2003-249
RESOLUTION NO. 2003- 24
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A RESOLUTION ADOPTING THE VILLAGE OF BUFFALO GROVE
POLICY AND PRACTICE RELATIVE TO DEBT
WHEREAS, the Village of Buffalo Grove is a public agency responsible for the efficient and effective use
of debt to provide financing for capital development and improvement purposes; and
WHEREAS, the issuance of debt the Village will also be used from time to time to provide for the efficient
and cost effective refunding of existing debt, as appropriate; and
WHEREAS, the development and adoption of policies and practices on matters of public finance serve as a
guide and directive to the fiscal affairs of the Village of Buffalo Grove.
NOW, THEREFORE, BE IT RESOLVED BY THE PRESIDENT AND BOARD OF TRUSTEES OF THE
VILLAGE OF BUFFALO GROVE, COOK AND LAKE COUNTIES, ILLINOIS that:
Section 1. The Village of Buffalo Grove Debt Policy dated March 21, 2003 which is attached hereto and
made a part hereof as Exhibit "A" is hereby adopted as a guide on how the Village shall manage the
issuance and repayment of any and all debt sold from time to time.
Section 2. The Village's Director of Finance and General Services is responsible for the management of
this Policy as well as for any and all reporting required to support the intent of said Policy. This Policy
shall be effective with the adoption of this Resolution and as it is amended from time -to -time.
AYES: 6 — Braiman, Glover, Berman, Jbhnson, Kahn, Trilling_
NAPES: 0 — None
ABSENT: 0 — None
ADOPTED: April 7 , 2003.
APPROVED: April 7 , 2003.
Village President
ATTEST:
Villa lerk
VILLAGE OF BUFFALO GROVE
DEBT POLICY
0
Exhibit f°A"
• debt policy is a formal document governing when, how, for what purposes, and to what extent debt may be issued.
• sound debt policy will provide benefit and guidance to the Village of Buffalo Grove not only as to how it manages
the repayment of outstanding debt but can serve to manage the Capital Improvement Plan adopted annually. Debt
policy can:
• Help avoid common pitfalls of debt issuance and management.
• Promote long -term financial stability, including managing tax levies.
• Send a message regarding fiscal responsibility to the community.
• Assist in not only maintaining but improving bond ratings.
• Enhances regulatory compliance matters.
• Assures that borrowing is done at the lowest cost to the community.
An effective debt policy should be firm m intent but not onerous to the extent that flexibility in approach toward use
and design of debt becomes difficult. Elements should include, but not be limited to, the purposes for which debt
may or may not be used, the limitations of debt, and the standards for debt issuance. The following represent
elements of the debt policy for the Village of Buffalo Grove.
• Long -term debt will not be used to finance current operations or to capitalize operating expenses. The
capitalization of expenses, which represents a shift of operating costs onto long -term debt, should be a practice
that is expressly prohibited. To further support this policy, the highest priority for the issuance of long -term
debt will be to further the Village's Capital Improvement Plan. In terms of this and other policy statements,
long -term debt will be bonded indebtedness whose maturity is at least ten years from the date of original issue.
• Long -term debt will be used only for capital projects that cannot be financed from current revenue sources.
Where capital improvements or acquisitions are financed through the issuance of debt, such debt will be retired
in a period not to exceed the expected life of the improvement or acquisition.
• The Village will also issue long -term debt for refunding of other outstanding debt for the purpose of interest rate
savings. As a guide, the minimum net present value savings shall be three percent (3 %) of the par value of the
proposed new bonds to be issued. However, circumstances may occur where a refunding may be advantageous
with net present value savings of less than 3 %. In those cases, approval of the President and Board of Trustees
will be required in order to proceed.
• The Village will use only level or declining debt repayment schedules, avoiding back - loaded or balloon
repayment schedules or variable -rate debt. This is to avoid fluctuations in debt service requirements as well as
fluctuations in tax levy rates. Only in those circumstances where it is to the Village's advantage will debt
service be scheduled on a non -even repayment basis. Level or declining repayment schedules incur less interest
cost while the use of delayed or balloon schedules incur greater interest cost. Lastly, the use of variable -rate
debt requires dependence upon some external measure and indices and may be considered a form of
speculation.
• A policy of full disclosure will be followed in all financial reports, official statements and as part of any
mandatory continuing disclosure undertaking. Information required to be distributed, by law, to any Nationally
Recognized Municipal Securities Information Repository (NRMSIR) shall follow guidelines set forth from time
to time, including any required Material Events Disclosure as interpreted under the Securities Exchange Act of
1934, as amended. Lastly, the Village will use generally accepted accounting principles in the preparation of all
financial statements used in complying with disclosure requirements. All financial statements will be audited
annually by an independent, certified public accounting firm.
• Municipalities of less than 500,000, unless they are a home rule unit, are limited in the amount of indebtedness
they can incur at any one time to no more than 8.625% of assessed and equalized valuation. However, as a
policy planning target, the Village shall endeavor to have no more indebtedness outstanding at any one time in
an amount greater than four percent (4 %) of assessed and equalized valuation. In the event of an extraordinary
situation as determined by the President and Board of Trustees, the Village may have outstanding debt in an
amount exceeding 4% of its assessed evaluation.
• Overall, the Village will repay any indebtedness incurred in the shortest possible time without creating undue
hardship for tax or ratepayers.
• Capital improvement or refunding indebtedness will be funded with General Obligation Bonds unless there are
other, more appropriate, means of financing. Such alternative financing might include, but not be limited to,
revenue bonds, special service area bonds, tax increment allocation revenue bonds and special assessments.
• Indebtedness to be issued by the Village will be offered through the competitive bidding process except as
expressly approved by the President and Board of Trustees. If it is proposed that debt not be issued through
competitive bidding, such request will state the compelling reasons why the competitive bidding process is not
deemed suitable for the particular issuance of debt. Competitive bidding can reduce interest cost, avoids
questions of unfairness and favoritism in the underwriting selection process and should validate the ultimate
price paid for debt.
• Any consultants providing advice and counsel for any issuance of Village debt, as well as broker /dealers
acquiring Village debt, shall be independent. Financial advisors, bond counsel and any broker /dealer for any
issuance of debt shall each be separate entities having no relationship with each other. This is intended to
prevent any conflict of interest, incorporating within the Policy the requirements of Municipal Securities
Rulemaking Board Rule G -23, which permits financial advisor /underwriter relationships if such relationships
are disclosed to the Village as issuer.
• Any financial advisor and bond counsel shall provide full and continuing disclosure to the Village of any
relationship or agreement, formal or informal, that may be in conflict with the best interests of the Village. The
financial advisor and bond counsel shall further be prohibited from engaging in such relationships or
agreements without the express prior consent of the Village. Any potential for conflict of interest, where it
may exist, should be expressly recognized by all consultants.
While the Village intends to match its borrowing needs with those identified within the approved Capital
Improvement Plan or in some cases, the refunding of outstanding debt at a lower net interest cost, with long -term
debt, there may be instances with other debt may be advantageous to issue. Additionally, there may be a need to
employ what will be defined as interim debt. The following policies are applicable to the issuance of either short-
term or interim debt:
• Short-term debt shall be considered indebtedness issued for a term of 10 -years or less. The use of such debt,
with the exception of current debt refunding, shall be intended to provide financing for municipal needs such as
purchasing/replacing fleet equipment, renovation or reconstruction of capital assets, purchases of specialized
types of equipment, or to acquire communications or data systems /equipment. Each proposal for short-term
financing shall be evaluated on a case by case basis with final approval granted by the President and Board of
Trustees.
• Interim debt shall be considered indebtedness issued for a term of less than 5- years. Such borrowing may be
utilized for the temporary funding of operational cash flow deficits pending receipt of anticipated revenues or
for interim capital financing needs; an internal borrowing for operational or capital acquisition would qualify as
interim debt. Repayment will occur over a period not to exceed the useful life of the underlying asset but in any
case, no longer than 5- years, although the period could vary depending on the nature of the asset financed. In
terms of internal borrowing for purposes other than capital acquisition, the term will be no greater than 5- years.
Policy on Revenue Based Debt:
The Village may find it advantageous to issue revenue based debt to fund enterprise capital financing needs. Should
such indebtedness be required, the following standards shall apply:
An annual rate and fee review will be conducted as part of the fiscal year budget process to ensure that
predictable and affordable charges for services are in effect.
The Village will maintain rates and fees necessary to conform to bond coverage requirements that may be
required.
The primary option for any enterprise financing, and to also serve as a modeling tool for future rate and fee
requirements, shall be debt with a maximum maturity of 20- years.
Village Board Authorizations:
All long, short and interim term borrowing shall require approval of the President and Board of Trustees prior to
authorization.
Alternative Financing:
The Village will issue alternate type of indebtedness such as, but not limited to, Special Service Area Bonds or Tax
Increment Allocation Revenue Bonds when beneficial to an identified development strategy approved by the
President and Board of Trustees. Such indebtedness shall be considered limited obligations of the Village secured
by special taxes authorized by statute or in the case of TIF, by incremental property and sales taxes. The Village
will not use its full faith and credit to secure any alternative financing.
Further, should the Village issue alternative type debt, it shall take any and all reasonable steps to confirm the
financial feasibility of any projects and the financial solvency of the end user(s). Further, all precautions will be
taken to ensure that a true public purpose and financial viability exists for all such projects funded.
Other Agency Financing:
Through intergovernmental agreement, the Village may be obligated for a portion of debt issued by an associated
public agency such as the Solid Waste Agency of Northern Cook County or Northwest Water Commission.
Depending upon the nature of the obligation, disclosure will be noted within the Village's Comprehensive Annual
Financial Report following generally accepted accounting principles. If the nature of an external financing requires
disclosure within the financial statements of the Village, such indebtedness obligations will be properly accounted
for and disclosed.
Bond Covenants and Laws:
The Village shall comply at all times with all covenants and requirements of bond ordinances as well as
supplemental transcript documents as well as State and Federal laws authorizing and governing the issuance and
administration of debt obligations.
Debt Policy and Rating Agencies:
Underwriting and municipal credit rating institutions base their evaluation of the Village upon its ability to ensure
that new debt is incurred in a prudent manner, so as to maximize the credit worthiness of the Village. This is
important if the Village is to upgrade its present bond rating, and in extreme conditions, maintain its current rating.
Rating agencies have advised that one of the major criteria used in evaluating credit worthiness is whether a local
jurisdiction has an objective but flexible debt policy which serves as a guideline for making decisions about how
much new debt to incur or have outstanding at any one time. Generally, rating agencies will view, as positive,
criteria that are conservative. A local government should only borrow what it can afford and retire principal in a
timely and aggressive manner.
Dated March 21, 2003