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4. DEBT CAPACITY Article XVI, Section 18 of the California Constitution (the "debt limit") prohibits cities from entering into indebtedness or liability that in any year exceeds the income and revenue provided for such year unless the City first obtains two- thirds voter approval for the obligation. Determining what the City's debt capacity is at any point in time is difficult. It depends on a number of factors including market conditions, amount of undesignated fund balance in the General Fund, fluctuating cash balances, financial policies, management and staff experience, new or existing revenues available to support additional debt, and availability of financial consultants to assist in financial analysis. In the development of this Debt Policy, the goal is to serve as a framework within which the City can evaluate each potential debt issuance. This Debt Policy is not to be so restrictive that it interferes with the City's legitimate efforts to prudently provide public services and facilities. 5. TYPES OF DEBT AUTHOIZED TO BE ISSUED A. Short-Term Debt Short-term borrowing may be utilized for the temporary funding of operational cash flow deficits or anticipated revenues, where anticipated revenues are defined as an assured revenue source with the anticipated amount based on conservative estimates or until the structure of the take-out financing is finalized. The City will determine and utilize the least costly method for short- term borrowing. The City may issue short-term debt when there is a defined repayment source or amortization of principal, subject to the following policies: • Grant Anticipation Notes (GANB) are short-term notes that are repaid with the proceeds of State or Federal grants of any type. The City shall generally issue GANB only when there is no other viable source of funding for the project. • Bond Anticipation Notes (BANs) are short-term notes issued prior to the issuance of long-term debt. It is anticipated that BANs will be retired, or taken-out, with long term debt or commercial paper. BANs will be issued only when there is no better alternative to reduce the overall cost of a financing program. • Tax and Revenue Anticipation Notes (TRANS) shall be issued only if the sizing of the issue fully conforms to Federal IRS requirements and limitations. • Lines of Credit shall be considered as an alternative to other short-term borrowing options. The lines of credit shall be structured to limit concerns as to Internal Revenue Code compliance. B. Long-Term Debt Debt issues may be used to finance essential capital facilities, projects and certain City of Pleasanton Debt Management Policy (February 2022) Page 2