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the City can issue, (3) a performance standard that the City will maintain investment grade ratings with the municipal market, and (4) on-going debt administration including reporting requirements. The proposed revised Debt Management Policy also includes: • Rearranging some of the sections to reflect the structure of GFOA's recommended debt policy, • Adding maturity and debt structure guidelines: o Establishing maximum repayment total debt service payment to bond principal ratios of three to one for each bond series and authorization. o Prohibiting the use of capital appreciation bonds because of the excessive interest payments in the out years as well as the inability to refund them when interest rates decline. o Prohibiting the use of variable rate debt to ensure the City isn't exposed to the risk of increased interest rates. • Adding Covenants that establish: o Alternative Bonds Test (ABT) of 1.25x which means any new debt issuance must not cause the City's debt service to exceed the level at which the net revenues are less than one and a quarter times the maximum annual debt service for the aggregate outstanding senior lien bonds including the new bond unless allowed for in existing bond covenants. o Maximum Annual Debt Service (MADS) for revenue bonds at .125x, which means that for any given year the maximum debt service for revenue bonds must not exceed a level at which the City's net revenues are less than one and a quarter times the total debt service. • Adding an annual review of the Debt Management Policy by the Finance Director to ensure the City complies with the policy. In developing the proposed Debt Management Policy, staff and its Financial Advisor, PFM, reviewed Debt Management Policies from several agencies that had been identified as having comprehensive debt policies as well as reviewing guidelines issued by the California Debt and Investment Advisory Commission (CDIAC), GFOA, and S&P's FMA methodology. Submitted by: Approved by: /v/ • Tina Olson Brian Dolan Director of Finance Interim City Manager Attachments: 1 Revised Debt Policy — Redline Version 2.Revised Debt Policy — Clean Version Page 3 of 3