2016-14 RESOLUTION NO. 2016 - 14
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 by 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 April 18, 2016 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 and supersedes the original policy dated on March 21, 2003 approved by
Resolution No. 2003-24 or April 7, 2003.
Section 2. The Village's Director of Finance is responsible forte 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-Bennari ,'I'riiiiiig,St i i,ottenticiiiier, Weidenfeld,Johnson
NAYS: 0 -None
ABSENT: 0 - None
PASSED: April 18, 2016.
APPROVED: Apr ILI
1�8 2016.
OBeverlyy 4SUSsi �Iillage President
ATTEST:
Janet hl-Sirabiati,Village Clerk
Exhibit A
VILLAGE OF BUFFALO GROVE
DEBT POLICY
I. PURPOSE AND GOALS
The Debt Policy sets forth comprehensive guidelines for the financing of capital expenditures. It
is the objective of the policies that (1) the Village obtain financing only when necessary, (2) the
process for identifying the timing and amount of debt or other financing be as efficient as
possible, (3) the most favorable interest rate and other related costs be obtained, and (4) when
appropriate, future financial flexibility be maintained.
Debt financing, which includes general obligation bonds, special assessment bonds, revenue
bonds, temporary notes, lease/purchase agreements, lines of credit, and other Village
obligations permitted to be issued or incurred under Illinois law, shall only be used to purchase
capital assets that cannot be acquired from either available current revenues or fund balances.
The useful life of the asset or project shall exceed the payout schedule of any debt the Village
assumes.
To enhance creditworthiness and prudent financial management, the Village is committed to
systematic capital planning and long-term financial planning. Evidence of this commitment to
capital planning will be demonstrated through the annual adoption of a Capital Improvement
Plan (CIP) identifying the benefits, costs and method of funding each capital improvement
planned for the succeeding five years.
GOALS
In following this policy,the Village shall pursue the following goals when issuing debt:
• 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 into
long-term debt, should be a practice that is expressly prohibited. 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.
• Assess financial alternatives to include new and innovative financing approaches as well as
seeking categorical grants, revolving loans or other state/federal aid
• 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.
• Determine the amortization (maturity) schedule which will best fit with the overall debt
structure of the Village's general obligation debt and related tax levy at the time the new
debt is issued. The Village may choose to delay principal payments or capitalize interest
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Exhibit A
during the project construction. For issuance of revenue bonds, the amortization schedule
which will best fit with the overall debt structure of the enterprise fund and its related rate
structure will be considered. Consideration will be given to coordinating the length of the
issue with the lives of assets, whenever practicable, while considering repair and
replacement costs of those assets to be incurred in future years as an offset to the useful
lives, and the related length of time in the payout structure.
• Level or declining debt service shall be employed unless operational matters dictate
otherwise, or except to achieve overall level debt service with existing bonds. The Village
shall be mindful of the potential benefits of bank qualification and will strive to limit its
annual issuance of debt to $10 million or less when such estimated benefits are greater
than the benefits of exceeding the bank qualification limit. Should subsequent changes in
the law raise this limit, then the Village policy will be adjusted accordingly.
• The cost of taxable debt is higher than for tax-exempt debt. However, the issuance of
taxable debt is mandated in some circumstances and may allow valuable flexibility in
subsequent contracts with users or managers of the improvement constructed with the
bond proceeds. Therefore, the Village will usually issue obligations tax exempt, but may
occasionally issue taxable obligations.
11. DEBT ISSUANCE IN GENERAL
A. Authority and Purposes of the issuance of Debt
The laws of the State of Illinois authorize the issuance of debt by the Village. The Local
Bond Law confers upon municipalities the power and authority to contract debt, borrow
money, and issue bonds for public improvement projects as defined therein. Under
these provisions, the Village may contract debt to pay for the cost of acquiring,
constructing, reconstruction, improving, extending, enlarging, and equipping such
projects or to refund bonds. The Village Charter authorizes the Village Board to incur
debt by issuing bonds for any lawful municipal purpose as authorized by the State
Constitution or it Home Rule Powers.
B. Types of Debt Issued
i) Short-Term (three years or less)The Village may issue short-term debt to finance the
purchase of capital equipment having a life exceeding one year or provide increased
flexibility in financing programs.
ii) Long-Term (more than three years) The Village may issue long-term debt which may
include, but not limited to, general obligation bonds, certificates of participation,
capital appreciation bonds, tax increment allocation revenue bonds, special
assessment bonds, special service area bonds, self-liquidation bonds and double
barreled bonds. The Village may also enter into long-term leases for public facilities,
property, and equipment with a useful life greater than one year.
C. Capital Improvement Program
The Capital Improvement Plan (CIP) as approved by the Village Board shall
determine the Village's capital needs. The program shall be a five-year plan for the
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Exhibit A
acquisition, development and/or improvement of the Village's infrastructure. The first
year of the program shall be the Capital Budget. If the current resources are insufficient
to meet the needs identified in the Capital Budget, the Village Board may consider
incurring debt to fund the shortfall. The Village Board, upon advice from the Village's
financial advisor, may also consider funding multiple years of the Capital Improvement
Program by incurring debt. The CIP should be revised and supplemented each year in
keeping with the Village's policies on debt management.
D. Structure of Debt Issues
The duration of a debt issue shall not exceed the economic or useful life of the
improvement or asset that the issue is financing. The Village shall design the financing
schedule and repayment of the debt so as to take best advantage of market conditions
and, as practical, to recapture or maximize its credit capacity for future use, and
moderate the impact to the taxpayer.
E. Sale of Securities
All debt issues should be sold through a competitive bidding process based upon the
lowest offered True Interest Cost (TIC), unless the Board deems a negotiated sale the
most advantageous to the Village.
F. Credit Enhancements
The Village may enter into agreements with commercial banks or other financial entities
for the purpose of acquiring letters of credit, municipal bond insurance, or other credit
enhancements that will provide the Village with access to credit under terms and
as specified in such agreements when their use is judged cost effective or otherwise
advantageous. Any such agreements shall be approved by the Village Board.
Ill. LEGAL CONSTRAINTS AND OTHER LIMITATIONS ON THE ISSUANCE OF DEBT
The Village Board may utilize the guidelines established by this policy, or may choose, in
its discretion, to consider other relevant factors in incurring debt. The validity of any
debt incurred in accordance with applicable law shall not be invalidated, impaired or
otherwise affected by non-compliance with any part of the procedure set forth pursuant
to this policy.
A. State Law
30 ILCS 305/0.01, et. Seq.: the short title is "The Bond Authorization Act."
B. Authority for Debt
The Village may, by bond ordinance, incur indebtedness or borrow money, and
authorize the issue of negotiable obligations, including refunding bonds, for any capital
improvement of property, land acquisition, or any lawful purpose except current
expenses, unless approved by the Village Board.
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Exhibit A
C. Debt Limitation
Because the Village of Buffalo Grove is a Home Rule Community, the debt limitations of
the bond laws are not applicable.
D. Methods of Sale
All bonds shall be sold at a public sale, except that bonds may be sold at a private sale
in accordance with 30 ILCS 350/10. The Village may issue short-term notes by
negotiated sale if the bond ordinance or subsequent resolution so provides.
i) Bonds All bonds will mature within the period or average period of usefulness of the
assets financed; and the bonds will mature in installments, the first of which is
payable not more than five years from the dated date of the bonds. Term bonds may
be allowable if recommended by the Village's financial advisor and approved by the
Village Board.
ii) Financial Advisor To ensure independence, the Financial Advisor will not bid on nor
underwrite any Village debt issues on which it is advising.
IV. DEBT ADMINISTRATION
A. Financial Disclosures
The Village shall prepare appropriate disclosures as required by the Security and
Exchange Commission, the federal government, the State of Illinois, rating agencies,
underwriters, investors, agencies, taxpayers, and other appropriate entities and persons
to ensure compliance with applicable laws and regulations.
B. Review of Financing Proposals
All capital financing proposals that involve a pledge of the Village's credit through the
sale of securities, execution of loans or lease agreements and/or otherwise directly
involve the lending or pledging of the Village's credit shall be referred to the Director of
Finance/Treasurer who shall determine the financial feasibility, and the impact on
existing debt of such proposal, and shall make recommendations accordingly to the
Village Manager.
C. Establishing Financing Priorities
The Director of Finance/Treasurer shall administer and coordinate the Village's debt
issuance program and activities, including timing of issuance, method of sale, structuring
the issue, and marketing strategies. The Director of Finance/Treasurer along with the
Village's financial advisor shall meet, as appropriate, with the Village Manager and
Village Board regarding the status of the current year's program and to make specific
recommendations.
D. Rating Agency Relations
The Village shall endeavor to maintain effective relations with the rating agencies. The
Village Manager, Director of Finance/Treasurer, and the Village's financial advisors
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Exhibit A
should meet with, make presentations to, or otherwise communicate with the ratings
agencies on a consistence and regular basis in order to keep the agencies informed
concerning the Village's capital plan, debt issuance program, and other appropriate
financial information.
E. Refunding Policy
The Village should consider refunding outstanding debt when legally permissible and
financially advantageous. A net present value debt service savings of at least three
percent or greater should be achieved.
F. Post-issuance Compliance
The Finance Director/Treasurer shall be responsible for following post-issuance
compliance for all debt issues. The procedures are noted in the Post-issuance
Procedures Manual for Tax-Exempt Bonds Issued by The Village of Buffalo Grove.
V. GLOSSARY OF TERMS
Ad Valorem Tax—A direct tax based "according to value" of property.
Advanced Refunding Bonds— Bonds issued to refund an outstanding bond issue prior to the
date which the outstanding bonds become due or callable. Proceeds of the advanced
refunding bonds are deposited in escrow with a fiduciary, invested in United States Treasury
Bonds or other authorized securities, and used to redeem the underlying bonds at maturity
or call date.
Amortization —the process of paying the principal amount of an issue of bonds by periodic
payments either directly to bondholders or to a sinking fund for the benefit of bondholders.
Arbitrage — Usually refers to the difference between the interest paid on the tax-exempt
securities and the interest earned by investing the proceeds in higher yielding taxable
securities. Internal Revenue Service regulations govern arbitrage (references I.R.S. Reg.
1.103-13 through 1.103-15).
Arbitrage Bonds — Bonds which are deemed by the I.R.S. to violate federal arbitrage
regulations. The interest on such bonds becomes taxable and the bondholders must include
this interest as part of gross income for federal income tax purposes (I.R.S. Reg. 1.103-13
through 1.103-15).
Assessed Value — An annual determination of the just or fair market value of property for
purposes of ad valorem taxation.
Basis Point— 1/100 of one percent.
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Exhibit A
Bond —Written evidence of the issuer's obligation to repay a specified principal amount on
a date certain, together with interest at a stated rate, or according to a formula for
determining that rate.
Bond Anticipation Notes (BANS) — Short-term interest bearing notes issued by a
government in anticipation of bonds to be issued at a later date. The notes are retired from
proceeds of the bond issue to which they are related.
Bond Counsel — An attorney retained by the Village to render a legal opinion whether the
Village is authorized to issue the proposed bonds, has met all legal requirements necessary
for issuance, and whether interest on the bonds is, or is not, exempt from federal and state
income taxation.
Bonded Debt — The portion of an issuers total indebtedness represented by outstanding
bonds.
Callable Bond — A bond which permits or requires the issuer to redeem the obligation
before the state maturity date at a specified price, the call price, usually at or above par
value.
Capital Appreciation Bonds (CAB) —A long-term security on which the investment return is
reinvested at a state compound rate until maturity. The investor receives a single payment
at maturity representing both the principal and investment return.
Commercial Paper — Very short-term, unsecured promissory notes issued in either
registered or bearer form, and usually backed by a line of credit with a bank.
Coupon Rate — The annual rate of interest payable on a coupon bond (a bearer bond or
bond registered as to principal only, carrying coupons evidencing future interest payments),
expressed as a percentage of the principal amount.
Debt Limit — The maximum amount of debt which an issuer is permitted to incur under
constitutional, statutory or charter provision.
Debt Service—The amount of money necessary to pay interest on an outstanding debt, the
serial maturities of principal for serial bonds, and the required contributions to an
amortization or sinking fund for term bonds.
Demand Notes (Variable Rate) — A short-term security which is subject to a frequently
available put option feature under which the holder may put the security back to the issuer
after giving specified notice. Many of these securities are floating or variable rate, with the
put option exercisable on dates on which the floating rate changes.
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Exhibit A
Double Barreled Bonds (Alternative Revenue Bonds) — A bond which is payable from the
revenues of a governmental enterprise and are also backed by the full faith and credit of
the governmental unit.
Enterprise Funds - Funds that are financed and operated in a manner similar to private
business in that goods and services provided are financed primarily through user charges.
General Obligation Bond - A bond for whose payment the full faith and credit of the issuer
has been pledged. More commonly, but not necessarily, general obligation bonds are
payable from ad valorem property taxes and other general revenues.
Lease Purchase Agreement (Capital Lease) - A contractual agreement whereby the
government borrows funds from a financial institution or a vendor to pay for capital
acquisition. The title to the asset(s) normally belongs to the government with the lessor
acquiring security interest or appropriate lien therein.
Letter of Credit- A commitment, usually made by a commercial bank, to honor demands for
payment of a debt upon compliance with conditions and/or the occurrence of certain
events specified under the terms of the commitment.
Level Debt Service - An arrangement of serial maturities in which the amount of principal
maturing increases at approximately the same rate as the amount of interest declines.
Long-Term Debt - Long-term debt is defined, for purposes of this policy, as any debt
incurred whose final maturity is more than three years.
Maturity-The date upon which the principal of a municipal bond becomes due and payable
to bondholders.
Mini-bonds-A small denomination bond directly marketed to the public.
Net Interest Cost ( IC) - The traditional method of calculating bids for new issues of
municipal securities. The total dollar amount of interest over the life of the bonds is
adjusted by the amount of premium or discount bid, and then reduced to an average annual
rate. The other method is known as the true interest cost (see "true interest cost").
Offering Circular - Usually a preliminary and final document prepared to describe or
disclose to investors and dealers information about an issue of securities expected to be
offered in the primary market. As a part of the offering circular, an official statement shall
be prepared by the Village describing the debt and other pertinent financial and
demographic data used to market the bonds to potential buyers.
Other Contractual Debt - Purchase contracts and other contractual debt other than bonds
and notes. Other contractual debt does not affect annual debt limitation and is not a part of
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Exhibit A
indebtedness within the meaning of any constitution or statutory debt limitation or
restriction.
Par Value or Face Amount - In the case of bonds, the amount of principal which must be paid at
maturity.
Parity Bonds - Two or more issues of bonds which have the same priority of claim or lien
against pledged revenues or the issuer's full faith and credit pledge.
Principal -The face amount or par value of a bond or issue of bonds payable on stated dates of
maturity.
Private Activity Bonds - One of two categories of bonds established under the Tax Reform Act
of 1986, both of whom are subject to certain tests and State volume caps to preserve tax
exemption.
Ratings - Evaluations of the credit quality of notes and bonds, usually made by independent
rating services, which generally measure the probability of the timely repayment of principal
and interest on municipal bonds.
Refunding Bonds- Bonds issued to retire bonds already outstanding.
Registered Bond - A bond listed with the registrar as to ownership, which cannot be sold or
exchanged without a change of registration.
Reserve Fund - A fund which may be used to pay debt service if the sources of the pledged
revenues do not generate sufficient funds to satisfy the debt service requirements.
Self-Supporting or Self Liquidating Debt - Debt that is to be repaid from proceeds derived
exclusively from the enterprise activity for which the debt was issued.
Short-Term Debt -Short-term debt is defined for purposes of this policy as any debt incurred
whose final maturity is three years or less.
Spread -The income earned by the underwriting syndicate as a result of differences in the price
paid to the issuer for a new issue of municipal bonds, and the prices at which the bonds are
sold to the investing public, usually expressed in points or fractions thereof.
Tax-Exempt Bonds - For municipal bonds issued by the Village tax-exempt means interest on
the bonds are not included in gross income for federal income tax purposes; the bonds are not
items of tax preference for purposes of the federal, alternative minimum income tax imposed
on individuals and corporations; and the bonds are exempt
from taxation by the State of Illinois.
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Exhibit A
Tax Increment Bonds - Bonds secured by the incremental property tax revenues generated
from a redevelopment project area.
Term Bonds- Bonds coming due in a single maturity.
True Interest Cost (TIC) -Also known as Canadian Interest Cost. A rate which, when used to
discount each amount of debt service payable in a bond issue, will produce a present value
precisely equal to the amount of money received by the issuer in exchange for the bonds. The
TIC method considers the time value of money while the net interest cost ( IC) method does
not.
Yield to Maturity - The rate of return to the investor earned from payments of principal and
interest, with interest compounded semiannually and assuming that interest paid is reinvested
at the same rate.
Zero Coupon and - A bond which pays no interest, but is issued at a deep discount from par,
appreciating to its full value at maturity.
Dated April 18, 2016
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