To: Board of Supervisors
From: Monica Nino, County Administrator
Report Title: ADOPT Resolution Reaffirming and Authorizing Updates to the County Debt Management Policy
RECOMMENDATIONS:
ADOPT Resolution updating and reaffirming the County Debt Management Policy.
FISCAL IMPACT:
No specific fiscal impact.
BACKGROUND:
On December 7, 2006, the Finance Committee reviewed and discussed a report regarding establishing a County Debt Management Policy. The Committee directed staff to report to the full Board on December 19, 2006 the recommendation to adopt a formal County Debt Management Policy. A formal policy was adopted on December 19, 2006 (Resolution No. 2006/773).
Since that time, the Board of Supervisors has worked exceptionally hard to address the County’s financial issues and has set very ambitious and necessary goals for lowering cost growth, balancing the budget, and increasing reserves. These solutions have been aimed at addressing both short- and long-term needs and improving the County’s future ability to maintain public services. The four financial policy areas that have contributed significantly to the Board's goals are the following:
• Budget Policy (established November 2006)
• General Fund Reserve Policy (established December 2005)
• Facilities Maintenance (included in Budget Policy)
• Debt Management Policy (established December 2006)
The Debt Management Policy establishes debt affordability standards that help the County to evaluate when, why, and how much debt should be issued. In addition, the Debt Management Policy:
• Establishes parameters for issuing and managing debt;
• Provides guidance to decision makers so as not to exceed the debt affordability standards;
• Directs staff on objectives to be achieved both pre- and post-issuance;
• Promotes objectivity in decision-making and limits the role of political influence;
• Describes responsibilities for Continuing Disclosure and Post-Issuance Tax compliance policies and procedures; and
• Facilitates the process by considering and making important policy decisions in advance of an actual financing.
Based on this work, the County has benefitted from credit rating increases from Moody’s Investor Service (Moody’s) and Standard & Poor’s (S&P). Specifically, Moody’s most recently increased the County’s Issuer Credit Rating (ICR) from Aa2 to Aa1 in February 2021 as part of a rating review for the County’s 2021 Lease Revenue Bonds, and S&P increased the County’s ICR from AA to AAA in December 2013, in part, citing the County’s strong financial management practices.
Periodically, financial policies should be revised to keep current with best practices or changes in law. The Debt Affordability Advisory Committee (DAAC) reviews the existing Debt Management Policy on an annual basis and makes recommendations for revisions to the Board of Supervisors for consideration. The DAAC met on August 30, 2023 and reviewed proposed amendments to the Debt Management Policy and is recommending updates. Specifically, there are two updates to the policy for the Board's consideration at today's meeting:
o Section 2(C). "Creditworthiness and Debt Affordability Measures." Updates the section to allow County staff to work with the County’s Independent Registered Municipal Advisor (IRMA) to update debt affordability measures and ratios used in the Annual Debt Report (required to be issued annually by the Debt Management Policy) to include the most recent debt affordability measures and financial ratios used by Moody’s and S&P. Over the past decade, both rating agencies have actively updated debt ratios used to evaluate state and local governments across the country. In an effort to maintain parity with debt ratios used by the credit rating agencies, the proposed change to the Debt Management Policy removes references to specific debt ratios to be used and instead makes reference to the use of categories of debt ratios used by Moody’s and S&P, such as debt burden, annual debt service, fund balance, cash/liquidity and pension and OPEB metrics. Going forward, the County will track the specific debt ratios used by the credit rating agencies in these categories, including any year-to-year changes, and determine whether to make those changes in the Annual Debt Report. This ensures that the information provided in the Annual Debt Report tracks with the lens used by rating agencies to analyze the County’s financial position on a real-time basis. The proposed policy language recommended by the DAAC is included below for reference:
C. Debt Affordability Measures. The committee shall examine specific statistical measures regarding the County’s debt and financial position using rating agency ratios (or other municipal market-informed ratios) and compare these ratios to: (i) those of a cohort group of counties, and (ii) Contra Costa County’s historical ratios, all to provide a perspective on the County’s debt affordability.
County staff will work with the County’s Independent Registered Municipal Advisor (“Municipal Advisor”) to identify the most relevant ratios used by Moody’s Investors Service and Standard & Poor’s and/or other nationally recognized rating agencies or market organizations such as the Government Finance Officers Association. The annual reporting of such ratios will include those that are most relevant to County’s assessment of debt affordability and feasible to be calculated independently by the County and the Municipal Advisor. The ratios ideally will address debt burden, annual debt service, fund balance, cash/liquidity, and pension and OPEB metrics though the specific ratios examined may change year to year, upon advice of the Municipal Advisor, based on those ratios being utilized most currently by the rating agencies and the municipal market.
o Section 4(E)(5). “Use of Labeled Bonds.” Creates a new requirement for staff to work with the County’s IRMA during the evaluation stage of a potential bond issuance to identify whether there is a financial or policy benefit to issuing Labeled Bonds (such as “green,” “social” or “sustainable” bonds) as part of the bond issuance transaction. The policy does not require the issuance of Labeled Bonds, but rather requires the evaluation. In discussions with the County’s IRMA, KNN Public Finance, Labeled Bonds are quickly becoming part of the public finance marketplace such that an evaluation such as this is now commonplace. In that way, this policy update memorializes what is becoming industry practice, while also advancing the County’s sustainability policy goals. The proposed policy language recommended by the DAAC is included below for reference:
Use of Labeled Bonds. Labeled Bonds are bonds issued to promote sustainability, better Environmental, Social and Governance (ESG) performance and are becoming an important part of financial markets. The County shall evaluate the use of Labeled Bonds (including “green”, “social” or “sustainable” bonds) in each competitive or negotiated sale transaction to determine whether the use of Labeled Bonds would result in an expanded pool of ESG investors, which may result in more affordable costs in the sale of bonds by the County. The evaluation shall be conducted in collaboration with the County’s Independent Registered Municipal Advisor (IRMA) and include any additional costs associated with primary market and continuing disclosure requirements unique to the Labeled Bonds. It is the County’s preference to issue Labeled Bonds if the evaluation demonstrates a financial or policy benefit to the County.
CONSEQUENCE OF NEGATIVE ACTION:
The policy will not be formally updated and reaffirmed by the Board of Supervisors and the current policy adopted on March 22, 2022 (Resolution No. 2022/77) will remain in effect.
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I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the Board of Supervisors on the date shown. |
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ATTESTED: |
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Monica Nino, County Administrator and Clerk of the Board of Supervisors |
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By: |
THE BOARD OF SUPERVISORS OF CONTRA COSTA COUNTY, CALIFORNIA
and for Special Districts, Agencies and Authorities Governed by the Board
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IN THE MATTER OF: REAFFIRMING AND AUTHORIZING UPDATES TO THE COUNTY DEBT MANAGEMENT POLICY
WHEREAS, the Debt Affordability Advisory Committee (DAAC) met on August 30, 2023 to consider updates to the County’s Debt Management Policy, currently adopted as Resolution No. 2022/77, for consideration by the Board of Supervisors; and
WHEREAS, the Contra Costa County Board of Supervisors, acting in its capacity as the Governing Board of the County of Contra Costa and for Special Districts, Agencies and Authorities governed by the Board wishes to reaffirm and authorize updates its Debt Management Policy.
NOW, THEREFORE, BE IT RESOLVED that the Contra Costa County Board of Supervisors, acting in its capacity as the Governing Board of the County of Contra Costa and for Special Districts, Agencies and Authorities governed by the Board, takes the following actions:
1. Reaffirms its commitment to prudent debt management practices; and
2. Adopts this Resolution, including the County Debt Management Policy as attached; and
3. This Resolution supersedes and replaces Resolution No 2022/77 in full.
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I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the Board of Supervisors on the date shown. |
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ATTESTED: |
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Monica Nino, County Administrator and Clerk of the Board of Supervisors |
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By: |