Debt Policy

1. General
   1. A debt policy addresses the level of indebtedness the County can reasonably expect to incur without jeopardizing its existing financial position and to ensure the efficient and effective operation of the County.
   2. A debt policy also addresses the purposes for the types of debt that will be issued.
   3. The debt policy is to be used in conjunction with the Adopted Budget, the Capital Improvements Program (CIP) and other financial policies.
2. Standards
   1. National Federation of Municipal Analysts
   2. Government Accounting Standards Board
   3. Government Financial Officers Association (GFOA)
   4. Nationally recognized Rating Agencies (i.e. Standard & Poor’s, Moody’s Investors Service, Fitch Ratings).
   5. Internal Revenue Service
3. Planning and Performances
   1. The planning, issuance and review of outstanding and proposed debt issuances will ensure that compliance with the debt policy is maintained.
   2. The County may issue debt for the purpose of acquiring or constructing capital projects including buildings, machinery, equipment, furniture and fixtures.
   3. Debt issuances will be pooled together when feasible to minimize issuance costs.
   4. The County will prepare and adopt annually a Five Year Capital Improvements Program(CIP) to identify and establish an orderly plan to meet the County's infrastructure needs withall debt-related projects and the debt service impact upon operations identified.
   5. The County, with the assistance of the County’s Financial Advisor, will analyze and monitor outstanding debt for refunding or restructuring opportunities on an on-going basis.
4. Issuance Guidelines
   1. The County will not use short-term borrowing to finance operating needs, except in instances described under Revenue Anticipation Notes.
   2. Long-term debt will be used in compliance with all aspects of the debt policy.
   3. The maturity of any debt will not exceed the expected useful life of the project for which the debt is issued.
   4. Each project proposed for financing through debt issuance will have analysis performed for review of tax impact and future operating costs associated with the project and debt issuance.
   5. At a minimum, all issuances of Debt require approval and appropriation of the proceeds by the Board of Supervisors with additional approvals, if applicable, as noted in Sections 6 through 10.
5. Debt Capacity and Affordability
   1. County staff, in concert with the County’s Financial Advisor, will annually perform a Debt Capacity and Debt Affordability analysis as a means of ensuring that the County does not exceed its ability to service current and potential future debt requirements. These analyses will verify that the County is projected to maintain debt ratios within the policy guidelines noted below. The Debt Capacity and Debt Affordability analyses will be performed annually in concert with the preparation of the Budget and Multi-Year Capital Improvement Plan.
   2. The County will maintain the following debt key debt ratios within the levels described below. Maintaining debt ratios within these levels will help ensure that the County maintains its financial strength and flexibility and maximizes its Credit Rating which will, in turn, keepborrowing costs as low as possible.
      1. Tax-Supported Debt as a Percentage of Assessed Value
         The County’s tax supported debt versus the total assessed value in the County shall not exceed 3.5% during the five year projection period. 
         
         This ratio indicates the relationship between the County’s tax supported debt and the total taxable assessed value of real and personal property in the County. This ratio is an important indicator of the County’s ability to repay debt because property taxes area major source of repayment for tax supported debt. A smaller ratio indicates a lower level of debt versus total assessed value.
         
         
      2. Tax Supported Debt Service as a Percentage of General Government Expenditures
         The County’s ratio of annual tax supported debt service payments versus total General Government operating expenditures shall not be greater than 10% to 12%during the five year projection period.
         
         This ratio provides a measure of the County’s annual financial flexibility. Debt service payments are, generally, fixed charges that must be paid regardless of the current financial / economic environment. The numerator shall include any and all debt that is not “Self Supporting” including debt that is secured by the General Obligation pledge of the County, and debt for which the County has provided its Moral Obligation or subject to appropriation pledge. The denominator shall include operating expenditures of the General Fund, operating transfers, operating expenditures of the School fund(s), and debt service, so long as inter-fund transfers are not double counted. Self Supporting debt is defined as debt that is paid entirely from a defined revenue stream without support from the General Fund.
         
6. Bond Anticipation Notes 
   1. The County may issue Bond Anticipation Notes (BANs) in expectation of General Obligation Bonds or Revenue Bonds when: cash is required in order for the financed capital project to be initiated or continued; or, when the market for long-term financing does not appear appropriate on a given date.
   2. The County will issue BANs for a period not to exceed five years.
   3. BANs will not be rolled over more than one additional two-year period.
7. Revenue Anticipation Notes
   1. The County's Fund Balance Policy is designed to provide adequate cash flow to avoid the need for Revenue Anticipation Notes (RANs) through the establishment of designated and undesignated fund balances sufficient to maintain required cash flows and provide reserves for unanticipated expenditures, revenue shortfalls and other specific uses.
   2. The County may issue RANs in an extreme emergency beyond the County's control or ability to forecast when revenues will be received subsequent to the timing of funds needed.
8. General Obligation Bonds
   1. The Constitution of Virginia, Article VII, Section 10, and the Public Finance Act provide the authority for a County to issue General Obligation Debt with no limit on the amount of General Obligation debt that a County may issue.
   2. The County may issue General Obligation Debt for capital projects or other properly approved projects.
   3. All debt secured by the general obligation of the County must be approved by the Board of Supervisors and by a public referendum, with the exception of Virginia Public School Authority (VPSA) Bonds and State Literary Fund Loans which do not need approval by referendum.
9. Revenue Bonds
   1. The County may issue Revenue Bonds to fund enterprise activities, such as water and sewer facilities, or for capital projects which will generate a defined revenue stream.
   2. The bonds will include written covenants which will require that the revenue sources are sufficient to fund the debt service requirements.
   3. Costs of issuance, debt service reserve funds and capitalized interest may be included in the capital project costs and thus are fully eligible for reimbursement from bond proceeds.
10. Other Debt Instruments
    1. The County recognizes that there are an increasing number of financing vehicles available for debt funding capital projects including, but not limited to:
       1. Stand-Alone General Obligation Bonds;
       2. Stand-Alone County / EDA issued Lease Revenue Bonds;
       3. Stand-Alone County / EDA / Service Authority issued Revenue Bonds; and
       4. Selected Pool Borrowing Programs including the Virginia Resources Authority and the Virginia Public School Authority.
          
          In addition, the County recognizes that there are a variety of methods which with to issue debt including:
       5. Competitive Public Sales;
       6. Negotiated Public Sales;
       7. Competitively Bid Private Placements; amongst others.
          
          As such, the County, working with its Financial Advisor, will analyze all of the available debt instruments and issuance methods available to the County with the goal of selecting the instrument and method which provides the County with: the lowest all-in cost of funds (including all costs of issuance and underwriter’s compensation); the greatest ability to refinance / restructure in the future; and, the greatest amount of control over the timing, terms and conditions, and expenses.
    2. Generally, the County prefers to utilize traditional fixed rate debt instruments to finance projects on a long-term basis as they provide cost-effective financing, predictable cash-flows, and minimal risk. Should the County desire to entertain the use of longer-term variable rate debt in an amount above $2 million or the use of derivative products (i.e. Swaps) in the future, a thorough analysis of the proposed debt instrument will be prepared by the County Staff and the County’s Financial Advisor and presented to the Board of Supervisors before the instrument is approved by the Board of Supervisors. In addition, the County will prepare and adopt financial policies specific to variable rate debt and derivatives before entering into longer term variable rate debt or derivative transactions. 
11. Post-Issuance Compliance Procedures For Tax Advantaged Governmental Bonds

The Internal Revenue Service (the “IRS”) Tax Exempt Bonds branch has announced that it will expand its efforts to ascertain compliance with the IRS regulations governing post-issuance requirements for tax advantaged bonds issued by local governments. In order to demonstrate post issuance compliance it is important for local governments to maintain complete records of compliance with IRS rules governing actions taken after issuance of bonds. Actions for which records should be kept include investment and expenditure of bond proceeds and ownership and use of bond-financed facilities. 

The following information and procedures are designed to assure post-issuance compliance with IRS rules governing the tax exempt status of interest on or the tax advantaged status of a particular issue of bonds. The issuer should maintain a file for each issue of bonds, note or similar obligations (such file may include electronic storage of records). This form should be updated annually (in a cumulative fashion without deleting information from previous years) and retained in such file until at least three years after the bonds, and any refunding bonds, are paid in full.