Board Policy DE: Debt Limitation

Debt Management

The District shall seek to maintain the highest possible credit rating for all categories of long-­term General Obligation debt that can be achieved without compromising delivery of basic educational services and achievement of adopted Board policy objectives. The Board recognizes the primary purpose of capital facilities is to support provision of services to its students and programs. In meeting the demand for additional capital facilities, the Board will strive to balance the load between debt financing and "pay as you go" methods.

CONDITIONS FOR USING DEBT

Debt financing of capital improvements and equipment will be done only when the following conditions exist:

1. When non-continuous projects (those not requiring continuous annual appropriations) are desired;

2. When it can be determined that future users will receive a benefit from the improvement;

3. When it is necessary to provide basic services to students; and

4. When the rights of bond buyers and subsequent investors are protected through full disclosure.

The District shall use lease purchase financing for the provision of new and replacement equipment, vehicles and rolling stock to ensure the timely replacement of equipment and vehicles and to decrease the impact of the cost to the user department by spreading the costs over several years. This method may also be used to acquire real property. The annual installments for all leases are appropriated by the Board each year. For purposes of securing credit ratings and monitoring annual debt service as a percentage of operating expenditures, lease purchase financing will be considered by the District a long-term liability of the District and therefore shall be issued under the same conditions as long-term debt.

The Board shall identify as part of its budgets: 1) the total expenditures during the ensuing fiscal year for all lease purchase agreements involving real and personal property; and 2) the total maximum payment liability under all lease purchase agreements over the entire term of the agreements, including all optional renewal terms.

The Board recognizes that municipal bond rating agencies and financial analysts have established key debt indicators by which they evaluate the credit strength of issuers.

1. Debt Service Levels: District general obligation bonded indebtedness must be voter-authorized and is payable via the Debt Service Fund from voter-authorized designated special purpose local option sales tax and bond designated ad valorem taxes. Debt service obligations via the General Fund consist of lease obligations, intergovernmental contract obligations, etc. The District will calculate direct debt service expense as a percent of General Fund and Debt Service Fund expenditures to monitor its debt burden in relation to overall General Fund and Debt Service operations. The Board shall strive to maintain its annual debt service expense ratio at or below 15%.

2. Length of Debt: Debt will be incurred for the shortest period consistent with a fair allocation of costs to current and future beneficiaries or users and consistent with the useful life of the assets to be financed.

3. Debt Structure: Debt will be structured to achieve the lowest possible net cost to the District given market conditions, the urgency of the capital project, and the nature and type of security provided. Moreover, to the extent possible, the District will design the repayment of its overall debt so as to recapture rapidly its credit capacity for future use. The District shall strive to repay at least 20 percent of the principal amount of any proposed outstanding general obligation debt within five years and at least 40 percent within ten years.

The District will seek to structure debt with level principal and interest costs over the life of the debt. However, the District may consider a structured or wrapped debt service amortization when such structuring is beneficial to the District's overall amortization schedule, when the benefits derived from the debt issuance can clearly be demonstrated to be greater in the future than in the present, when such structuring will allow debt service to match more closely anticipated revenues/receipts, or when natural disasters or extraordinary / unanticipated external factors make the short-term cost of the debt prohibitive.

1. Variable Rate Debt: The Board may choose to issue securities that pay a rate of interest that varies according to pre-determined formula or results from a periodic remarketing of the securities, consistent with state law and covenants of pre­existing bonds, and depending on market conditions. Generally, the District will have no more than 15 percent of its outstanding general obligation bonds in variable-rate form.

2. Refundings: The Superintendent and staff shall undertake periodic reviews of all outstanding debt to determine refunding opportunities. Refundings will be considered by the Board, within federal tax law constraints, if and when there is a net economic benefit of the refunding or the refunding will serve to modernize covenants essential to operations and management. In general, refundings for economic savings will be undertaken when a net present value savings of at least three percent (3%) of the refunded principal can be achieved. Current refundings that produce a net present value savings of less than three percent (3%) will be considered on a case-by-case basis.

When the Board utilizes debt financing, it will ensure that the debt is soundly financed by:

1. Conservatively projecting the revenue sources that will be used to pay the debt;

2. Financing the improvement over a period not greater than the useful life of the improvements;

3. Determining that the benefits of the improvement exceed the costs, including interest costs; and

4. Evaluating proposed debt against the target debt indicators.