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Written by Todd Meierhenry
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Saturday, 12 January 2008 18:26 |
Process of Issuing Debt Preliminary Analysis The process of issuing debt begins well before the holding of a bond election, preparing an Official Statement or actually selling the bonds. The framework for responsible debt management is established in advance by development of a long-term plan for capital improvement and expenditure. The first step of this long-term plan is preliminary analysis that involves three broad considerations: 1. Project feasibility (a cost versus perceived benefit assessment). 2. Various financing options. 3. The advantages of a public offering (negotiated sale or competitive bid) as opposed to private placement – where private placement is legally allowed. As a general rule, the debt redemption schedule should not extend beyond the useful life of the project being financed. Issuers should review proposed debt offerings against statutory debt ceiling limitations as early in the debt issuance process as possible (that is when capital needs are being discussed, and tentative amounts are considered). Capital Improvement Plan A well-thought-out long-term capital planning program is a composite of all the levels of needs and desires for school facilities, balanced by the realism of district’s limited ability to serve its population. The equation must include a cost-benefit analysis that yields an objective measure of what is the best choice, given the variables. Any district using the capital outlay fund for payment of construction of new facilities or construction of additions to facilities must develop and maintain a five-year plan on the annual projected revenues and the annual projected expenditures for the capital outlay fund and such projected expenditures shall itemize the projected costs for new or additional facilities.[i] A form of the five year plan is covered in another article. A formal capital improvement plan should be developed and submitted to the district’s elected officials for approval. If properly prepared, a capital improvement plan will demonstrate a district’s commitment to infrastructure improvements and long-term economic well being. It will also show a realistic and thoughtful self-evaluation of district financial liabilities and funding resources. This can be a strong positive credit quality indicator to investors and credit rating agencies. Typically, a good plan identifies the following: · Those district needs that are appropriate for debt financing and do not exceed the statutorily permitted debt levels. · A ranking of each proposed capital improvement project and expenditure item. · A timeline of when the improvements will commence and the number of years to complete construction. · The amount budgeted for each year. · The financing method proposed and a systematic review of all funding alternatives such as tax revenues, user fees, rents, intergovernmental grants and loans and public-private financing partnerships. Capital Improvement Budget The capital improvement budget is adopted annually and is based on the capital improvement plan. It should include enacting statutes for appropriations and the necessary bond issues. The capital budget may differ from the long-term capital improvement plan because of financial constraints and changing circumstances. After adoption of the capital budget, the capital plan should be updated to include any changes necessary in future years as a result of current budget revisions. Future operating costs must be determined once a capital project has been selected. These costs include debt service and the maintenance and operational expense of any physical facility. A sample on how to estimate debt service cost is given in Appendix D. Operating expenditures should be estimated and adjusted for anticipated inflation. Capital Improvement Projects Local governments should evaluate their past economic growth and financial performance, current conditions and the implications of these trends for the future. Governments experiencing significant district growth usually require capital expenditures on a variety of projects. Capital project construction and improvements are expected to have a useful life of more than one year. Capital improvements generally do not include items such as normal operating budgets, routine maintenance and repairs, consumables, and personnel salaries. The following are some examples of capital projects: · Land acquisition. · Major recreational and cultural facilities. · General district services and infrastructure needs such as schools, sewer and water facilities, police and fire protection equipment. · New construction and replacement and improvement of older facilities to meet the rising expectations and standards of the district. · Other projects which may be specific or unique to a particular local government jurisdiction (i.e. sometimes projects may arise in response to the needs of certain groups).
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Last Updated ( Monday, 21 January 2008 05:29 )
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