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City officials establish debt management policy
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McMinnville officials have established a debt management policy. The city’s policy meets the state’s requirement that one be in place by the end of the year.
“Tennessee State Funding Board has required all municipalities to pass a debt management policy by Dec. 31, 2011,” said city administrator David Rutherford.
The goal of the state’s requirement of a debt management policy is to assist decision makers in planning, issuing, and managing debt obligations by providing clear directions as to the steps, substances and outcomes desired. In addition, a policy will increase stability over the long-term by the use of consistent guidelines in issuing debt.
Along with other areas, such as the use of variable rate debt and use of derivatives, the city has set down guidelines on types and limits of city debt:
• The city will seek to limit total outstanding debt obligations to 3 percent of the city’s total appraised property, excluding overlapping debt, enterprise debt and revenue debt.
• The limitation on total outstanding debt must be reviewed prior to the issuance of any new debt.
• The city’s total outstanding debt obligation will be monitored and reported to the city council by the city administrator or the city treasurer annually.
• The city may issue general obligation bonds, revenue bonds, TIFs, loans, notes and other debt allowed by law, as it determines most appropriate.
• The city will seek to structure debt with level or declining debt service payments over the life of each individual bond issue or loan.
• As a rule, the city will not backload, use “wrap-around” techniques, balloon payments or other exotic formats to pursue the financing of projects.
• The city may use capital leases to finance short-term projects.
• Bonds backed with a general obligations pledge often have lower interest rates than revenue bonds. The city may use its general obligation pledge with revenue bond issues when the populations served by the revenue bond projects overlap or significantly are the same as the property tax base of the city.
Tennessee Funding Board gave municipalities until Dec. 31 to adopt their own debt management policies. Comptroller of the Treasury Justin P. Wilson says that any municipality wanting to borrow money after that date needs to be in compliance with the requirement.
“If your governmental entity may need to borrow money, whether in the form of a bank loan, an inter-fund borrowing, a publicly offered bond issue, or any other form of borrowing money, after Dec. 31, 2011, you should be in the process now to develop and adopt a debt management policy designed to meet your needs,” Wilson said.
The city’s debt management policy was accepted by officials, but it may be amended or revoked by way of an ordinance.