ADMIN 120 - Debt Management Policy

Policy

In order to fulfill its mission, CWI will need to make strategic capital investments in its facilities. Various available funding resources, including state appropriations and other public funds, internal reserves, philanthropic donations, and debt proceeds will be utilized by the College’s senior management and the Board judiciously to achieve CWI’s strategic objectives. The framework outlined in this policy will govern CWI’s debt management processes, including the capital funding structure, criteria used to evaluate the appropriate mix of funding sources, appropriate use of leverage, the matching of the term of its liabilities to the useful life of financed assets, and the maintenance of an investment grade credit rating. The following principles will be applied to the College’s debt issuance practices.

I. Governing Principles

1. Debt issuance processes will comply with applicable laws, regulations, bond covenants, and external reporting requirements as well as CWI policy and procedures. 
2. Approval by the Board will be secured for all new borrowing and refinancing initiatives as required by policy and procedures in place at the time of debt issuance. Debt will be utilized to fund only capital initiatives that are consistent with the College’s mission, strategic priorities, and capital plan.
3. CWI will establish and maintain an internal monitoring plan to ensure compliance with this policy, bond resolutions, and post-issuance compliance requirements.
4. CWI’s overall debt status and projected outlook will be reported to the Board of Trustees by the VPFA, at least annually.
5. The debt type and terms will be determined on the basis of expected availability of resources, other long term goals and obligations of the borrowing unit and the College, the useful life of the assets being financed, and market conditions at the time of financing. 
6. The policy, metrics, and monitoring mechanisms utilized will be reviewed annually, and will be updated as needed to align with CWI’s objectives and strategy, and also with evolving financial, economic, legal, and other factors. 

II. Financing Objectives

The financing objectives stated below, combined with the judgment of CWI leadership, will provide a framework for decisions regarding the use and management of debt financing at the College.

1. Debt capacity will be optimally utilized to align capital investments and initiatives with strategic objectives through the long range planning process.
2. The College will strive to maintain favorable access to financial markets by managing the timing and overall level of debt to ensure low‐cost and timely access to the capital markets.
3. The overall debt portfolio will be optimized to limit and balance risk in order to achieve the lowest cost of capital while limiting exposure to interest rate risk and other financing and credit risks.
4. CWI will ensure the full and timely payment of principal and interest payments on all outstanding debt.
5. The College’s credit rating will be managed to maintain the highest possible creditworthiness based on the strategic needs of the College and to facilitate the issuance of debt at favorable cost. Outstanding debt will be limited to a level that will maintain acceptable credit ratings from the credit rating agencies, based on industry standards and peer comparisons. While maintaining or attaining a specific credit rating is not an objective of this Policy, CWI’s Finance Committee (the “Finance Committee”) will monitor CWI’s credit ratings and assess factors that might impact those ratings.
6. When formulating proposals for general obligation bonds, CWI will seek to balance achievement of the College’s strategic goals with responsibilities to the taxpayers to maintain an acceptable tax burden.

III. Capital Investment Planning and Funding Prioritization

The College will implement a capital planning process in which capital investments are vetted for debt financing or refinancing based on their economics, strategic importance and other relevant factors. The capital plan will be reviewed and approved by the Board periodically.

IV. Debt Management Strategies

To achieve the financing objectives stated above, CWI has adopted the following debt management strategies and procedures. The strategies set forth below will be reviewed and modified by CWI over time.

A. Strategies

1. Debt financing will be limited to prioritized projects considered critical to the mission of CWI. 
2. Projects that are self‐funding or can create budgetary savings will receive priority consideration. The Board will prioritize all projects put forward for funding.
3. State funding, cash reserves, philanthropy and all other sources of legally available funds are expected to finance a portion of the cost for CWI’s investment in facilities.
4. Careful consideration of all potential funding sources will be evaluated by senior leadership and the Board within the context of this policy and the overall portfolio to ensure that the funding method, financial product and structure selected is appropriate, advantageous to the College, and consistent with the College’s strategic objectives. 
5. Efforts will be made to utilize tax‐exempt debt whenever feasible, and CWI’s debt portfolio will be managed to minimize the amount of taxable debt outstanding.
6. No new funding methods will be implemented without the adoption of corresponding policy, procedures, and a corresponding oversight and compliance monitoring plan.
7. CWI may engage professional service providers as needed to facilitate debt processes and post-issuance compliance.

B. Sources of Funds

Idaho Code authorizes several alternative funding methods for community colleges, including levies, facilities reserve funding, and general obligation bonds.  Each funding method and structure carries specific benefits, risks, restrictions, and costs.  Due-diligence review will be performed in advance of each transaction, and may include an assessment of the following:

• Identification and quantification of potential risks and benefits
• Analysis of the impact of funding method selection on the College’s long-term creditworthiness, debt capacity and debt affordability
• Budgetary impacts
• Political, economic, market, and other relevant factors    

CWI will comply with the legal debt capacity, usage restrictions, approval and election requirements specified in Idaho Code and the Idaho Constitution for the funding method selected for each project, including original and refunding transactions.  Below is a description of primary allowable funding methods (not including CWI operating revenues and State appropriations) and applicable constraints:

C. Debt Instrument Types

CWI has various financing options available to it:  general obligation bonds, Certificates of Participation, and revenue bonds; each with distinct benefits and disadvantages. A brief description of each of these financing instruments follows:

1. General Obligation Bonds:   CWI may issue long-term general obligation bonds, subject to voter approval and debt limitations.  General Obligation Bonds are paid from a dedicated tax levy.
2. Certificates of Participation (COP’s):  CWI may utilize Certificates of Participation to obtain financing on an annual appropriation basis.  Under this structure, CWI enters into an annual appropriation lease and makes payments on the lease from its lawful funds, which include plant facility levy revenues.  So long as each lease term does not exceed one year in length and CWI is free to walk away at the end of each lease term without penalty or continuing liability, no voter or court approval is required.
3. Revenue Bonds:  CWI, utilizing a dormitory housing authority, may issue bonds repaid from student fees and operating revenues for housing and student union facilities.  No voter authorization is required. 

D. Tax Exemption Strategies

Tax-Exempt Instruments:  Tax-exempt borrowings (whether general obligation bonds, revenue bonds or COP’s)  can be exempt from federal and Idaho income taxation, and may be considered advantageous for some projects due to lower borrowing costs and favorable terms.  They are complex and carry specific restrictions and compliance monitoring.  The College will maintain and document qualifying tax exempt status over the life of the financing and tracking of private usage, and will comply with applicable arbitrage rules and reporting requirements.   

Taxable Bonds:   A taxable bond is a debt security whose return to the investor is subject to income taxes at the local, state, and federal level, and carries fewer restrictions than tax-exempt debt.  This type of funding may be considered by the College to be appropriate for certain initiatives, or to fund projects that, though strategically important, are ineligible for tax‐exempt financing.

V. Debt Management Practices

A. Debt Administration  

1. CWI’s VPFA or his/her designees are responsible for structuring new CWI transactions, managing project funds, and developing repayment schedules from units.
2. Designated staff in the Business Office will monitor and manage the College’s debt portfolio, and maintain complete records.
3. CWI’s Finance Committee will review debt management practices and new transactions on at least on a quarterly basis, and will provide guidance and recommendations to the VPFA and the Board.
4. In situations where debt is issued for projects benefitting multiple units, the Business Office may opt to pool the debt and allocate funds and financing costs for the various projects to the applicable budget units.
5. The Board of Trustees, as needed, will review proposals for new projects and prioritize them according to CWI objectives and strategies.
6. The Finance Committee will review, at least annually, CWI’s debt capacity, repayment sources and other capital market, budget and financing considerations.

B. Structure

1. To obtain the lowest possible financing costs, debt will be structured with the strongest possible authorized security.
2. Debt maturity structures will not exceed the useful life of the facilities financed.
3. Debt service should not exceed the expected revenues used to repay the debt at any time.
4. Call features should be structured to provide maximum flexibility relative to cost.

C. Methods of Sale

CWI will consider Negotiated Sale or Competitive Sale on a case‐by‐case basis in consultation with its Municipal Advisor.

D. Selection of Service Providers

The VPFA or his/her designee shall be responsible for establishing a selection process for securing qualified professional services related to the issuance or management of debt or post-issuance compliance, which may include bond counsel, financial advisors, underwriters, trustees, or other services.

1. A request for proposal (RFP) process may be utilized as required, or at the discretion of the VPFA, to select professional service providers.
2. Contracts for professional services may be issued as needed on a per-project basis or for a specified time period, at the discretion of the VPFA.

E. Refunding Guidelines 

1. Outstanding debt will be monitored for refunding opportunities.
2. As a guideline, refunding debt opportunities will be considered if they result in a savings the present value of which is equal to or greater than 5% of the principal amount of bonds being refinanced.
3. Refunding outstanding debt may also be considered if the College benefits from eliminated restrictive covenants, payment obligations, reserve and/or security requirements or other obligations, or from consolidation into larger, more cost effective transactions.

F. Key Financial Metrics

Consistent with best practices and college accountability to its governing board, key financial ratios and other metrics will be monitored and reported annually and on a pro forma basis when new debt is issued.  See Attachment A for a list of the ratios/financial metrics required by this policy.

Additional metrics may be tracked for monitoring purposes, at the discretion of the VPFA or to comply with specific debt transaction covenants.  Financial metric requirements will be reviewed annually and may be amended at the discretion of the Board, based on risk tolerance and strategic objectives.  Target ratios or policy limits may be established as part of this policy.

G. Monitoring and Reporting

1. The VPFA will be responsible for ensuring that pre‐issuance and post‐issuance compliance processes are in place for all debt taken on by the College, and for oversight of these processes. 
2. Monitoring, reporting, disclosure, and documentation practices will comply with CWI Policy Number ADMIN‐030 Post‐Issuance Tax Exempt Bond Compliance Policy, industry best practices, and also with any covenants and requirements specific to individual financing transactions.
3. For each new debt transaction, a monitoring plan will be implemented to ensure compliance with all requirements specified.
4. The VPFA will present an annual report to the Board of Trustees at the time of the first budget reading, or prior to June 1.  Reporting will include, at a minimum:
   1. Status report of outstanding and newly issued debt
   2. Annual appropriation leases (outstanding and newly issued)
   3. Required key financial metrics
   4. Estimated CWI general obligation bond capacity
   5. Current credit ratings
   6. A description by the  VPFA  of the outcomes of both appropriation and non-appropriation of CWI’s existing leases, as defined by the applicable lease agreements and indentures.
   7. Optionally, at the VPFA’s request,  professional opinions of CWI’s bond counsel and municipal advisor regarding the outcomes of both appropriation and non-appropriation.

VI. Arbitrage and Investment of Bond Proceeds; Tax Compliance

Compliance with arbitrage requirements on investment of tax‐exempt bond funds will be maintained and documented.  CWI will also maintain policies to monitor other covenants relating to maintaining tax exemptions such as use of facilities by non‐governmental persons.

VII. Disclosure

Initial and ongoing disclosure requirements will be satisfied in accordance with SEC Rules and Idaho Statutes or Rules, as applicable. Financial reports, statistical data, and descriptions of any material events will be submitted as required under outstanding bond indentures and disclosure agreements required by SEC Rules.

References:               

• CWI Policy ADMIN 030 – Post-Issuance Tax Exempt Bond Compliance Policy
• Idaho Code:
  • Title 33, Chapters 3, 6, 8, 9 and 11
• Title 33, Chapter 21 Junior Colleges
• Internal Revenue Service Code, Section 103, Sections 141-150
• Municipal Securities Rulemaking Board, http://www.msrb.org/
• US Securities and Exchange Commission, https://www.sec.gov/

Ratios/Financial Metrics to be Reported Annually to the CWI Board of Trustees

Additional Ratios/Financial Metrics (Optional; to be Tracked at VPFA Discretion)