1,958,518

        PUBLIC WORKS                             $16,756         $17,107               $19,081       $19,946        $32,000

        HEALTH                                  $215,654        $224,359               $233,609      $254,012      $277,070

        CULTURE & RECREATION                      $2,500         $2,500                 $2,500        $2,500        $2,500

        COMMUNITY SUPPORT                       $280,601        $281,571               $301,164      $435,079      $354,474

        INTERGOVERNMENTAL                       $394,963        $391,381               $405,323      $474,031      $522,867

        TOTAL EXPENDITURES                      $9,118,324      $9,376,184            $9,650,000    $11,173,970   $12,254,704

        EXCESS (DEFICIENCY) OF
        REVENUES OVER EXPENDITURES              ($524,755)      ($87,855)              $502,818      $839,115     ($3,223,847)

        OTHER FINANCING SOURCES (USES)

        OPERATING TRANSFERS IN                   $365,000       $505,000               $540,063       $5,000        $5,000
                                                ($175,000)
        OPERATING TRANSFERS OUT                                         -              ($25,000)         -        $3,000,000
                                                                                                         -
        CONTINGENCY                                    -            -                      -                       $305,000

        FUND BALANCE JULY 1                     $9,125,219      $8,790,464            $9,207,609    $10,225,789   $11,069,604

        FUND BALANCE JUNE 30                    $8,790,464      $9,207,609            $10,225,489   $11,069,604   $4,545,757


        SOURCE: HUMBOLDT COUNTY

PAGE 3 – Humboldt County Debt Management Policy Update 7-1-07
III.    OPERATIONAL COSTS AND REVENUE SOURCES FOR THE ENSUING 5 YEARS
        ASSOCIATED WITH EACH PROJECT INCLUDED IN ITS PLAN FOR CAPITAL
        IMPROVEMENTS, IF THOSE COSTS AND REVENUES ARE EXPECTED TO
        AFFECT THE TAX RATE (NRS 350.013 (C)(7)).

The County’s multi-year Capital Improvement Plan (“CIP”), adopted annually by Resolution of the
Board of County Commissioners, identifies various capital projects, some of which may require
general obligation financing. Those which may require general obligation financing are discussed
below. The timing of these projects and the actual financing needs have not been determined at this
time. Prior to any of the projects being financed with long-term general obligation bonds, Humboldt
County Debt Management Commission approval would be required. Medium term bonds (10 years or
less) require Department of Taxation approval.

                                                         NONE



IV.     CAPACITY TO INCUR FUTURE GENERAL OBLIGATION DEBT WITHOUT
        EXCEEDING THE APPLICABLE DEBT LIMIT (NRS 350.013 (C)(2)).

State statues limit the aggregate principal amount of the County’s general obligation debt to 10% of the
County’s total assessed valuation. Based upon Fiscal Year 2007-08 assessed valuation of
$537,219,502 (County’s estimate.), the County’s debt limit for general obligations is $53,721,950 with
$640,000 of such debt to which the limit applies outstanding and the future financings discussed herein
as of June 30, 2007. The following table illustrates the County’s general obligation statutory debt
limitation.

                                       STATUTORY DEBT CAPACITY
                                   Humboldt County, Nevada – June 30, 2007

Statutory Debt Limitation                                                              $53,721,950
Outstanding General Obligation Indebtedness                                                640,000
Plus: Future Financings                                                                     NONE
Total Outstanding and Future Financings                                                   $640,000
Additional Statutory Debt Limitation                                                   $53,081,950


SOURCE: HUMBOLDT COUNTY




PAGE 4 – Humboldt County Debt Management Policy Update 7-1-07
    V.       GENERAL OBLIGATION DEBT THAT IS PAYABLE FROM AD VALOREM TAXES PER CAPITA
             AS COMPARED WITH SUCH DEBT OF OTHER MUNICIPALITIES IN THIS STATE (NRS 350.013
             (C) (3)). GENERAL OBLIGATION DEBT THAT IS PAYABLE FROM AD VALOREM TAXES AS A
             PERCENTAGE OF ASSESSED VALUATION OF ALL TAXABLE PROPERTY WITHIN THE
             BOUNDARIES OF THE MUNCIPALITY (NRS 350.013 (C) (4)).


                                              DEBT RATIO COMPARISONS



                                                                                              GENERAL
                                                                                              OBLIGATION
                        TOTAL GENERAL                                            GENERAL      DEBT AS A
                        OBLIGATION                              ASSESSED         OBLIGATION   % OF
                        DEBT AS OF              POPULATION      VALUATION        DEBT PER     ASSESSED
          COUNTY        6-30-06                 AS OF 7-01-07   AS OF 7-01-07    CAPITA       VALUE

    HUMBOLDT            $640,000                     17,751     $537,721,950       $36.05       0.12%
    LANDER              $3,300,565                   5,655      $345,990,214       $583.65      0.95%
    DOUGLAS             $32,960,500                  51,770     $3,396,804,161     $636.67      0.97%
    ELKO                $2,649,000                   48,339     $1,060,626,160     $54.80       0.25%


    SOURCE: DEPARTMENT OF TAXATION 2007-2008 FINAL BUDGET ESTIMATES & COUNTY FINANCE
    OFFICES.

    VI.      A POLICY STATEMENT REGARDING THE MANNER IN WHICH THE LOCAL GOVERNMENT
             EXPECTS TO SELL ITS DEBT (NRS 350.013 (C) (5)).

There are two ways bonds can be sold: competitive (public) or negotiated sale. The Government Finance
Officers Association urges “competitive sales should be used to market debt whenever feasible.”
Competitive and negotiated sales provide for one or more pricings, depending upon market conditions
or other factors. Either method can provide for changing issue size, maturity amounts, term bond
features, etc. The timing of competitive and negotiated sales is generally related to the requirements
of the Nevada Open Meeting Law.

Competitive Sale – With a competitive sale, any interested underwriter(s) is invited to submit a
proposal to purchase an issue of bonds. The bonds are awarded to the underwriter(s) presenting the
best bid according to stipulated criteria set forth in the notice of sale. The best bid is usually
determined based on the lowest overall interest rate. Competitive sales should be used for all issues
unless circumstances dictate otherwise.

Negotiated Sale – A securities sale through an exclusive arrangement between the issuer and an
underwriter or underwriting syndicate. At the end of successful negotiations, the issue is awarded to
the underwriters.

Negotiated underwriting may be considered based on one or more of the following criteria:

         Extremely large issue size.

PAGE 5 – Humboldt County Debt Management Policy Update 7-1-07
       Complex financing structure (i.e., variable rate financings, new derivatives and certain revenue
        issues, etc.) Which provides a desirable benefit to the County.
       Comparatively lesser credit rating.
       Other factors which lead the County to conclude that a competitive sale would not be effective.

Miscellaneous

Debt Service Fund Balance - A debt service fund balance provides a ready reserve to meet current
debt service payments should moneys not be available from current revenues. It is the County’s
policy to strive for a debt service fund balance equal to one year of principal and interest on its voter-
approved debt.

Refundings – A refunding is generally the underwriting of a new bond issue whose proceeds are used
to redeem an outstanding issue. Key definitions are described as follows:

        Advance Refunding – A method of providing for payment of debt service on a bond until the
        first call date or designated call date from available funds. Advance refundings are done by
        issuing a new bond or using available funds and investing the proceeds in an escrow account
        in a portfolio of U.S. government securities structured to provide enough cash flow to pay debt
        service on the refunded bonds.

        Current Refunding – The duration of the escrow is 90 days or less.

        Gross Savings – Difference between debt service on refunding bonds and refunded bonds
        less any contribution from a reserve or debt service fund.

        Present Value Savings – Present value of gross savings discounted at the refunding bond
        yield to the closing date plus accrued interest less any contribution from a reserve or debt
        service fund.

Prior to beginning a refunding bond issue the County will review an estimate of the savings achievable
from the refunding. The County may also review a pro forma schedule estimating the savings
assuming that the refunding is done at various points in the future.


The County will generally consider refunding outstanding bonds if one or more of the following
conditions exist:

        1.       Present value savings are at least 3% of the par amount of the refunding bonds.
        2.       The bonds to be refunded have restrictive or outdated covenants.
        3.       Restructuring debt is deemed to be desirable.

The County may pursue a refunding not meeting the above criteria if:

        1.       Present value of savings exceed the costs of issuing the bonds.
        2.       Current savings are acceptable when compared to savings that could be achieved
                 by waiting for more favorable interest rates and/or call premiums.

Debt Structuring

        Maturity structures – The term of County debt issues should not extend beyond the useful life
        of the project or equipment financed. The repayment of principal on tax supported debt should
PAGE 6 – Humboldt County Debt Management Policy Update 7-1-07
        generally not extend beyond 20 years unless there are compelling factors which make it
        necessary to extend the term beyond this point.

        Debt issued by the County should be structured to provide for generally level debt service.
        Deferring the repayment of principal should be avoided except in select instances where it will
        take a period of time before project revenues are sufficient to pay debt service.

        Bond Insurance – Bond insurance is an insurance policy purchased by an issuer or an
        underwriter for either an entire issue or specific maturities, which guarantees the payment of
        principal and interest. This security provides a higher credit rating and thus a lower borrowing
        cost for an issuer.

        Bond insurance can be purchased directly by the County prior to the bond sale (direct
        purchase) or at the underwriter’s option and expense (bidder’s option). The County will
        attempt to qualify its bond issues for insurance with bond insurance companies rated AAA by
        Moody’s Investors Service and Standard & Poor’s Corporation.

        The decision to purchase insurance directly versus bidder’s option is based on:

                volatile markets
                current investor demand for insured bonds
                level of insurance premiums
                ability of the County to purchase bond insurance from bond proceeds

        When insurance is purchased directly by the County, the present value of the estimated debt
        service savings from insurance should be at least equal to or greater than the insurance
        premium. The bond insurance company will usually be chosen based on an estimate of the
        greatest net present value insurance benefit (present value of debt service savings less
        insurance premium).

Equal Opportunity – It is the policy of the County to provide minority business enterprises, women
business enterprises and all other business enterprises an equal opportunity to participate in the
performance of all County contracts. At competitive sale, bidders are requested to assist the county
in implementing this policy by taking all reasonable steps to ensure that all available business
enterprises, including minority and women business enterprises have an equal opportunity to
participate in County contracts.




PAGE 7 – Humboldt County Debt Management Policy Update 7-1-07

				
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