SR 06:127 - Laserfiche WebLink

Note: The Committee established a sub-committee to review the economic development portion of the Fiscal and Economic Element and to report its findings and recommendations to the full Committee. The full Committee may at a later time provide additional recommendations regarding the General Plan Update. 2. City Debt Limit The General Fund debt ratio represents the percentage of General Fund revenue that is committed to paying bond financings (typically but not limited to what is called COPs or Certificates of Participation). This ratio is a factor when bond rating firms such as Moody's rate the City's bonds. It is an important factor in evaluating a City's health because it represents a portion of the City's budget that has become a fixed cost for an extended period of time. For example, a debt ratio of 5% might be an acceptable level, but a level exceeding 7 to 8% might warrant a careful watch, and 10% might be worrisome depending on the circumstances. There are many other factors that also come into tlie rating equation. The current Policy 12 in the Economic and Fiscal Element limits the "use of debt so as not to place a burden on the fiscal resources of the City and its taxpayers." It does this by suggesting that long-term borrowing be limited to capital improvements, and the amortization of the debt not exceed the life of the asset. It also sets a General Fund debt ratio of not more than ten percent, unless approved by the City Council. When tlie 1996 Economic and Fiscal Element was drafted, some members of the General Plan Update Committee asked for a 5% cap on the debt limit. Staff however recommended that 10% would give the City more flexibility, and that in conjunction with bond rating constraints, debt could be held to an acceptable level. An example of when flexibility might be needed would be when a new project is ready to be financed a few years sooner than an old bond issue will be fully amortized. In this circumstance, if interest rates were very low at the time, it might make sense for the City to proceed with the new financing, thus locking in the favorable rates while knowing that the debt ratio would only temporarily exceed a more desirable 5% level. With the community's desire for additional facilities, a balance of conservative fiscal policy and flexibility may be needed. While having a 10% debt ratio is not the most desirable situation, there are tirnes that it might make sense. However, the reality is that even lower debt ratios might adversely impact ratings, depending on the City's overall adherence to its financial policies and its long-tenn outlook. The current Program 12.3 states that: "Except as otherwise approved by the City Council, limit the debt ratio (debt guaranteed by the General Fund) to not more than ten percent." If the City is not comfortable with this wording, it might consider some 33