FILE:  DE

Cf:  DEB, DN

DEBT MANAGEMENT

The Ouachita Parish School Board has established the following guidelines for the sound, efficient management of debt incurred by the School Board.  While the issuance of debt can be an appropriate method of financing for capital projects, careful and consistent monitoring of such debt issuance shall be required to preserve the School Board’s credit strength, budget, and financial flexibility.

Financing of capital expenditures shall be as follows:

• The Ouachita Parish School Board shall obtain financing only when necessary;
  
  

• The process for identifying the timing and amount of debt or other financing should be as efficient as possible;
  
  

• The most favorable interest rate and other related costs should be obtained; and
  
  

• When appropriate, future financial flexibility should be maintained.

Debt shall be defined as any short-term or long-term obligation to repay principal and interest on a loan whether for operating purposes or capital expenditures.

The Superintendent, or his/her designee, shall be responsible for implementing appropriate provisions and developing recommendations for debt management.

CONDITIONS FOR DEBT ISSUANCE

The Ouachita Parish School Board shall consider the following factors to ascertain if debt should be issued:

• Project characteristics and useful life,
  
  

• Existing debt and approved debt limits,
  
  

• Identification of a funding source to repay the debt,
  
  

• Type of debt instrument,
  
  

• Interest rates, construction costs, and other market conditions, and
  
  

• Length of the issuance.

Project Characteristics and Useful Life

The Ouachita Parish School Board may issue debt for major capital projects with a useful life of at least ten (10) years, primarily when (1) acquiring or improving lands for building sites, and (2) purchasing, erecting, or improving school buildings and other school-related facilities and acquiring the necessary equipment and furnishings therefor.  Debt shall not be issued to fund recurring expenditures, such as operations or maintenance.  However, in the event a high-priority improvement is needed and current resources are inadequate, debt may be issued.  The term of any bond issue shall not exceed the useful life of the capital project or facility for which the borrowing is intended.

Debt may also be issued to retire existing, higher-interest debt at a lower borrowing rate or to restructure existing debt.

Consideration of Existing Debt and Approved Debt Limits

Once the proposed project is deemed to have met the project criteria to issue debt (and adequate consideration has been given to using alternative funding sources, such as current resources, fund balance, and anticipated short-term revenues), the Director of Business shall perform calculations, and consult with bond counsel if necessary, to ensure that proposed outstanding debt limits do not exceed the statutory limitations:

• La. Rev. Stat. Ann. §39:562 establishes a legal debt limit of fifty percent (50%) of the assessed valuation of the taxable property within Ouachita Parish as ascertained by the last assessment for the parish for the issuance of general obligation debt.
  
  

• For bonds funded by sales tax revenues, La. Rev. Stat. Ann. §47:338.68 establishes a debt limit of seventy-five percent (75%) of the avails of the tax.

Identification of a Funding Source to Repay the Debt

Before the Ouachita Parish School Board may issue debt, a funding source to repay the debt shall be identified.  Funding sources may include authorized sales or ad valorem tax or general fund revenues.  Earnings on invested sinking funds shall be used solely to service the debt.

Type of Debt Instruments

The Ouachita Parish School Board may issue general obligation or sales tax debt for capital or other properly approved projects.  In emergency situations, general fund, or limited tax, debt may be issued.

The Ouachita Parish School Board may utilize short-term borrowing in anticipation of long-term bond issuance or to fund cash flow needs in anticipation of tax or other revenue sources.

No debt issued in the form of municipal securities may be incurred without approval by the School Board.  Municipal securities shall mean bonds, notes, certificates, or other written obligations for the repayment of borrowed money, including obligations to refund any security, which are issued by the School Board.

The issuance of variable rate securities shall be prohibited.  The issuance of derivative debt instruments shall be prohibited.  The use of swaps and variable rate debt instruments shall also be prohibited.

Before incurring any form of debt whatsoever, consent and approval of the State Bond Commission must be obtained in compliance La. Rev. Stat. Ann. §39:1410.60.  For debt to be incurred by schools, see policy DN, School Loans.

Market Conditions

Whenever possible, market conditions, such as interest rates and construction costs, shall be considered in the decision whether or not to issue debt, the timing of the issuance, the method of sale, redemption features, and the use of credit enhancements, with the goal of keeping costs (borrowing, issuance, construction, etc.) to a minimum while providing the resources necessary and in a timely manner for the Ouachita Parish School Board to operate effectively and efficiently.

Refunding Debt

When refunding is undertaken to generate interest rate cost savings, the minimum aggregate present value savings shall be a minimum of two percent (2%) of the refunded bond principal amount if twelve (12) months or less prior to the optional call date, or four percent (4%) if more than twelve (12)  months prior to the optional call date.  The net present value savings shall be net of all costs related to the financing, including cash contributions to the refunding.

Refundings for restructuring purposes shall be limited to restructuring the debt portfolio in order to obtain budgetary/cash flow relief, to address exposure to other government finance costs/liabilities, to achieve debt service cost savings, to restructure an irregular stream of debt service payments, to release reserve funds, or to remove unduly restrictive bond covenants.

In no instance should a refunding or restructure of debt be considered that extends the term of the proposed bonds past the asset life of the original asset financed.  Careful attention should be given to the flexibility of the financing structure to consider a future refunding.

The preferred method of sale shall be through competitive sale to underwriters.  If deemed advantageous, bonds may be sold via a negotiated sale, private placement, or other method.  Coordination shall be made with bond counsel and the municipal advisor in arriving at a recommendation to issue bonds through a method other than competitive sale.

Length of Issuance

Debt shall be amortized for the shortest period consistent with a fair allocation of costs to current and future beneficiaries or users, and in keeping with other related provisions of this policy.  Generally, the period for which debt shall be issued is the shorter of the life of the asset it is financing or twenty (20) years.  Debt periods shorter than the asset’s life are also acceptable and encouraged.

To the extent possible back-loaded or ballooning repayment schedules shall be prohibited.

PROFESSIONAL SERVICES

The Director of Business shall be responsible for the solicitation and selection of professional services that are required to administer the debt program, with the final approval of the Superintendent and the School Board.

1. Bond Counsel – All debt issued by the Ouachita Parish School Board shall include a written opinion by bond counsel affirming that the Ouachita Parish School Board is authorized to issue the proposed debt.  The opinion shall include confirmation that all city and state constitutional and statutory requirements necessary for issuance have been met, a determination of the proposed debt’s federal income tax status, and any other components necessary for the proposed debt.
   
   

2. Municipal Advisor – A municipal financial advisor may be used to assist in the issuance of debt.  The financial advisor shall provide objective advice and analysis on debt issuance, and as further described in policy DEC, Municipal Advisor.  This includes, but shall not be limited to, monitoring market opportunities, structuring and pricing debt, and preparing official statements and disclosures.
   

3. Underwriters – An underwriter shall be used for all debt issued in a negotiated or private placement sale method.  The underwriter shall be responsible for purchasing negotiated or private placement debt and reselling the debt to investors.
   
   

4. Fiscal Agent – A fiscal agent shall be used to provide accurate and timely securities processing and timely payment to bondholders.

POST ISSUANCE COMPLIANCE AND DISCLOSURES

The debt ratios outlined above shall be computed annually.  The Ouachita Parish School Board shall maintain communication with bond rating agencies to keep them abreast of its financial condition by providing them with the annual Audit Report or Comprehensive Annual Financial Report and annual budget, which are also posted on the Ouachita Parish School Board’s web site, www.opsb.net; and to inform them of any other short-term or long-term financing activities of the School Board that do not involve issuance of bonds.  The School Board shall continually strive to maintain its bond rating by improving financial policies, budgets, forecasts, and its financial health.

The Ouachita Parish School Board shall comply with all covenants stated in the bond resolutions, contracts, etc. and in accordance with Securities and Exchange Commission Rule 15c2-21.

Notification to the State Bond Commission shall be required by the School Board whenever the transfer of funds authorizing indebtedness or payment on outstanding indebtedness has not been made in a timely manner.

In addition, the School Board shall comply with all state and federal laws and regulations regarding debt issuance and management.

ARBITRAGE COMPUTATIONS

The Ouachita Parish School Board shall, unless otherwise justified, use bond proceeds within the established time frame pursuant to the bond resolution, contract, or other documents to avoid arbitrage.  Arbitrage is the interest earned on the investment of the bond proceeds above the interest paid on the debt.  If arbitrage occurs, the School Board shall pay the amount of the arbitrage to the federal government as required by Internal Revenue Service Regulation 1.148-11.  The School Board shall maintain a system of recordkeeping and reporting to meet the arbitrage rebate compliance requirement of the Internal Revenue Service regulation.  For each bond issue not used within the established time frame, the recordkeeping shall include tracking investment earnings on bond proceeds, calculating rebate payments, and remitting any rebatable earnings to the federal government in a timely manner in order to preserve the tax-exempt status of the outstanding debt.

RECORDKEEPING

The School Board shall continuously maintain:

A list of all municipal securities for which the School Board is the issuer or is obligated to repay;

1. A copy of all continuing disclosure agreements relating to the securities to which the School Board is a party;
   
   

2. If, pursuant to a continuing disclosure agreement in which the School Board is a party, the School Board shall be responsible for filing notices of charges in bond ratings, a list of current ratings for such securities, if any.

All records required to be kept by the School Board under state law shall be subject to inspection by the legislative auditor and/or the School Board’s auditor.

New policy:  August, 2016

Ref:    La. Rev. Stat. Ann. §§17:89, 17:1371, 18:1281, 18:1282, 18:1283, 18:1284, 18:1293, 39:471, 39:554, 39:562, 39:1410.60, 39:1421, 39:1438, 47.338.68

Board minutes, 8-23-16

Ouachita Parish School Board