HomeMy WebLinkAboutOrd 1033-2023-02 Adopting Financial PoliciesCITY OF ANNA, TEXAS
ORDINANCE NO. j 033 - - 02"3-O�
AN ORDINANCE OF THE CITY OF ANNA, TEXAS ADOPTING FINANCIAL POLICIES
WHEREAS, the City of Anna, Texas (the "City") is committed to principles and practices
of open and fair government that honor the public trust; and,
WHEREAS, the City of Anna, Texas City Council ("City Council") has determined that it
is in the interest of the neighbors of Anna to adopt Financial Policies that establish policies
and procedures to govern the management and care of public funds required for
operation of the City;
BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF ANNA, TEXAS THAT:
SECTION 1. Recitals Incorporated.
The above -referenced recitals are incorporated herein as if set forth in full for all
purposes.
SECTION 2. Financial Policy Adoption.
The Council hereby approves the Financial Policies attached hereto as Exhibit 1 and
incorporated herein for all purposes.
Section 3. Savings, Severability and Repealing Clauses.
All ordinances of the City in conflict with the provisions of this ordinance are repealed to
the extent of that conflict. If any section, subsection, sentence, clause, or phrase of this
ordinance, or its application to a particular set of persons or circumstances, is declared
invalid or adjudged unconstitutional by a court of competent jurisdiction, it does not
affect the remaining portions of this ordinance, as the various portions and provisions of
this ordinance are severable. The City Council, declares that it would have passed
each and every part of this ordinance notwistanding the omission of any part that is
declared invalid or unconstitutional.
Section 4. Effective Date
This ordinance shall become effective after its passage and upon the posting and/or
publication, if required by law.
PASSED AND APPROVED by the City Council of the City of Anna, Texas, this, the 14th
day of February, 2023.
ORD. PAGE 1 OF 2
ATTESTED: .4_as a2 s �% _/L &2ze2
Carrie L. Land, City Secretary
APPROVED: A�
ORD. PAGE 2 OF 2
,or
THE CITY OF
manna
City of Anna, Texas
Financial Policies
Adopted: February 14, 2023
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FINANCIAL POLICIES
The City of Anna, Texas financial policies set forth the basic framework for the fiscal
management of the City. These policies are to ensure consistency in the City's financial
processes related to revenue, expenditures, purchasing, accounting, investing, fiscal
management, internal controls, and fund balance, as well as integrity, communication, prudent
stewardship, planning, accountability, and full disclosure. These policies are intended to:
A. Assist the City to ensure long-term financial stability and a healthy financial position;
B. Assist the City Council and City staff in evaluating current activities and proposals for
future programs;
C. Demonstrate to the Neighbors of Anna, the investment community, and the bond rating
agencies that the City is committed to strong fiscal operations;
D. Fairly present and fully disclose the financial position of the City in conformity with
accounting practices generally accepted in the United States of America; and
E. Demonstrate compliance with finance -related legal and contractual issues in accordance
with the Texas Local Government Code and other related legal mandates upon the City.
The policies are to be reviewed on an annual basis and modified to accommodate changing
circumstances and conditions.
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TABLE OF CONTENTS
I.
ACCOUNTING, AUDITING, AND FINANCIAL REPORTING ......................
4
II.
INTERNAL CONTROLS ................ .............................................
S
III.
CASH HANDLING............................................................................7
IV.
ANNUAL BUDGET PROCESS.............................................................10
V.
BUDGET ADMINISTRATION..............................................................12
VI.
ASSET MANAGEMENT.....................................................................16
VII.
FIXED ASSETS................................................................................17
VIII.
FUND BALANCE AND WORKING CAPITAL RESERVE POLICY ................. I S
TX.
DEBT MANAGEMENT POLICY...........................................................21
X.
POST ISSUANCE COMPLIANCE FOR TAX EXEMPT DEBT .......................30
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FINANCIAL MANAGEMENT POLICIES
ACCOUNTING, AUDITING, AND FINANCIAL REPORTING
A. Accounting
The Finance Director and Accounting Manager are responsible for establishing and
maintaining the chart of accounts and for properly recording financial transactions.
B. Funds
The accounts of the City are organized and operated on the basis of funds and account
groups. Each fund is created for a specific purpose except for the General Fund. The General
Fund is used to account for all transactions not accounted for in other funds. Fund
accounting is used to aid management in demonstrating compliance with finance -related
legal and contractual provisions.
The City's annual budget shall be prepared and adopted on a basis consistent with generally
accepted accounting principles for all governmental and proprietary funds except the capital
projects funds, which Council approves project -length budgets.
Account balances shall be reported on the modified accrual basis of accounting within the
General Fund and other governmental funds and the accrual basis of accounting in the
Utilities Fund.
C. External Auditing
The City will be audited annually by an outside independent auditing firm or other times as
may be deemed necessary.
1. External Auditor Repute — The auditors must be a CPA and must demonstrate that they
have the breadth and depth of staff to conduct the City's annual audit in accordance with
generally accepted auditing standards, generally accepted government auditing
standards, and contractual requirements.
2. Timing - An annual independent audit will be completed and filed with the City
Secretary within one hundred eighty (180) days from the completion of each fiscal year,
the results of which shall be presented to and approved by the City Council.
3. Financial Statements - The financial statements to the City are to be prepared in
conformity with generally accepted accounting principles (GAAP) in the United States
of America as applied to governmental units. The Governmental Accounting Standards
Board (GASB) is the accepted standard -setting body for establishing governmental
accounting and financial reporting principles.
4. Management Letter — The external auditor will prepare and review the Management
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Letter with the City Council within 180 days from the end of the fiscal year. The external
auditor will present and review the audit with City Council at a regular scheduled
meeting.
5. Rotation of External Auditor - As stated in the City Charter, the City shall not use the
same firm for more than five consecutive years.
D. External Financial Reporting
The City will prepare and publish a Comprehensive Annual Financial Report (CAFR). The
CAFR will be prepared in accordance with generally accepted accounting principles and
will be presented annually to the Government Finance Officers Association (GFOA) for
evaluation and awarding of the Certification of Achievement for Excellence in Financial
Reporting. The CAFR will be published and presented to the City Council within 180 days
after the end of the fiscal year.
E. Internal Financial Reporting
The Finance Department will monitor revenues and expenditures as compared to current
year budgets and investigate any variances found. Staff will prepare internal financial
reports on a monthly basis sufficient for management and Council to plan, monitor, and
control the City's fiscal affairs. This report will compare previous year-to-date (YTD)
actuals to current YTD actuals of the same quarter, as well as percentage of budget
remaining.
In addition, a more detailed analysis and report will be completed on a quarterly basis and
provided to the City Manager and City Council. The report shall accurately reflect the City's
current position in regard to revenue and expenditure performance, as well as any additional
information that reflects the City's current and future fiscal position.
F. Bank Depository
The City shall select a bank depository that will meet the needs of the City and comply with
all state laws governing such depositories and the management and safeguarding of public
funds. The City shall issue a request for proposals/qualifications for the bank depository
services every five years, or more often if necessary. However, said requirements shall not
restrict the number of years, either cumulatively or consecutively, that any bank depository
shall be used. Depositories shall be selected on a number of criteria, including but not
limited to, ability to comply with state and local statutes, customer service, hours of
operation, yield on deposits, geographic proximity to City Hall, services offered, etc.
II. INTERNAL CONTROLS
A. Written Procedures
1. The City shall maintain an environment conducive to good internal control.
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2. Definitions
Internal Control comprises the plan of organization and all of the coordinated methods and
measures adopted within the City to safeguard its assets, check the accuracy and reliability of its
assets, check the accuracy and reliability of its accounting data, promote operational efficiency,
and encourage adherence to prescribed managerial policies. (This is the broad definition,
recognizing that a "system" of internal control extends beyond those matters which relate
directly to the accounting and finance functions. Source: AICPA SAS). This broad definition can
be subdivided into two components; accounting and administrative, as follows:
a. Accounting controls comprise the plan of organization and all the methods and procedures
that are concerned mainly with, and relate directly to, the safeguarding of assets and the
reliability of the financial records.
b. Administrative controls comprise the plan of organization and all the methods and
procedures that are concerned mainly with operational efficiency and adherence to managerial
policies and usually relate only indirectly to the financial records.
This policy is concerned primarily with the "Accounting Controls" and when the terms "internal
controls" or "controls" are used, it is meant as Accounting Controls.
3. Responsibilities
The Finance Department is responsible for designing appropriate controls for the departments
and the departments are responsible for implementation. Inherent in these responsibilities is the
recognition that the cost of internal control should not exceed the benefits expected to be derived.
Also, internal controls may become inadequate as conditions change, thus requiring review and
modification.
4. Objectives
To provide management with reasonable, but not absolute, assurance that assets are safeguarded
against loss from unauthorized use or disposition, and that transactions are executed in
accordance with management's authorization and recorded properly to permit the preparation of
general-purpose financial statements in accordance with generally accepted accounting
principles.
5. Basic Elements of Internal Control
a. Personnel - Objectives are dependent on competence and integrity of personnel,
independence of assigned functions, and their understanding of prescribed procedures.
b. Computer Data Processing - Control over development, modification, and maintenance of
computer programs; control over use and changes to data maintained on computer files;
application controls, for example, edits that verify vendor numbers for check writing.
c. Segregation of Duties - Procedures designed to detect errors and irregularities should be
performed by persons other than those who are in a position to perpetrate them.
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d. Execution of Transactions - There is reasonable assurance that transactions are executed as
authorized.
e. Recording of Transactions - To permit preparation of financial statements, transactions are
recorded in the proper period, amounts, and classification.
f. Access to Assets - Both direct physical access and indirect access through
preparation/processing of documents that authorize the use or disposition of assets be limited
to authorized personnel.
g. Comparison of Recorded Accountability with Assets - Comparison of actual assets with the
recorded accountability, such as bank reconciliations and physical inventories.
Accounting will utilize these basic elements of internal control in formulating departmental plans
suitable to each department's needs. An annual review of the plans will be performed and
modifications made as required (or as a result of internal or external audits).
B. Internal Audit Program
1. Committee - An internal audit committee, consisting of the Finance Director,
Accounting Manager, and Budget Manager will be established. Annually, the Internal
Audit Committee will review the administrative directives for any process improvements
or changes and submit them for approval to the City Manager
2. Departmental Audits — Departmental processes will be reviewed on an on -going basis to
ensure dual control of City assets and to identify the opportunity for fraud potential, as
well as to ensure that departmental internal procedures are documented and updated as
needed.
3. Employee or Transaction Review — Programs to be audited include petty cash (cash
drawers), city credit card accounts, time entry, and travel expense. Discrepancies will
be identified and remedied. The Department Director will be notified of the situation
and, in cases of serious infractions, the City Manager will also be notified as well.
C. Department Director's Responsibility
Department Director's responsibilities to the City are to ensure that good internal controls
are followed throughout his or her department, that all guidelines on cash handling and
internal controls are implemented, and that all internal or external auditor internal control
recommendations are addressed.
III. CASH HANDLING
A. Purpose
The Cash Handling Policy is meant to provide City of Anna employees with guidelines on
handling cash from the initial point of collection through depositing and the reconciliation
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process. Well managed cash handling is critical to safeguard the liquid assets of the City
of Anna, provides a sound basis for generating accurate and reliable information and
encourages adherence to federal and State of Texas laws and regulations. Finally, well
managed cash handling promotes departmental efficiency and encourages employees who
handle cash and interface with the public to provide courteous and outstanding customer
service and support while safeguarding public funds.
B. Basic Cash Handling Principles:
All monies in the possession of City of Anna employees must be managed with the utmost
care and understanding of the public trust given when handling public money. It is
expressly understood that public monies require employees to use their best judgement
when processing and depositing cash they are responsible for.
Employees should consider the following when handling cash:
• Are funds safely kept?
• Are transactions promptly processed?
• Am I providing high levels of customer service?
• Are funds being reconciled accurately?
• Do my actions pose any risk of loss or theft of public funds?
In consideration of the basic principle outlined above, the following directives are set forth
to ensure the proper safeguarding and processing of public funds.
All monies prepared for deposit shall not be commingled with or used in the following
ways:
• Employees' personal money
• Cashing employee personal checks
• Making personal change for City employees
• Combining deposits with another employees' cash drawer onto a single report
Employees who are authorized to handle cash shall be issued their own individual cash
box/drawer/register. The Finance Director is authorized to open and review any cash box
at any time against the daily transactions. This will only be done in the presence of at least
two other employees. It is expected that any employees collecting cash are held accounting
for the transactions they handle. It should be possible to accurately determine the amount
of cash for which each employee is responsible for at any point in time during any day.
Cash boxes/drawers/registers shall always be locked when unattended or not in use and
prior to securing in their department safe at the close of each business day.
Employees shall verify and balance in their box and prepare a report of transactions each
day when preparing their daily deposit.
C. Processing Transactions:
Cash received in person from a payer by a City employee shall be kept in view of and
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counted in front of the payer until the receipt is issued to the payer and the payer is satisfied.
The City cashier employee shall count change due to the customer/payer twice - once to
himself and once back to the payer.
A receipt represents proof of payment and employees shall issue a receipt for every payment
they receive. Receipts that are computer -generated shall indicate the payment method (i.e.
cash, check, money order, etc.). Payments are entered in the Cash Receipts Entry Screen in the
current Computer Software System. All hand-written receipts shall be maintained in a receipt
book with carbon copies maintain for inspection and inclusion with deposit reports. Hand-
written receipts are not preferred and should only be used in rare events when the software
system is down or to provide greater service and expediency to a customer.
Checks must be made payable to the City of Anna. The City cannot accept third -party checks.
Employees should review checks carefully to determine the legal amount of the check. If the
numeric amount on the check differs from the written amount, the written amount prevails as
the legal amount. If the check includes only a numeric amount, the numeric amount is the legal
amount. Employees are not permitted to change any amounts on a check.
Whenever a payment is received, it is expected that the payment will be processed and prepared
for deposit within 24 hours.
D. Deposits:
At the conclusion of each day all cash and checks shall be secured in each respective
employees' cash boxes/drawer and placed in a safe until the bank deposit is prepared. A bank
deposit that includes the previous day's cash collections for all departments is hand -delivered
to the finance department each morning by 9:00 a.m. Upon receipt of all cash for deposits,
finance department will provide all deposits to the Utility Billing Supervisor to take to the bank
for processing each morning.
Unless expressly authorized by the City Manager of Finance Director no employees shall hold
any payment for any reason. All payments are expected to be prepared for deposit within 24
hours of receipt. The City of Anna does not hold checks in anticipation of providing a refund.
The practice of holding payments for a refund is strictly prohibited and considered a poor
safekeeping of public funds. If an employee is found to engage in this practice there may be
cause for disciplinary action. This applies to all services provided by the City of Anna, i.e.,
utility billing, parks fees, building & permit fees, etc.
E. Reconciliations:
Each employee authorized to handle cash shall prepare a daily reconciliation of his/her cash
box. Amounts received, receipts issued and actual monies deposited must be reconciled each
day.
The total of all cash, checks, money orders and credit card received must equal the total amount
of receipts issued to customers. A Notice of Error Statement —Cash Overage or Shortage Form
must be prepared and given to the Finance Director in the event of a money overage or shortage
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discrepancy. This Form must contain the date, employee's name, type of payment, overage or
shortage amount, explanation as to what caused the error(s) and be signed by the applicable
employee and Director of Finance.
IV. ANNUAL BUDGET PROCESS
Budgeting is an essential element of the financial planning, control, and evaluation process of
municipal government. The budget shall be prepared on the basis of priorities outlined by the
City Council and the City Manager in the Strategic Plan. In addition, the budget shall be prepared
and presented to meet the requirements of Section 102 of the Texas Local Government Code.
A. Fiscal Year
The fiscal year of the City begins on the first day of October and ends on the last day of
September on the next succeeding year. Such fiscal year also constitutes the budget and
accounting year.
B. Submission of Budget and Budget Message
On or before the 15th day of August of the fiscal year, the City Manager must submit to
the City Council a budget for the ensuing fiscal year and an accompanying budget message.
C. Budget Message
The City Manager's message must explain the budget both in fiscal terms and in terms of
the work programs. It must outline the proposed financial policies of the City for the
ensuing fiscal year, describe the important features of the budget, indicate any major
changes from the current year in financial policies, expenditures, and revenues together
with the reasons for such changes, summarize the City's debt position and include such
other material as the City Manager deems desirable.
D. Budget a Public Record
The budget and all supporting schedules must be filed with the person performing the
duties of City Secretary when submitted to the City Council and must be open to public
inspection by anyone interested.
E. Public Hearing on Budget
The City Council shall hold a public hearing on the proposed budget. Any person may
attend and may participate in the hearing. The hearing will be held after the 151h day after
the date the proposed budget is filed with the City Clerk but before the date the City Council
makes its tax levy.
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Notice of the date, time, and location of the hearing will be published not earlier than the
301h or later than the 10`h day before the public hearing in at least one newspaper of general
circulation in the county.
The notice will include, in type of a size at least equal to the type used for other items in
the notice, the statement "This budget will raise more total property taxes than last year's
budget by (insert total dollar amount of increase and percentage increase), and of that
amount (insert amount computed by multiplying the proposed tax rate by the value of new
property added to the roll) is tax revenue raised from new property added to the tax roll
this year."
F. Adoption of Budget
At the conclusion of the public hearing, the City Council shall take action on the proposed
budget. A vote to adopt the budget must be a record vote.
Adoption of a budget that will require raising more revenue from property taxes than in the
previous year requires a separate vote of the City Council to ratify the property tax increase
reflected in the budget. This vote is in addition to and separate from the vote to adopt the
budget or a vote to set the tax rate.
Should the City Council take no final action on or before such day, the current budget will
continue to be in force on a month -to -month basis until a new budget is adopted.
An adopted budget must contain a cover page that includes a statement that accurately
describes the property tax revenue as increasing, decreasing or staying the same; the record
vote of each member of the City Council by name; the municipal property tax rates for the
preceding fiscal year and current fiscal year; and the total amount of debt obligation secured
by property taxes.
G. Budget, Appropriation and Amount to be Raised by Taxation
On final adoption, the budget is in effect for the budget year. Final adoption of the budget
by the City Council constitutes the official appropriations as proposed by expenditures for
the current year and constitutes the basis of official levy of the property tax as the amount
of tax to be assessed and collected for the corresponding tax year. Estimated expenditures
will in no case exceed proposed revenue plus cash on hand. Unused appropriations may be
transferred to any item required for the same general purpose.
H. Certification; Copies Made Available
A copy of the budget, as finally adopted, must be filed with the person performing the
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duties of City Secretary and such other places required by state law or as the City Council
may designate. The final budget must be printed, or otherwise reproduced and sufficient
copies made available upon request for the use of all offices, agencies, interested persons
and civic organizations.
I. Budget Document
The annual budget document shall be published in a format that satisfies all criteria
established by the Government Finance Officers Association's Distinguished Budget
Program. The final budget document shall be published no later than 90 days following the
date of the budget's adoption by the City Council.
The City's annual budget shall be prepared and adopted on a basis consistent with generally
accepted accounting principles for all governmental and proprietary funds except the capital
projects funds, which Council approves project -length budgets.
The basis of budgeting will be the same as the basis of accounting; that is, that budgets for the
General Fund and all special revenue funds are prepared on the modified accrual basis of
accounting, and budgets for the Utility (Proprietary) Fund are presented on a full accrual basis,
except that capital purchases and depreciation are not adjusted until year-end financial reporting.
A balanced budget is one in which total proposed expenditures shall not exceed the total estimated
income. The City's goal is to balance the operating budget with current revenues, whereby,
current revenues match and fund on -going expenditures. The City considers the budget balanced
when total expenditures are equal to total revenues. However, the budget is also balanced when
total expenditures are less then total revenues, a surplus. There may also be instances where the
City plans to spend excess fund balance accumulated from previous years on one-time non-
recurring purchases, while maintaining established reserves. The City considers the budget to be
balanced in this case as well. However, the plan shall not be to build on -going expenditures into
this type of funding.
V. BUDGET ADMINISTRATION
The City's Charter (Section 7.09) addresses amending the adopted budget. Under conditions which may
arise and which could not reasonably have been foreseen in the normal process of planning the budget, the
City Council may, by the affirmative vote of a majority of the full membership of the City Council, amend
or change the budget to provide for any additional expense in which the general welfare of the citizenry is
involved. These amendments must be by ordinance and must become an attachment to the annual budget.
Transfers between funds must be accomplished by budget amendment approved by the City Council.
Budget amendments calling for new fund appropriations must also be approved by the City Council.
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Expenditures within each fund will remain within each department's original appropriation unless a budget
adjustment is approved by the City Manager. Transfers between expenditure accounts in one department
may occur with the approval of the Budget Manager. Transfers between operating departments may occur
with the approval of the City Manager.
According to the City's Charter (Section 7.13) all annual appropriations lapse at fiscal year-end. Under the
City's budgetary process, outstanding encumbrances are reported as reservations of fund balances and do
not constitute expenditures or liabilities since the commitments will be re -appropriated and honored the
subsequent fiscal year.
A. REVENUE MANAGEMENT
To protect the City's financial integrity, the City will maintain a diversified and stable revenue system to
shelter it from fluctuations in any one revenue source. Recognizing that sales tax is a volatile, unpredictable
source of revenue, the City will attempt to reduce its dependence on sales tax revenue.
1. Property Tax Revenues
For every annual budget, the City shall levy two property tax rates: debt service and
operation/maintenance. The debt service levy shall be sufficient for meeting all principal and
interest payments associated with the City's outstanding general obligation debt for that budget
year. The debt service levy and related debt service expenditures shall be accounted for in the Debt
Service Fund. The operation and maintenance levy shall be accounted for in the General Fund.
According to the Texas Property Tax Reform and Transparency Act of 2019, the operation and
maintenance levy will not exceed the three and one-half percent voter -approval property tax rate
without a mandatory election. As a result, it should be the policy of the City of Anna to adopt a
tax rate below the voter -approval property tax rate.
The City will maintain a policy of levying the lowest tax rate on the broadest tax base. Minimal
exemptions will be provided to homeowners, senior citizens, and disabled veterans. The City may
consider providing tax abatements or other incentives to encourage development.
2. Sales Tax Revenue
The State Comptroller's Office collects, administers, and disburses sales tax on a monthly basis.
However, there is a two -month lag between the month of sales and when the City receives the
revenue. The Budget Manager monitors and reports the activity, reflecting any state audit
adjustments, refunds to gross collections, or fees withheld for the collection process.
Accounting staff reports the sales tax revenues based on the month of sales. This results in sales
tax received in the month of October and November being accrued back to the previous year.
3. Utility Charges
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The City will establish utility fees (water, wastewater, and sanitation) at a level that attempts to
recover the full cost of providing the service.
• Utility rates should identify the relative costs of serving different classes of customers.
• Where possible, utility rates should be designed to reduce peak (hour and day) demands on the
utility systems.
4. Impact Fees
Impact Fees are currently imposed for water, wastewater, and roadway in accordance with
applicable City Ordinances and state law. Impact fees will be re-evaluated at least every five years,
as required by state law.
When developing the annual budget, the City Manager shall project revenues from every source
based on actual collections from the preceding year and estimated collections of the current fiscal
year, while taking into account known circumstances which will impact revenues for the new fiscal
year. The revenue projections for each fund should be made conservatively so that total actual fund
revenues exceed budgeted projections.
B. OPERATING EXPENDITURES
Operating expenditures shall be accounted, reported, and budgeted for in the following major
categories:
Operating, Recurring Expenditures:
• PAYROLL
• SUPPLIES
• MAINTENANCE
• CONTRACTUAL SERVICES
Operating, Non -Recurring Expenditures
• CAPITAL OUTLAY
The annual budget shall appropriate sufficient funds for operating, recurring expenditures necessary to
maintain established (i.e. status quo) quality and scope of city services.
The City will constantly examine the methods for providing public services in order to reduce operating,
recurring expenditures and/or enhance quality and scope of public services with no increase to cost.
Payroll expenditures will reflect the minimum staffing needed to provide established quality and scope
of city services. To attract and retain employees necessary for providing high -quality service, the City
shall maintain a compensation and benefit package competitive with the public and, when quantifiable,
private service industries.
Supply expenditures shall be sufficient for ensuring the optimal productivity of City employees.
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Maintenance expenditures shall be sufficient for addressing the deterioration of the City's capital assets
to ensure the optimal productivity of the capital assets. Maintenance should be conducted to ensure a
relatively stable level of maintenance expenditures for every budget year.
The City will utilize contracted labor for the provision of city services whenever private contractors
can perform the established level of service at less expense to the City. The City will regularly evaluate
its agreements with private contractors to ensure the established levels of service are performed at the
least expense to the City.
Capital outlay is defined as machinery, vehicles or equipment that exceeds $5,000 and has a useful life
of at least three years. Existing capital equipment shall be replaced when needed to ensure the optimal
productivity of City employees.
Capital improvement is defined as an enhancement that exceeds $50,000 and has a useful life of at least
ten years. Capital improvements are budgeted as multi -year projects in the Community Investment
Program budget.
To assist in controlling the growth of operating expenditures, operating departments will submit their
annual budgets to the City Manager within a ceiling calculated by the Budget Manager. Projected
expenditures that exceed the ceiling must be submitted as separate supplemental budget request.
C. LONGTERM FINANCIAL PLANS
The City will adopt every annual budget in context of a long-term financial plan for the General Fund.
Financial plans for other funds may be developed as needed.
The General Fund long-term plan will establish assumptions for revenues, expenditures, and changes
to fund balance over a five-year horizon. The assumptions will be evaluated each year as part of the
budget development process.
D. BUDGET CONTINGENCY PLAN
This policy is designed to establish general guidelines for managing revenue shortfalls
resulting from local and national economic downturn that adversely affect the City's revenue
stream.
1. Immediate Action
Once a budgetary shortfall is projected, the City Manager will take the necessary actions to
offset the projected shortfall with a reduction in current expenditures. The City Manager may:
a. Freeze all hiring and filling of vacant positions except those deemed to be absolutely
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necessary;
b. Review and delay all planned remaining capital expenditures not funded by bond
proceeds;
c. Delay all "non -essential" spending or equipment replacement purchases.
2. Further Action
If the above actions are insufficient to offset the revenue deficit and the shortfall continues to
increase, the City Manager will further reduce operating expenses to balance the variance.
Any remaining service level reductions, including workforce reductions, will be reviewed and
addressed between the City Council and City Manager.
VI. ASSET MANAGEMENT
A. Investments
l . Investment Policy - The City Council has formally approved a separate Investment Policy
for the City that meets the requirements of the Public Funds Investment Act (PFIA),
Section 2256 of the Texas Local Government Code. The policy is reviewed annually by
the Council and applies to all financial assets held by the City.
2. Quarterly Report - As required by the Public Funds Investment Act (PFIA), a Quarterly
Investment Report will be prepared and provided to the City Council. The report shall
consist of at a minimum the following:
a) A comparison of the prior quarter investment's book and market value;
b) Contain the current quarter and year-to-date (YTD) average yields;
c) Reference the amount of interest income by quarter and YTD;
d) List each investment instrument for the previous and current quarter with its rate of
return, purchase and maturity date, book value, and market value;
e) Provide a summary of the investments by fund group;
f) Compare the total investment portfolio performance to the performance of a
government investment pool.
B. Cash Management
The City's cash flow will be managed to maximize the cash available to invest. The City's
depository accounts shall be pooled to limit the numbers of accounts and to allow for the
City to pool investment purchases between funding sources.
The Finance Director is responsible for establishing internal controls for banking activities
such as wires, ACH payments, and transfers. Dual authorization shall be required for all
wires and ACH payments.
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VII. FIXED ASSETS
The City's fixed (capital) assets are to be reasonably safeguarded and prudently insured
against loss. The Finance Department is responsible for properly accounting for, reporting
and capitalizing the assets in accordance with GAAP.
A. Capitalization Criteria
For the purposes of budgeting and accounting classification, the following criteria apply to
assets to be capitalized:
a) The asset must be owned by the City.
b) The asset must be tangible.
c) The expected useful life must be longer than three (3) years or must extend the useful
life of an existing asset by more than two (2) years.
d) The original cost of the asset must be greater than $5,000.
e) Useful life will be established based on available sources that are in accordance with
GAAP.
f) On -going repairs and general maintenance will not be capitalized.
g) Assets not meeting the above criteria will be expensed.
B. New Purchases
All costs associated with bringing the asset into working order will be capitalized as part
of the asset cost. This will include start-up costs, engineering or consultant type fees that
are incurred once the decision to purchase is made. The cost of land acquired should
include all related costs associated with the purchase.
C. Improvements and Replacements
Improvements will be capitalized when they extend the useful life of an asset or when they
make the asset more valuable than it was originally. The replacement of asset components
will normally be expensed unless they are of a significant nature and meet all of the
capitalization criteria.
D. Contributed Capital
Infrastructure assets received from developers will be recorded as equity contributions once
the City Manager or Director of Public Works approves the letter of acceptance.
E. Reporting and Inventory
The Finance Department will maintain the permanent records of the city's fixed assets,
including description, cost, department of responsibility, date of acquisition, depreciation,
and expected useful life. Periodic, random sampling will be performed to inventory fixed
assets assigned to a department. Responsibility for safeguarding the City's fixed assets lies
with the department that has been assigned the asset. When an asset leaves a department's
responsibility due to disposition, sale or transfer, the assigned department is responsible to
report the change in status or location to the Finance Department.
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VIII. FUND BALANCE AND WORKING CAPITAL RESERVE POLICY
A. BACKGROUND
The City of Anna ("City") believes that sound financial management principles require that
sufficient funds be retained by the City to provide a stable financial base at all times. To retain
this stable financial base, the City needs to maintain a General Fund fund balance and Utility
Fund working capital reserve sufficient to fund all cash flows of the City, to provide financial
reserves for unanticipated expenditures and/or revenue shortfalls of an emergency nature, and
to secure and maintain investment grade bond ratings. A fund's equity in the General Fund is
the difference between its total assets and total liabilities. On the other hand, working capital
reserve in the Utility Fund is an excess of current assets over current liabilities. The purpose
of this policy is to specify the size and composition of the City's financial reserves and to
identify certain requirements for replenishing any fund balance or working capital reserves
utilized.
The Governmental Accounting Standards Board ("GASB") issued Statement No. 54, Fund
Balance Reporting and Governmental Fund Type DeTnitions ("GASB-54 "). One objective of
this standard was to improve, including the understandability, the usefulness of fund balance
information by providing clear fund balance classifications.
GASB-54 requires local governments to focus on the constraints imposed upon resources when
reporting fund balance in governmental funds. Governmental funds are typically used to
account for tax -supported activities (i.e. General Fund, Debt Service Fund). The fund balance
classifications indicate the level of constraints placed upon how resources can be spent and
identify the sources of those constraints. The following five classifications serve to inform
readers of the financial statements of the extent to which the City is bound to honor constraints
on the specific purposes for which resources in the General Fund can be spent.
B. DEFINITIONS
• Nonspendable Fund Balance — Fund balance reported as "nonspendable" represents fund
balance that is (a) not in a spendable form such as prepaid items or (b) legally or
contractually required to be maintained intact such as an endowment.
• Restricted Fund Balance — Fund balance reported as "restricted" consists of amounts that
can be spent only on the specific purposes stipulated by law or by the external providers of
those resources.
• Committed Fund Balance — Fund balance reported as "committed" are self-imposed
limitations set in place prior to the end of the fiscal period. These amounts can be used
only for the specific purposes determined by a formal action of the City Council, which is
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the highest level of decision -making authority, and that require the same level of formal
action to remove the constraint.
• Assigned Fund Balance — Fund balance reported as "assigned" consists of amounts that are
subject to a purpose constraint that represents an intended use established by the City
Council or by their designated body or official. The purpose of the assignment must be
narrower than the purpose of the General Fund. Formal action is not necessary to impose,
remove, or modify a constraint in Assigned Fund Balance.
• Unassigned Fund Balance — Fund balance reported as "unassigned" represents the residual
classification of fund balance and includes all spendable amounts not contained within the
other classifications.
C. ORDER OF EXPENDITURES
When expenditures are incurred for the purposes for which multiple categories of fund balance
can be utilized, the City will start with the most restrictive category and spend those funds first
before moving down to the next category with available funds.
D. POLICY ON COMMITTING FUND BALANCE
In accordance with GASB-54, it is the policy of the City of Anna ("City") that fund balance
amounts will be reported as "Committed Fund Balance" only after formal action and approval
by City Council. The action to constrain amounts in such a manner must occur prior to year-
end; however, the actual dollar amount may be determined in the subsequent period.
For example, the City Council may approve a motion prior to year-end to report within the
year-end financial statements, if available, up to a specified dollar amount as Committed Fund
Balance for a specified purpose. The exact dollar amount to be reported as Committed Fund
Balance may not be known at the time of approval due to the annual financial audit not yet
being completed. This amount can be determined at a later date when known and appropriately
reported within the year-end financial statements due to the governing body approving this
action before year-end.
It is the policy of the City that the City Council may commit fund balance for any reason that
is consistent with the definition of Committed Fund Balance contained within GASB-54.
Examples of reasons to commit fund balance would be to display intentions to use portions of
fund balance for future capital items, stabilization funds, or to earmark special General Fund
revenue streams unspent at year-end that are intended to be used for specific purposes.
After approval by the City Council, the amount reported as Committed Fund Balance cannot
be reversed without utilizing the same process required to commit the funds. Therefore, in
accordance with GASB-54, it is the policy of the City that funds can only be removed from the
Committed Fund Balance category after motion and approval by the City Council.
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E. POLICY ON ASSIGNED FUND BALANCE
In accordance with GASB-54, funds that are intended to be used for a specific purpose but
have not received the formal approval action at the governing body level may be recorded as
Assigned Fund Balance. Likewise, redeploying assigned resources to an alternative use does
not require formal action by the governing body.
GASB-54 states that resources can be assigned by the governing body or by another internal
body or person whom the governing body gives the authority to do so, such as a committee or
employee of the City.
Therefore, having considered the requirements to assign fund balance, it is the policy of the
City that the City Manager will have the authority to assign fund balance of this organization
based on intentions for use of fund balance communicated by the City Council.
F. UNASSIGNED FUND BALANCE OF THE GENERAL FUND
It is the goal of the City to achieve and maintain an unassigned General Fund fund balance
equal to 40% of total appropriations. The City considers a balance of less than 25% to be a
cause for concern, barring unusual or deliberate circumstances, and a balance of more than
40% as excessive. An amount in excess of 40% can be used in one of the following ways:
• Increase the pay-as-you-go contributions needed to fund capital projects in the City's
Capital Improvement Plan. These funds will be transferred out to the Governmental Non -
Bond Capital Projects Fund.
• Increase funds contributed and transferred out to the Equipment Replacement Fund to
assist in financing large capital equipment purchases.
• Reduce accrued liabilities, including but not limited to the TMRS pension liability and
capital lease liabilities.
Prior to year-end, an Ordinance will be presented to Council when appropriate to give specific
authority to the City Manager to make transfers of unexpended appropriations and excess
revenues up to a certain threshold. The exact dollar amount to be transferred may not be known
at the time of approval. This amount can be determined at a later date when known and
appropriately reported within the year-end financial statements due to the governing body
approving this action before year-end.
In the event that the unassigned General Fund fund balance is less than the policy anticipates,
the City shall adjust budget resources in the subsequent fiscal years to restore the balance or
establish a time frame and work plan to replenish the fund balance. The work plan may include
tax increases, fee increases, reduction of services, and/or reduction of expenditures (i.e. hiring
freeze, salary freeze, or reduction of travel/training).
Appropriation drawing down on unassigned General Fund fund balance shall require the
approval of the City Council and shall be only for one-time expenditures, such as capital
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purchases, and not for ongoing expenditures unless a viable plan designated to sustain the
expenditures is simultaneously adopted.
G. WORKING CAPITAL RESERVES OF THE UTILITY FUND
The City shall set aside resources during years of growth to fund a reserve for years of decline
and/or to fund capital out of current funds for projects that would have otherwise been funded
through debt financing. It shall be the goal of the City to maintain a working capital reserve
in the Utility Fund of25%of total appropriations in order to provide for potential unanticipated
needs or the impact of weather.
The City considers a balance of less than 25% to be a cause for concern, barring unusual or
deliberate circumstances, and a balance of more than 40% as excessive. An amount in excess
of 40% can be utilized in one of the following ways:
• Increase the pay-as-you-go contributions needed to fund capital projects in the City's
Capital Improvement Plan. These funds will be transferred out to the Enterprise Non -Bond
Capital Projects Fund.
• Increase funds contributed and transferred out to the Equipment Replacement Fund to
assist in financing large capital equipment purchases.
• Reduce accrued liabilities, including but not limited to the TMRS pension liability and
capital lease liabilities.
Prior to year-end, an Ordinance will be presented to Council when appropriate to give specific
authority to the City Manager to make transfers of unexpended appropriations and excess
revenues up to a certain threshold. The exact dollar amount to be transferred may not be known
at the time of approval. This amount can be determined at a later date when known and
appropriately reported within the year-end financial statements due to the governing body
approving this action before year-end.
In the event the working capital reserves in the Utility Fund are less than the policy anticipates,
a utility rate plan study will be utilized to determine the appropriate course of action when
determining rates and establishing a timeframe to replenish the working capital reserves. This
could include cost cutting, cost recovery, and revenue enhancing strategies.
H. UNASSIGNED FUND BALANCE OF PUBLIC IMPROVEMENT DISTRICT
FUNDS
Funds collected from Public improvement Districts (PIDs) through approved development
agreements shall be treated in the following manner. PID funds may be used for any legal
purpose. PID funds do not require any minimum fund balance reserve requirement. Any
excess funds can be used to
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Increase the pay-as-you-go contributions needed to fund capital projects in the City's
Capital Improvement Plan. These funds will be transferred out to the Governmental Non -
Bond Capital Projects Fund.
At any time during the fiscal year, an Ordinance will be presented to Council when appropriate
to give specific authority to the City Manager to make transfers of appropriated or unexpended
PID funds and excess revenues up to a certain threshold. The exact dollar amount to be
transferred may not be known at the time of approval. This amount can be determined at a
later dale when known and appropriately reported within the year-end financial statements due
to the governing body approving this action before year-end.
Appropriation drawing down on unassigned PID Fund balance shall require the approval
of the City Council and shall be only for one-time expenditures, such as capital purchases. and
not for ongoing expenditures unless a viable plan designated to sustain the expenditures is
simultaneously adopted.
IX. DEBT MANAGEMENT POLICY
A. PURPOSE
The purpose of this policy is to set forth the parameters for issuing new debt as well as
managing the outstanding debt portfolio, identifying the types and amount of permissible
debt, and maintaining or improving the current bond rating in order to minimize borrowing
costs and preserving access to credit. Adherence to a debt management policy signals to
rating agencies and capital markets that a government is well managed and should meet its
obligations in a timely manner. Debt levels and their related annual costs are important long-
term obligations that must be managed within available resources.
This Policy establishes specific guidelines to ensure that the City adheres to sound financial
practices whenever it incurs debt. The City should consider this Policy when recommending
the issuance of debt. This Policy may be amended from time to time by the City Council to
reflect innovative, but prudent financial and business practices. It is the intent of the City to
establish this policy in order to:
• Ensure high quality debt management decisions;
• Ensure the debt management decisions are viewed positively by rating agencies,
investment communities, and citizens;
• Ensure support for debt issuance both internally and externally;
• Ensure the legal and prudent use of the City's bonding authority through an effective
system of financial security and internal controls;
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• Promote sound financial management that utilizes long range financial planning;
• Use debt financing where appropriate to match projected revenue streams;
• Evaluate critical debt issuance options.
B. POLICY STATEMENT
Under the governance and guidance of Federal and State laws and the City's Charter,
ordinances and resolutions, the City may periodically enter into debt obligations to finance the
construction or acquisition of infrastructure and other assets; or to refinance existing debt for
the purpose of meeting its governmental obligation to its residents. It is the City's desire and
direction to ensure that such debt obligations are issued and administered in such fashion as to
obtain the best long-term financial advantage to the City and its residents, while making every
effort to maintain and improve the City's bond ratings.
The City shall not issue debt obligations or utilize debt proceeds to finance current operations
of the City.
C. CAPITAL IMPROVEMENT PROGRAM
A Capital Improvement Program shall be prepared, submitted to, and approved by the Council
annually. The Capital Improvement Program shall consist of at least a 5-year priority listing
of long-term capital projects, accompanied by a financing plan which reflects potential
financing options for all projects in the plan, and is supported by the appropriate sources of
revenue. The financing plan shall be in accordance with the debt management policies
contained herein. The CIP guides capital expenditures and funding requirements, and generally
includes:
• All capital projects, including outside funding sources such as grant funding, and those
proposed to be financed, as available.
• The fiscal impact these capital projects, once completed, will have on the City's operating
budget.
D. DEBT LIMITS AND STRUCTURE
As a Home Rule Charter City, the City of Anna is not limited in the amount of debt it may
issue. However, the Texas Constitution, Article XI, Section 5 provides that the general
property tax is limited to $2.50 per $100 of assessed valuation. Because the property tax is
comprised of two components, Operations and Maintenance (O&M), plus Interest and Sinking
(I&S) (which is the payment of principal and interest on legal debt instruments), the
constitutional limits on the City's property tax rate effectively establishes an absolute ceiling
on the amount of debt that may be funded by property tax revenues.
The determination of how much indebtedness the City can afford begins by assessing the
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sufficiency of future revenues through the use of a long-term financial projection. Factors such
as debt service coverage requirements outlined in the bond indentures, the impact on the tax or
utility rates, and any impact on the bond ratings shall be carefully considered.
Debt service will be structured, to the greatest extent possible, to match projected cash flows,
minimize the impact of future property tax levies, and maintain a relatively rapid payment of
principle. The term of the debt issuance should not be greater than the expected useful life of
the asset being financed, or the maximum maturity permitted by State law for the obligations
to finance the acquisition or construction of the asset.
E. RESPONSIBILITY
The primary responsibility for developing financing recommendations rests with the City
Manager and Finance Director. In developing financing recommendations, consideration will
be given as follows:
• The time proceeds are expected to remain on hand and the related carrying costs;
• The options for interim financing including short term and interfund borrowing, taking
into consideration federal and state reimbursement regulations;
• The effect of the proposed action on the tax rate and user charges;
• Trends in interest rates;
• And other factors as appropriate.
F. PROFESSIONAL CONSULTANTS
A. Financial Advisor — A Financial Advisor will be used to assist in the issuance and
administration of the City's debt. The Financial Advisor will provide the City with
objective advice and analysis on debt issuance. Financial services provided to the City
shall include but shall not be limited to those listed below.
• Provide analysis of the City's financial capacity to authorize, issue, and service any
debt instruments that are considered;
• Monitor market opportunities, providing interpretation of market conditions which
factor into timing of issuance;
• Take primary responsibility for review of the quantitative analysis of the cash flows
provided by the underwriter. Prepare reports matching all calculations for bond
sizing, debt service schedules, savings calculations, bond calls, escrow calculations
and cash flows on the project;
• Coordinate assembly of data necessary for preparation of necessary petitions,
ordinances, notices as may be required for elections to authorize debt instruments;
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• Maintain liaison with Bond Counsel utilized by the City in preparation of Iegal
documents regarding authorization, sale and issuance of debt instruments;
• Prepare official statements of disclosure as required;
• Advise and facilitate obtaining credit ratings as necessary when issuing debt;
• Attend meetings and make presentations as requested;
• Participate in activities associated with rating agency reviews;
• Other services as defined by the contract.
B. Bond Counsel — The Bond Counsel will issue an opinion as to the legality and tax-exempt
status of any obligation. The City will also seek the advice of Bond Counsel on all other
types of financing and on any other questions involving federal tax or arbitrage law. The
services provided by Bond Counsel will include but not limited to the list below.
• Provide an objective legal opinion with respect to the authorization and issuance of
debt obligations and whether interest paid is tax-exempt under federal and/or state laws
and regulations;
• Research applicable law; preparing documents; consulting with City staff and the
Financial Advisor; reviewing proceedings; and performing additional duties as
necessary to render the opinion;
• Provide continuing legal advice regarding any actions necessary to ensure that interest
will continue to be tax-exempt;
• Participate, when requested, in activities associated with raring agency reviews;
• Attend City Council meetings when the debt obligation for which Counsel is providing
services is being considered;
• Prepare the ordinance authorizing issuance of the obligations;
• Other services as defined by the contract.
G. APPROACH TO FINANCING
A sound debt management program integrates pay-as-you-go project financing with projects
financed through the issuance of debt. Pay-as-you-go financing may include;
intergovernmental grants from federal, state, and other sources, current revenues and fund
balance, private sector contributions, public/private partnerships, and/or leasing. The City's
Capital Improvement Program utilizes this combined approach to fund the City's capital
projects and capital assets.
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The City's Debt Management Policy promotes the use of debt only in those cases where public
policy, equity, and economic efficiency favor debt over cash (i.e., pay-as-you-go) financing or
in the case where cash financing is not a possibility.
Once the City has determined that "pay-as-you-go" is not a feasible financing option, the City
may use Short-term or Long-term debt to finance capital projects.
1. Short Term Debt — Maturity of ten (10) years or less
Short term obligations may be issued to finance projects or portions of projects. Typically, tax
notes will be considered for smaller issues (less than $1 million). The City may also secure
interim financing which shall eventually be refunded with the proceeds of long-term
obligations. Short-term obligations may be backed with a tax or revenue pledge of available
resources. Capital leases may be used to purchase high-priced equipment to manage year-to-
year capital expenditure levels.
2. Long Tenn Debt (Bonds) — Maturity of ten (10) years up to thirty (30) years
Long term general obligation or revenue bonds shall be issued to finance significant capital
improvements or capital assets as set forth by the Capital Improvement Program (CIP). Long
term debt may be incurred for only those purposes as provided by State law. The following
list is factors which favor long term debt issuance.
• Revenues available for debt service are sufficient and reliable such that long-term financing
can be marketed with an investment grade credit raring.
• Market conditions present favorable interest rates.
• The project is required to meet or relieve capacity needs and current resources are
insufficient or unavailable.
• The life of the projector capital asset to be financed is 10 years or longer.
Notwithstanding the above considerations, the City may consider the use of long-term debt in
special circumstances for projects other than capital projects to better manage its assets and
liabilities over time.
H. CAPITAL LEASING
Leasing shall not be considered when funds are on hand for the acquisition unless interest
expense associated with the lease is less than the interest that can be earned by investing the
funds on hand or when other factors such as budget constraints override the economic
consideration.
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Whenever a lease is arranged with a private sector entity, a tax-exempt rate shall be sought.
Whenever a lease is arranged with a government or other tax-exempt entity, the City shall
strive to obtain an explicitly defined taxable rate so that the lease will not be counted in the
City's total annual borrowings subject to arbitrage rebate.
The advice of the City's Bond Counsel shall be sought in any leasing arrangement and when
federal tax forms 8038 are prepared to ensure that all federal tax laws are obeyed.
I. OTHER FINANCING ALTERNATIVES
From time to time other types of financing may become available. Examples of these options
are low -interest loans from State agencies. At the direction of the City Manager and Finance
Director, the City's Financial Advisor will prepare an analysis of the option.
J. GENERAL DEBT GOVERNING POLICIES
The primary use of debt the City is to fund capital projects; however, other debt may be issued
as necessary and appropriate. Because of the use of facilities will occur over many years, it is
appropriate to allocate the cost of the facilities over the useful life of the financed project. The
City establishes the following policies concerning the issuance and management of debt:
• The City will not issue debt obligations or use debt proceeds to finance current operations
or normal maintenance.
• The term of the bond shall not exceed thirty (30 years) unless there are extenuating
circumstances that justify the longer term.
• The City shall publish and distribute an official statement for each publicly traded Bond
issue.
• The City shall consider the purchase of private bond insurance at the time of the issuance,
if it is financially beneficial to the transaction.
• Debt financing includes, general obligation bonds, certificate of obligation bonds, revenue
bonds, lease/purchase agreements and other obligations permitted to be issued under Texas
law.
• The City and the Financial Advisor shall review its outstanding debt annually for the
purpose of determining if the financial marketplace will afford the City the opportunity to
refund an issue and lessen its debt service costs. As a general rule, the present value savings
of a particular refunding should exceed four (4%) of the refunded maturities, unless a
restructuring or bond convent revision is necessary in order to facilitate the ability to
provide services or issue additional debt in accordance with established debt policies, the
refunding is done in combination with a new money issuance and involves maturities that
would not be efficient to be refunded on a stand-alone basis, or a refunding that generates
savings due to historically low interest rates or an unusual yield curvd.
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• The City shall not issue bonded debt without enacting an authorizing Resolution.
• The City shall seek to maintain the highest bond rating practical to ensure that borrowing
costs are minimized and access to credit is preserved.
• The City shall use a competitive bidding process in the sale of debt unless the nature of the
issue warrants a negotiated sale or private placement.
• The bond proceeds will be invested in accordance with the City's Investment Policy.
Interest earnings received on the investment bond proceeds shall be used to assist the costs
associated with the capital project.
• Debt shall be primarily used to finance capital projects or assets with a relatively long -life
expectancy, i.e., generally five (5) years or greater.
• Long-term debt will be structured such that the obligations do not exceed the expected
useful life of the respective project or asset.
• The City will primarily issue fixed rate bonds to protect the City against interest rate risk.
The City does have the option to issue variable rate bonds and may, if market conditions
warrant considering such a structure.
• Short term debt may be issued as authorized by the City Council when circumstances or
opportunities are present and such issuance will not adversely affect the operating funds,
the ability to make debt payments, or jeopardize the financial integrity of the City or the
component units.
• The City shall have a program to comply with arbitrage rebate monitoring and filing.
Because of the complexity of arbitrage rebate regulations and the severity of non-
compliance penalties, the City will contract for these services. The City currently utilizes
Hilltop Securities for these calculations.
• The City is committed to continuing disclosure of financial and pertinent credit information
relevant to the City's outstanding securities and will abide by the provisions of Securities
and Exchange Commission (SEC) Rule 15c2-12 concerning primary and secondary market
disclosures. The City currently has a contract with Hilltop Securities to work with City
staff to compile and file the required information in a timely manner.
K. DEBT ISSUANCE AND REVENUE SOURCES
General capital improvements shall be financed in accordance with the capital improvements
program. Funds shall be for the financing of general improvements in accordance with the
following:
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• To the extent funds described above are in excess of that required by the City's General
Fund operating budget, all or a portion of the excess amount shall be used for pay-as-you-
go financing of general capital improvements or assets.
• It shall be a goal, but not a requirement, of the City to finance a portion of the city -at -large
capital improvement budget with pay-as-you-go financing with current resources
remaining from year-end savings.
• Outstanding bonds will be retired according to the debt repayment schedule.
• Assumptions for taxable assessed value increases and revenues growth shall be
conservative and justifiable.
• Debt issued for water, sewer and other purposes for which operating and capital needs are
supported by user fees, shall first be considered for issuance in the form of revenue bonds,
certificates of obligation, or other debt instruments secured by the appropriate user fees.
User fees shall be adequate to support operating requirements and revenue bond covenants
for each purpose. Certificate of Obligation or General Obligation debt secured by
operating revenues may also need to be secured with property taxes.
L. METHODS OF SALE
The City may use competitive sales, negotiated sales, or private placements. When considering
the method of sale, the City will take the following conditions into consideration:
a. Financial conditions;
b. Market conditions;
c. Transaction -specific conditions;
d. City -related conditions; and
e. Risks associated with each method.
Additionally, the City considers the following criteria when determining the appropriate
method of sale for any debt issuance:
a. Complexity of the Issue — Municipal securities with complex security features require
greater marketing and buyer education efforts on the part of the underwriter, to improve
the investors' willingness to purchase.
b. Volatility of Bond Yields — If municipal markets are subject to abrupt changes in interest
rates, there may be a need to have some flexibility in the timing of the sale to take advantage
of positive market changes or to delay a sale in the face of negative market changes.
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Familiarity of Underwriters with the City's Credit Quality — If underwriters are familiar
with the City's credit quality, a lower True Interest Cost (TIC) may be achieved.
Awareness of the credit quality of the City has a direct impact on the TIC an underwriter
will bid on an issue. Therefore, where additional information in the form of presale
marketing benefits the interest rate, a negotiated sale may be recommended. The City
strives to continue to increase the bond rating.
Size of the Issue — The City may choose to offer sizable issues as negotiated so that pre -
marketing and buyer education efforts may be done to more effectively promote the bond
sale.
M. DEFINITIONS OF METHODS OF SALE
A Competitive Sale is when bonds are awarded in a sealed bid sale to an underwriter or
syndicate of underwriters that provides the lowest True Interest Cost (TIC) bid. TIC is defined
as the rate, which will discount the aggregate amount of debt service payable over the life of
the bond issue to its present value on the date of delivery.
A Negotiated Sale is when the City chooses an underwriter or underwriting syndicate,
generally from the pool selected through its RFQ process, that is interested in reoffering a
particular series of bonds to investors.
A Private Placement is a sale of debt securities to a limited number of sophisticated investors.
The City may engage a placement agent to identify likely investors. A private placement is
beneficial when the issue size is small or when the security of the bonds is weak since the
private placement permits issuers to sell more risky securities at a higher yield to investors that
are familiar with the credit risk.
N. FINANCING ALTERNATIVES
It is the City's intent to develop a level of cash and debt funded capital improvement projects
that provide the citizens with the desired amount of City services at the lowest cost. The City
may use general obligation debt, certificate of obligation debt, revenues bonds, tax notes, and
capital leases as deemed appropriate by the City Staff, City's Financial Advisors, and approved
by the City Council. Below are guidelines the City utilizes in evaluating financing alternatives:
• The City will fund the majority of capital projects with voter -approved debt; however, on
occasion, it becomes necessary to seek additional financing in order to fund a particular
non -quality of life project.
The total dollar amount of bond election propositions recommended to the voters shall not
exceed the City's estimated ability to issue said bonds within a normal 10-year period.
• The use of reimbursement resolutions shall be encouraged as a cash management tool for
general obligation and certificate of obligation debt funded projects.
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• Revenue Bond will be issued for projects will be issued for projects that generate revenues
that are sufficient to repay the debt. Except where otherwise required by State Statutes,
revenue bonds may be issued without voter approval and only in accordance with the laws
of Texas.
• The use of other debt obligations, permitted by law, including but not limited to tax notes
and lease purchase obligations will be reviewed on a case -by -case basis.
O. RATINGS
• The City will strive to maintain good relationship with bond rating agencies as well as
disclose financial reports and information to these agencies and to the public.
• The City will obtain a rating from one nationally recognized bond -rating agency on all
issues being sold on the public market.
• Timely disclosure of annual financial information including other information will be
provided to the rating agencies.
• Timely disclosure of a pertinent financial information that could potentially affect the
City's credit rating will also be presented to the ratings agencies required information
repositories and bond insurance companies insuring the City of Anna debt.
This Debt Management Policy shall be reviewed at least annually, and any modifications must be
adopted by the City Council.
X. POST ISSUANCE COMPLIANCE FOR TAX-EXEMPT DEBT
A. Purpose
The purpose of these Procedures for Post -issuance Compliance (these "Procedures") is to
ensure that the bond financings of the City of Plano (the "City") remain in compliance with the
following federal tax requirements:
• General Recordkeeping & Record Retention
• Timely return filings
• Proper and timely use of bond proceeds and bond -financed property
• Arbitrage - yield restriction and rebate
• Reissuance requirements
• Corrective Action
These Procedures apply to any obligations to which Sections 103 and 141 through 150 of the
Internal Revenue Code of 1986 (the "Code") apply, whether or not such obligations are in fact
tax-exempt. For example, these Procedures will be followed with respect to any issue of tax
credit bonds to which such sections of the Code apply. Further, the City is responsible for
compliance with any requirements set forth in subsequent rulings and other advice published
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by the Internal Revenue Service (the "Service" or the "IRS"), as such authorities may apply to
the City and its obligations.
B. Responsible Parties
The Finance Director of the City is ultimately responsible for the post -issuance compliance of
bond financings. In addition, the following persons are responsible for the compliance roles
described below:
• Finance Director — Approval of policies, authorization of expenditures, delegation of
responsibilities, and oversight of processes.
• Accounting Manager — Review and reporting of expenditures of Bond proceeds, oversight
of financial staff engaged in construction spending, coordination of expenditure,
reporting on expenditure, financial reporting, internal controls and processing of invoice
payments.
• City Attorney — Coordination of legal services, review and records management of special
legal entitlement agreements for Bond -financed facilities.
• Finance Director — Day to day money management, investment of Bond related funds,
investment and debt management services, investment and debt activity and coordination
of records management of these details.
• Budget Manager — Budgeting and determining bond -financed projects, and monitoring
of bond -financed capital expenditures.
Parties responsible for the financing aspects and the operations aspects of bond -financed facilities
will coordinate efforts to ensure that any actions taken with respect to a bond -financed facility will
be in compliance with the requirements of the Code. The City will provide training and/or make
available educational materials regarding compliance requirements (e.g., private use requirements)
to the parties responsible for the oversight of bond -financed facilities.
C. General Recordkeeping and Records Retention
General record retention duties are the responsibility of Finance Director and General Accounting
Manager.
The Finance Director will maintain a copy of the following documents on file at all times:
• Audited Financial Statements
• Reports of any examinations by the IRS of the City's financing
With respect to each issue of obligations, the Treasurer will retain the following for the life of the
obligations (including the life of any issued to refunds the original debt) plus three years:
• Bond transcript, including authorizing documents, offering document, the federal tax
certificate and certificates regarding issue price
• Minutes and resolution(s) authorizing the issue
• Appraisals, demand surveys, and/or feasibility studies for bond -financed property
• Related publications, brochures, and newspaper articles
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• Any formal elections (e.g., election to employ an accounting methodology other than
specific tracing)
• Records relating to the payment of debt service (including credit enhancement)
• Documentation relating to investments and arbitrage compliance, as described in
"Arbitrage — Yield Restriction and Rebate - Recordkeeping" below
• Any grant requests or fundraising materials and documentation of grants or fundraising
receipts relating to projects that also may be financed, in whole or in part, with bond
proceeds
• Any agreement listed in "Private Business Use — Special Legal Entitlements" that relates
to a bond -financed facility
• Bond paying agent/trustee statements
• Rebate compliance reports
• Related IRS filings (e.g. Form 8038-T Rebate)
• IRS correspondence regarding such issue
• Other documentation material to the particular requirements that are applicable to the tax
status of the financing
With respect to each issue of obligations, the Accounting Manager will retain Documentary
evidence of when and for what purpose the bond proceeds were expended, as described in
"Expenditures of Bond Proceeds - Recordkeeping" below (including the requisitions for
expenditure of bond proceeds) for the life of the obligations (including the life of any obligations
issued to refund the original debt) plus three years.
Documents may be retained as hard copies or in an electronic format (in accordance with Revenue
Procedure 97-22, 1997-1 C.B. 652), so long as such documents are retained in organized,
accessible format that preserves the accuracy of such documents.
D. Return Filings
The Accounting Manager will be responsible for tracking the timely filing of the Form 8038-G
information report (or such other series 8038 form as may be applicable to a specific issue of
bonds) with the Service, which filing may be completed by bond counsel after the issuance of the
obligations. The City must file a separate Form 8038-G for each issue of bonds not later than the
15th day of the second calendar month after the close of the calendar quarter in which the bonds
are issued.
E. Expenditure of Bond Proceeds
1. General
The Controller is responsible for oversight of the expenditure of bond proceeds, including
monitoring whether such expenditures are made in a timely manner for the purposes for which
the bonds were authorized. The Controller will ensure that all proceeds of a bond issue are
allocated to expenditures by the later of 18 months after the expenditure was made or the date
the project is placed in service (and in no event, later than 60 days after (i) the fifth anniversary
of the issue date or (ii) retirement of the issue).
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With respect to the reimbursement of any expenditure paid prior to the date of issue of the
bonds, the Controller will ensure that such reimbursement allocation to bond proceeds is made
not later than 18 months after the later of (i) the date the original expenditure is made or (ii)
the date the project is placed in service, but in no event more than three years after the original
expenditure is paid. Furthermore, the Controller will ensure that such reimbursement
allocation is for the reimbursement of expenditures paid on or after 60 days prior to the date
of a reimbursement resolution (including for this purpose a bond order). Bond Counsel should
be consulted regarding allocation of expenditures between each Bond issue to ensure timely
expenditure of Bond proceeds.
In addition to ensuring the timely expenditure of bond proceeds, the Controller will ensure
that bond proceeds are allocated to capital expenditures. Bond Counsel should be consulted
regarding allocation of expenditures to non -capital items.
2. Recordkeeping
With respect to each issue of obligations, the City will retain the following for the life of the
obligations plus three years:
• Documentation of allocations of bond proceeds to expenditures (e.g., allocation of bond
proceeds for expenditures for the construction, renovation or purchase of facilities)
• Documentation of allocations of bond proceeds to bond issuance costs
• Copies of all requisitions, draw schedules, draw requests, invoices, bills, and cancelled
checks related to bond proceeds spent during the construction period
• Copies of all contracts entered into for the construction, renovation or purchase of bond -
financed facilities
• Records of expenditure reimbursements incurred prior to issuing bonds for bond -financed
facilities
• List or schedule of all bond -financed facilities or equipment
• Depreciation schedules for bond -financed depreciable property
• Documentation of any purchase or sale of bond -financed assets
Documents may be retained as hard copies or in an electronic format (in accordance with
Revenue Procedure 97-22, 1997-1 C.B. 652), so long as such documents are retained in
organized, accessible format that preserves the accuracy of such documents.
F. Private Business Use
1. General
To confirm that the Bonds serve "purely" governmental purposes for the general public, it
must be determined whether the issuer expects that there will be any private business use
of the proceeds of the bonds. Private business use exists if more than the lesser of (i) five
percent (and, in certain circumstances, ten percent) or (ii) $15,000,000 of the proceeds of
the issue or the property to be financed by the bond proceeds are used directly or indirectly
by any nongovernmental person in that person's trade or business. In addition, no more
than the lesser of (i) five percent (and, in certain circumstances, ten percent) or (ii)
$15,000,000 of the proceeds of an issue may be secured directly or indirectly by property
or payments derived from private business use under the "private security or payment test."
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Private business use may occur due to trade or business use by unrelated third parties, the
existence of special legal entitlements with respect to the bond -financed property or the
sale or other transfer of bond -financed property. Finally, no more than the lesser of (i) five
percent or (ii) $5,000,000 of the proceeds of an issue of bonds may be used to make loans
or arrangement that allow a nongovernmental person to defer payments that it is obligated
to make with respect to the financed property or the bonds.
The City's finance team will coordinate with the parries responsible for the operation of a
bond -financed facility by communicating the private business use restrictions to such
parties and requiring that all activity that may give rise to such use be communicated to the
Finance Director.
2. Trade or Business Activities by Third Parties
The City will maintain records of all trade or business activities by third parties allocable
to its bond -financed facilities. Recognizing that trade or business activities by third parties
may give rise to private business use, the City will maintain records of all unrelated trade
or business activities allocable to its bond -financed facilities. The Controller is responsible
for tracking trade or business activity by third parties as it relates to bond -financed facilities
and will monitor such activity no less frequently than annually and, in any event, upon
being notified of any new activity that will give rise to a significant amount of trade or
business activity by a third party.
3. Special Legal Entitlements
A special legal entitlement is an arrangement that conveys rights similar to ownership,
a lease or a management contract (e.g., priority rights to use the facility). Recognizing
that a special legal entitlement may give rise to private business use, each time the City
intends to enter into one of the following, the City will determine if such agreement
relates to any bond -financed facility:
• Management and other service contracts
• Research agreements
• Naming rights contracts
• Ownership
• Leases
• Subleases
• Leasehold improvement contracts
• Joint venture arrangements
• Limited liability corporation arrangements
• Partnership agreements
• Non -contractual use of bond -financed office space and/or parking facilities by any
nongovernmental person
• Written contracts for special rates or priority for the purchase of output from bond -
financed facilities (e.g., water)
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Any other contract conferring a special legal entitlement or special economic
benefit that are comparable to ownership
If such an agreement will be with respect to a bond -financed facility, the City will
take measures so that such agreement does not create impermissible private business
use with respect to any issue of bonds used to finance such facility. Such measures
may include ensuring that such agreement falls into an applicable safe harbor, making
a determination that private use will not exceed the applicable limit or such other
action as may be recommended by bond counsel.
4. Recordkeeping Related to Private Business Use
With respect to each issue of bonds, the Controller will retain any records tracking
private business use for the life of the bonds plus three years. In addition, with respect
to each issue of bonds, the Controller will retain any agreements giving rise to private
business use for the life of the bonds plus three years.
G. Payments on the Bonds
The trustee/paying agent for the bonds shall determine the amount of principal and interest payable
on each payment date for the bonds. Periodically, and no less frequently than annually, the
Controller will review the amount of the interest payments to verify that proper determinations of
interest have been made.
H. Arbitrage — Yield Restriction & Rebate
1. General
The Treasurer is responsible for monitoring the City's compliance with the yield restriction
requirements of section 148(a) of the Code and the rebate requirements of section 148(f)
of the Code. Such monitoring includes, but is not limited to:
• Tracking the allocation of bond proceeds to expenditures for compliance with any
temporary period and spending exceptions, no less frequently than yearly
• Ensuring that any forms required to be filed with the IRS relating to arbitrage and any
payments required pursuant thereto are filed in a timely manner
• Ensuring that "fair market value" is used with respect to the purchase and sale of
investments
Additionally, the City will utilize a rebate analyst to monitor compliance with rebate and
yield restriction rules on an annual basis. The City utilizes First Southwest to monitor
arbitrage rebate and yield restriction.
Compliance with the investment rules will require that the City be able to account for, in
terms of dates and amounts, all uses (including disbursements and investment activity) of
particular categories of bond -related money. The Controller will account for all of the
following disbursements: monies in the project fund, debt service fund and any other fund
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into which proceed of the obligations have been deposited, including any reserve fund. In
doing so, the Controller will use any reasonable consistently applied accounting method to
account for gross proceeds, investments and expenditures of an issue.
2. Recordkeeping
With respect to each issue of obligations, the City will retain the following for the life of
the obligations plus three years:
• Documentation of allocations of investments and calculations of investment earnings
• Documentation for investments of the bond proceeds related to:
1. Investment contracts (e.g., guaranteed investment contracts)
2. Credit enhancement transactions (e.g., bond insurance contracts)
3. Financial derivatives (e.g., swaps, caps, etc.)
4. Bidding of financial products
• Documentation regarding arbitrage compliance, including:
1. Computation of bond yield
2. Computation of rebate and yield reduction payments
3. Form 8038-T, Arbitrage Rebate, Yield Reduction and Penalty in Lieu of Arbitrage
Rebate
4. Form 8038-R, Request for Recovery of Overpayments Under Arbitrage Rebate
Provisions
Documents may be retained as hard copies or in an electronic format (in accordance with
Revenue Procedure 97-22, 1997-1 C.B. 652), so long as such documents are retained in
organized, accessible format that preserves the accuracy of such documents.
I. Reissuance
Prior to making any changes to the terms of an obligation, including its underlying security, the
City will consult with bond counsel to determine whether such change will result in the reissuance
of such obligation for federal tax law purposes. If it is determined that a change will result in a
reissuance, the City will take such action, including the recalculation of yield, the filing of a new
form 8038-G and the payment of rebate obligations, as is necessary to maintain the tax status of
the bonds.
J. Corrective Action
Reports regarding the aforementioned compliance policies with respect to any issue of bonds will
be made to the Finance Director no less frequently than the end of each bond year. At such time,
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the Finance Director will determine whether any corrective action is required with respect to the
applicable issue.
A corrective action may be required if, for example, it is determined that bond proceeds were not
properly expended, the City is not in compliance with the arbitrage requirements imposed by the
Code or the City has taken a deliberation action that results in impermissible private business use
(e.g., sale of bond -financed property). If the City determines or is advised that corrective action is
necessary with respect to any issue of its obligations, the City will, as may be applicable, in a
timely manner:
• Seek to enter into a closing agreement under the Tax -Exempt Bonds Voluntary Closing
Agreement Program described in Notice 2008-31 (or any successor notice thereto)
• Take remedial action described under Section 1.141-12 of the Code
• Take such other action as recommended by bond counsel
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THE CITY OF
�.rina
Memorandum
Memorandum No: 23-108
Date: January 30, 2023
To: Honorable Mayor and City Council L/
If
From: Ryan Henderson, Interim City Manager7�4 /IFIL
Re: PID Fund Policy for Capital Projects
As the City of Anna has moved forward with the 2021 Capital Improvement Bond Program, it has become
increasingly evident that the costs for land acquisition, design, and construction of these significant
projects have been impacted by rising costs associated with inflation. Understanding the impact inflation
and the cost of construction is taking on our capital projects, I have looked to identify possible sources of
funding to assure that the projects we have committed to can be completed successfully.
As of December 31, 2022, the City has $7,640,590 of available PID fees, money that has been paid to the
City by developers and put into a PID Fund. Over the course of this year, we can reasonably assume that
the fund will see an increase of approximately $4 million. There are no restrictions on this special revenue,
as the funds can be used for any legal purpose. It is my recommendation that these developer -contributed
fees be used towards capital projects that expand services to our community and that a policy be
established dedicating these funds for capital expenditures. There is a rational nexus that fees collected
through additional housing and new developments be used towards capital projects that will service the
additional population. Most importantly, using these funds will not create a necessity for additional
property taxes. Using collected PID fees for capital amenities that allow for expansion of community
services follows the principal of growth paying for growth without an impact to our neighbors. The use of
these funds for capital projects will allow the City to offset the impact of the current inflationary period,
and if desired, also expand the service of capital projects.
A policy forthe use of these funds will demonstrate that the funds have been assigned a purpose and that
a commitment is being made towards compliancy of that purpose. Therefore, a PID Fund Policy, as an
amendmentto the City's Financial Policies, will be on the agenda forthe February 14 City Council Meeting
for consideration and approval.
c: Alan Guard, Finance Director
Terri Doby, Budget Manager
Taylor Lough, Assistant City Manager
Greg Peters, Interim Assistant City Manager
Carrie Land, City Secretary