HomeMy WebLinkAbout2013-093-11/19/2013-AMENDING THE CITY COUNCILS FINANCIAL MANAGEMENT POLICIES BY UPDATING THE REVENUE AND DEBT POLICIES S RESOLUTION 2013-093
OF THE COUNCIL OF THE CITY OF FORT COLLINS
AMENDING THE CITY COUNCIL'S FINANCIAL MANAGEMENT
POLICIES BY UPDATING THE REVENUE AND DEBT POLICIES
SECTIONS CONTAINED THEREIN
WHEREAS, in 1994, the City Council adopted Resolution 1994-174 approving certain
Financial Management Policies (the "Policies") for the City, which Policies establish guidelines
for the preparation of the annual budgets of the City and its long-range financial plans; and
WHEREAS, the City Council has periodically amended the Policies; and
WHEREAS, the City Manager and Financial Officer have recommended that the City
Council further amend the Policies to include updated details in the Revenue and Debt.Policy
sections; and
WHEREAS, the purpose of the Revenue Policy update is to include the addition of
revenue principles to'provide staff and City Council a.foundation for making sound financial
decisions, which principles call for maintaining a diverse and stable revenue base; cultivating
revenue sources that are equitable among all economic levels; placing the burden of the cost of
service on those using the services; generating adequate revenue to maintain core service levels;
and maintaining healthy reserves; and
WHEREAS, the purposes of the Debt Policy updates are to: include a revised method of
limiting government debt from "percent of General Fund" revenue to "percent of government
fund' revenue; add capacity guidelines for enterprise funds; add information about "moral
obligation pledges" and guidelines as to when such pledges may be used; add language about
maintaining the City's overall credit rating at AAA; and add refinancing gbidance; and
WHEREAS, the City Council Finance Committee has reviewed the proposed changes to
the Revenue and Debt Policies and has recommended approval of the same.
NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF
FORT COLLINS that the Financial Management Policies, as previously amended, are hereby
further amended by the incorporation of updated Revenue and Debt Policy sections, as attached
hereto as Exhibits "A" and `B" and incorporated herein by this reference.
1
Passed and adopted at a regular meeting of the Council of the City of Fort Collins this
19th day of November, A.D. 2013.
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EXHIBIT A
Financial Management Policy 2
Issue Date :
Revenue Version :
Issued by: Revenue and Project
Manager
Objective :
Monitoring and controlling revenues is important to the City of Fort Collins. Through its revenue policy, the
City primarily aims to maintain a diversified revenue system which will protect it from possible short-term
fluctuations in any of its various revenue sources. To accomplish this, revenues are monitored on a
continuous basis. An understanding of the economic and legal factors which directly and indirectly affect
the level of revenue collections is an important part of the City's revenue policy.
Applicability:
This policy applies to all City Revenues. This policy does/does not apply to or govern revenues generated by
City-owned general improvement districts.
Authorized by:
City Council
2 . 1 Limitations
The City of Fort Collins' revenue and expenditures are limited by Article X, Section 20 of the
Colorado Constitution (TABOR) . While TABOR limits both revenue and expenditures, its
primarily application is in limiting revenue collections. Growth in revenue is limited to the
increase in the Denver-Boulder- Greeley Consumer Price Index plus local growth (new
construction and annexation) . This percentage is added to the preceding year' s revenue
base, giving the dollar limit allowed for revenue collection in the ensuing year. Any revenue
collected over the limit must be refunded to the citizens unless the voters approve the
retention of the excess revenue. Federal grants or gifts to the City are not included in the
revenue limit. City enterprises (electric, water, wastewater and stormwater utilities) are
also exempt from the imposed limits . In 2003, the Golf Fund revenue sources was
considered for enterprise status for purposes of TABOR. In order for an entity to become an
enterprise, voters must approve a Charter amendment for that entity.
In November 1997, Fort Collins' voters approved a ballot measure that allows the City to
retain revenues that exceed the growth limit imposed by TABOR. The measure specified
that any retained revenues over the growth limit must be used for certain designated
purposes.
Financial Policy 2 - Revenue 1
• Public Health and Safety (including, but not limited to, environmental monitoring
and mitigation)
• Transportation
• Growth Management
• Maintenance and Repair of Public Facilities
Legal principles require that those revenues collected in excess of the growth limit from
fees charged or other legally restricted revenues must be used for the purpose for which
they were collected. In addition, such revenues must also be used for the designated
purposes approved by the voters .
2 . 2 Revenue Review, Objectives and Monitoring
A. Review and Projections
The City reviews estimated revenue and fee schedules as part of the budget process.
The major revenue sources in the General Fund are sales and use tax, property tax,
lodging tax, intergovernmental revenues, fines and forfeitures, user fees and charges,
and transfers from other funds. Conservative revenue projections are made for the
budget term. The projections are monitored and updated as necessary.
B. Principles
The City has established six ( 6) general principles that will be used to guide decisions on
revenue :
1 . Develop and maintain stable revenue sources .
The City will strive to maintain stable revenue sources by:
a. Targeting revenue sources with minimal volatility
b. Monitoring current revenue sources for variability
c. Adjusting forecasts as necessary to accommodate unanticipated
increases and declines
d. Monitoring and adjusting expenditures for unanticipated revenue
gains/losses
2 . Develop and maintain a diverse revenue base.
For all general government operations, the City will strive to maintain
diverse revenue sources. The City recognizes that becoming too dependent
upon one revenue source would make revenue yields more vulnerable to
economic cycles . Therefore, the City will strive to maintain diverse revenue
sources by:
a. Targeting revenue from multiple sources
b. Working to expand fee based revenue where possible
c. Working to minimize overdependence on any single revenue source
d. Staff will monitor dependency on sales and use tax to ensure an over
Financial Policy 2 - Revenue 2
reliance does not occur
3 . Cultivate revenue sources that are equitable among citizens of different
economic levels.
The City will strive to preserve a revenue stream that does not overburden
low income residents by:
a. Providing low income citizens with opportunities to participate in
programs through reduced fee structures and scholarships
b. Providing a Sales Tax on Food and Utility rebate to lessen the burden of
taxes and fees on low income citizens
c. Ensuring fees do not exceed cost to provide service
4. As appropriate, the burden of the cost of services will be fairly placed on those
using the services.
a. Fees for services will be based on a cost recovery model and assessed to
the users of the service when applicable
b. With the exception of services provided for the common good of the
community, service fees will be based on the need of the users and paid
by the specific users
S . Generate adequate revenue to maintain service levels in line with citizen
expectations.
The City will generate adequate revenue to maintain service levels by:
a. Ensuring fees for service do not exceed cost to provide service
b. Maintaining a cost recovery model
c. Monitoring service level performance annually through the Community
Scorecard
6. Maintain healthy reserves.
The City will maintain healthy reserves by:
a. Adhering to State mandated reserve and internal reserve policies
b. Maintaining a Tabor (State) reserve for the General Fund of 3 % or more
of the City's fiscal year spending
c. Meeting City policy for the General Fund of an additional contingency of
60 days or 17% of next year's adopted budgeted expenditures
C . Targets
The City's major source of revenue for governmental activities and more specifically for
programs within the General Fund is Sales and Use Tax. The City will monitor the
dependency on Sales and Use Tax by tracking the percentage of the General Fund and
General Government that comes from Sales and Use Tax.
Financial Policy 2 - Revenue 3
D . Monitoring
The percentages are monitored each year with the preparation of the annual financial
report. The percentages are reviewed by Council Finance Committee annually.
2 . 3 Fee Policy
As a home rule municipality, the City of Fort Collins has the ability to determine the
extent to which fees should be used to fund City facilities, infrastructure and services.
There are two kinds of fees that the City may establish : Impact Fees and Special Service
Fees . Impact fees are typically on-time charges levied by the City against new
development. The fees are based on current levels of service and act as a buy-in method
for new development. The revenue can only be used for capital infrastructure needs
created by the impact of the new development. Special service fees are charges imposed
on persons or property that are designed to defray the overall cost of the particular
municipal service for which the fee is imposed. This Policy sets forth principles for
identifying: 1) the kinds of services for which the City could appropriately impose fees ;
2) methods for calculating the percentage of costs to be recovered by such fees; and 3 )
the manner in which the fees should be allocated among individual fee payers .
A. Fees should be cost related
The amount of a fee should not exceed the overall cost of providing the facility,
infrastructure or service for which the fee is imposed. In calculating that cost, direct
and indirect costs may be included. That is :
1 . Costs which are directly related to the provision of the service; and,
2 . Support costs which are more general in nature but provide support for the
provision of the service .
B . Percentage of cost recovery
The extent to which the total cost of service should be recovered through fees
depends upon the following factors :
1 . The nature of the facilities , infrastructure or services . In the case of fees for
facilities, infrastructure as well as governmental and proprietary services, total
cost recovery may be warranted. In the case of governmental services, it may be
appropriate for a substantial portion of the cost of such services to be borne by the
City' s taxpayers, rather than the individual users of such services .
2 . The nature and extent of the benefit to the fee pavers . When a particular facility
or service results in substantial, immediate and direct benefit to fee payers, a
higher percentage of the cost of providing the facility or service should be
recovered by the fee. When a particular facility or service benefits not only the fee
Financial Policy 2 - Revenue 4
payer but also a substantial segment of the community, lower cost recovery is
warranted.
3 . The level of demand for a particular service . Because the pricing of services can
significantly affect demand, full cost recovery for services is more appropriate
when the market for the services is strong and will support a high level of cost
recovery.
4. Ease of collection. In the case of impact fees, ease of collection is generally not a
factor. In the case of fees for services, however, such fees may prove to be
impractical for the City to utilize if they are too costly to administer.
C. Establishment and Modification of Fees and Charges
Aside from user fees, (e.g. recreation classes and facility room rentals) , all fees
imposed by the City will be established by the City Council by ordinance. In the case of
impact fees, utility fees and charges, and special service fees assessed against property
the ordinance establishing the fees will determine :
1 . The level of cost that should be recovered through the fees according to the
criteria established in this Policy;
2 . An appropriate method for apportioning the cost of providing each service among
the users of the service; and,
3 . A procedure for periodically reviewing and modifying the amount of fees in order
to maintain appropriate cost recovery levels.
The amounts of these kinds of fees may be modified only by ordinance of the City
Council.
The amounts of other Special Service Fees, such as user fees charged for the use of
City facilities, may be determined by the City Manager, according to criteria
established by the City Council by ordinance, absent any provision of the City Charter
or Code to the contrary.
All fee revenues will be estimated by the City Manager and submitted to the City
Council as part of the City Manager's recommended budget.
D . Rebate Programs
If the amount of a particular fee is considered to be too high to accommodate the
needs of particular segments of the community and the public interest would be
served by adjusting the amount or manner of payment of such fees in particular
instances, the amount of the fee may be waived, rebated, or deferred as appropriate.
In the case of fees established by ordinance, the criteria for waiving, rebating, or
deferring payment of such fees shall be established by the City Council by ordinance.
Financial Policy 2 - Revenue 5
2 . 4 Sales and Use Tax Distribution
The City's Sales and Use Tax totals 3 . 00 cents, developed as follows :
1968 - General City uses 1 . 00 cent
1980 - General City uses 1 . 00 cent
1982 - General City uses 0 . 25 cent
2006 - Street Maintenance 0 . 25 cent*
2006 - Building on Basics 0 . 25 cent*
2006 - Natural Areas & Open Space 0 . 25 cent*
2011 - Keeping Fort Collins Great 0 .85 cent*
3 .85 cents
*Excluding sales of grocery food.
Revenue generated by the Sales and Use Tax will be distributed, based on adopted budgets,
in the following manner :
Subject to appropriations, actual Sales and Use Tax revenue generated by the 2 . 25 cent tax
in excess of the fixed dollar amounts listed above, will be deposited to the General Fund.
Actual sales and use tax revenue generated by the 0 . 25 cent tax for Natural Areas and Open
Space will be transferred to, and be retained in the Natural Areas Fund to be used to
acquire, operate and maintain open spaces, community separators, natural areas, wildlife
habitat, riparian areas, wetlands and valued agricultural lands and to provide for the
appropriate use and enjoyment of these areas by the citizenry, through land conservation
projects to be undertaken where there is an identifiable benefit to the residents of the City,
as determined by the City Council, either within the City or its growth management or
regionally, provided certain provisions are met.
Actual sales and use tax revenue generated by the 0 . 25 cent tax for Street Maintenance will
be deposited and retained in the Transportation Services Fund to be used to pay the costs of
planning, design, right- of-way acquisition, incidental upgrades and other costs associated
with the repair and renovation of City streets, including but not limited to curbs, gutters,
bridges, sidewalks, parkways, shoulders and medians.
Actual sales and use tax revenue generated by the 0 . 25 cent tax for Building on Basics
projects will be transferred to, and be retained in the Capital Projects Fund or
corresponding operating funds to be used to pay the costs of planning, design, right- of-way
acquisition, construction, and at least seven (7) years of operation and maintenance for
street/transportation projects and other community capital projects, identified during the
Building on Basics process, approved by the voters.
Actual sales and use tax revenue generated by the 0 . 85 cent tax for Keep Fort Collins Great
will be deposited and retained in the Keep Fort Collins Great Fund which is allocated as
follows : 33 % for street maintenance and repair; 17 % for other street and transportation
needs; 17 % for police services; 11% for fire protection and other emergency services; 11 %
for parks maintenance and recreation services; and 11 % for community priorities other
than those listed above, as determined by the City Council.
Financial Policy 2 - Revenue 6
2 . 5 Private Contributions
The City encourages the solicitation of private contributions . These services and programs
represent extra services that the City has not been able to provide to residents through its
regular revenue base. In times of revenue constraints the City may not be able to provide
the same level of service without additional support. Therefore, efforts should be made to
secure private contributions in support of these programs and services, as these
contributions are an integral part of their successful operation. With respect to TABOR, the
City's Finance Department will make a determination as to whether a contribution is a gift
and is therefore excluded from constitutional limits.
Financial Policy 2 - Revenue 7
Definitions
Governmental Services : services provided by the City for the public good such as regulating land use,
maintaining streets, and providing police and fire protection.
Impact Fees : usually one-time charges, levied by the City against new development to offset the impacts of
the new developments
Proprietary Services : services provided for the benefit and enjoyment of the residents of the City, at their
discretion, such as parks and recreation services
Special Service Fee : charges imposed on persons or property that are designed to defray the overall cost of
the particular municipal service for which the fee is imposed
Getting Help
Please contact the Revenue and Project Manager with any questions at 970.221 . 6626.
Related Policies/ References
Information about related policies or procedures, guidelines, forms, etc. Give complete references and
ensure that documents cited are readily available (i. e. either as widely distributed manuals or online). If
needed provide additional background discussion here. Reference to detailed procedures that are
recommended in order to carry out the intent of the policy.
Financial Policy 2 - Revenue 8
EXHIBIT B
Financial Management Policy 2
Issue Date :
Issuing Debt Version : 2
Issued by:
Controller/Assistant
Financial Officer
Objective :
The purpose of this policy is to establish parameters and provide guidance governing the
issuance of all debt obligations issued by the City of Fort Collins (City) .
Applicability.
This debt policy applies to all funds and Service Areas of the City and closely related agencies
such as the Downtown Development Authority (DDA) , Fort Collins Leasing Corporation and the
Fort Collins Urban Renewal Authority (URA) .
Authorized by.
City Council Resolutions 2013-XXX, Last change was authorized through adoption of the 2006-07 Budget in
November 2005.
2 . 1 Authorization for Municipal Borrowing
The City Charter (Article V. Part II) authorizes the borrowing of money and the issuance of long
term debt. The Charter and State Constitution determine which securities may be issued and when
a vote of the electors of the City and approved by a majority of those voting on the issue.
2 . 2 Purpose and Uses of Debt
Long term obligations should only be used to finance larger capital acquisitions and/or
construction costs that are for high priority projects . Debt will not be used for operating purposes .
Debt financing of capital improvements and equipment will be done only when the following
conditions exist:
a) When non- continuous projects (those not requiring continuous annual
appropriations) are desired;
b) When it can be determined that future users will receive a significant benefit from the
improvement;
c) When it is necessary to provide critical basic services to residents and taxpayers (for
example, purchase of water rights) ;
d) When total debt, including that issued by overlapping governmental entities, does not
constitute an unreasonable burden to the residents and taxpayers.
Financial Policy 2 - Issuing Debt 1
2 . 3 Types of Debt and Financing Agreements
The types of debt permitted are outlined in State statute. The City will avoid derivative type
instruments . In general the following debt types are used by the City:
a) General obligation bonds - backed by the credit and taxing power of the City and not
from revenues of any specific project. Colorado law limits general obligation debt to
10 % of the City's assessed valuation. Under TABOR this type of debt must approved by
voters .
b) Revenue Bonds - issued and backed by the revenues of a specific project, tax
increment district (TIF), enterprise fund, etc. The holders of these bonds can only
consider this revenue source for repayment. TABOR does not require that voters
approve these types of debt.
c) Lease Purchase - issued whereby the asset acquired is used as collateral. Examples
include Certificates of Participation (COP), Assignment of Lease Payments (ALP) and
equipment leases. TABOR does not require that voters approve these types of
agreements .
d) Moral Obligation Pledge - Is a pledge to consider replenishing a debt reserve fund of
another government agency if the reserve was used to make debt payments. This
type of commitment will only be used to support the highest priority projects, or
when the financial risk to the City does not increase significantly, or when the City's
overall credit rating is not expected to be negatively impacted. Because it is a pledge
to consider replenishing, it is not a pledge of the City's credit, and as such is not a
violation of State statutes and City Charter. However, decision makers should keep
in mind that not honoring a Moral Obligation Pledge will almost certainly negatively
impact the City's overall credit rating. TABOR does not require that voters approve
these types of agreements .
e) Interagency Borrowing - issued when the credit of an agency (DDA, URA) of the City
does not permit financing at affordable terms . Usually used to facilitate a project
until the revenue stream is established and investors can offer better terms to the
agency. Program parameters are outlined in City's Investment Policy. TABOR does
not require that voters approve these types of agreements .
f) Conduit Debt - Typically limited to Qualified Private Activity Bonds (PAB) defined
by the IRS and limited to the annual allocation received from the State. Low income
housing is one example of a qualified use of PAB . There is no pledge or guarantee to
pay by the City.
g) Any other securities not in contravention with City Charter or State statute .
2 . 4 Debt Structure and Terms
The following are guidelines, and may be modified by the City to meet the particulars of the
Financial Policy 2 - Issuing Debt 2
financial markets at the time of the issuance of a debt obligation :
a) Term of the Debt: The length of the financing will not exceed the useful life of the asset
or average life of a group of assets, or 30 years, whichever is less . Terms longer than
20 years should be limited to the highest priority projects.
b) Structure of Debt: Level debt service will be used unless otherwise dictated by the
useful life of the asset(s) and/or upon the advice of the City' s financial advisor.
c) Credit Enhancements : The City will not use credit enhancements unless the cost of the
enhancement is less than the differential between the net present value of the debt
service without enhancement and the net present value of the debt service with the
enhancement.
d) Variable Rate Debt: The City will normally not issue variable rate debt, meaning debt
at rates that may adjust depending upon changed market conditions. However, it is
recognized that certain circumstances may warrant the issuance of variable rate debt,
but the City will attempt to stabilize the debt service payments through the use of an
appropriate stabilization arrangement.
e) Derivative type instruments and terms will be avoided.
f) Interest during construction will be capitalized when the debt is in an enterprise fund .
2 . 5 Refinancing Debt
Refunding of outstanding debt will only be done if there is a resultant economic gain regardless of
whether there is an accounting gain or loss, or a subsequent reduction or increase in cash flows.
The net present value savings shall be at least 3 %, preferably 5 % or more. In an advanced
refunding (before the call date), the ratio of present value savings to the negative arbitrage costs
should be at least 2 .
2 . 6 Debt Limitations and Capacity
Debt capacity will be evaluated by the annual dollar amount paid and the total amount outstanding
with the goal to maintain the City's overall issuer rating at the very highest rating, AAA. Parameters
are different for Governmental Funds, Enterprise Funds, and Related Agencies.
a. Governmental Funds - Annual debt service (principal and interest) will not exceed
5 % of annual revenues . For calculation, revenues will not include internal charges,
transfers and large one-time grants . Outstanding debt in relation to population and
assessed value will be monitored.
b . Enterprise Funds - Each fund is unique and will be evaluated independently. Each
funds debt will be managed to maintain a credit score of at least an A rating. These
funds typically issue revenue bonds and investors closely watch revenue coverage
ratio . Coverage ratios are usually published in the Statistical Section of the City's
Financial Policy 2 - Issuing Debt
Comprehensive Annual Financial Statement.
c. Related Agencies - Each agency will be evaluated independently, taking into account
City Charter, State statutes, market conditions and financial feasibility.
2 . 7 Debt Issuance Process
When the City utilizes debt financing, it will ensure that the debt is soundly financed by:
a) Selecting an independent financial advisor to assist with determining the method of
sale and the selection of other financing team members
b) Conservatively projecting the revenue sources that will be used to pay the debt;
c) Maintaining a debt service coverage ratio which ensures that combined debt service
requirements will not exceed revenues pledged for the payment of debt.
d) Evaluating proposed debt against the target debt indicators.
2A Other
Debt Management - The City will also have an Administrative Policy and Procedure that
includes guidance on :
a) Investment of bond proceeds
b) Market disclosure practices to primary and secondary markets, including annual
certifications
c) Arbitrage rebate monitoring and filing
d) Federal and State law compliance practices
Getting Help
Please contact the Controller/Assistant Financial Officer with any questions at 970.221 . 6772
Related Policies/ References
' • The City of Fort Collins Charter (Article V. Part II)
Financial Policy 2 - Issuing Debt 4
e) Ongoing market and investor relations efforts
Definitions
Conduit Debt: when a government agency issues municipal securities to raise capital for revenue-
generating projects where the fundsgenerated are used by a third party (known as the "conduit
borrower ') to make payments to investors.. If a projectfails and the security goes into default, it
falls to the conduit borrower's financial obligation, not the conduit issuer (City). Common types of
conduit financing include industrial development revenue bonds (IDRBs), private activity bonds and
housing revenue bonds (both for single-family and multifamily projects). Most conduit-issued
securities are for projects to benefit the public at large (i. e. airports, docks, sewage facilities) or
specific population segments (i. e. students, low-income home buyers, veterans).
Credit Enhancements : is usually bond insurance, but can be also subordination of other debt, reserve
accounts, or other types of collateral.
Agency: although the term is not normally used by local governments, an agency is an organization created
by the City with separate powers and authorities.
Debt Service Coverage Ratio : is a common measure of the ability to make debt service payments. The
formula is net operating income (operating revenue - operating expense) divided by debt service
(annual principal and interest)
Financial Policy 2 - Issuing Debt 5